Answering to AFIDA: Reporting Requirements of Foreign Agricultural Land Investments
Over the past few years, federal and state lawmakers have become increasingly concerned about foreign investments in U.S. agricultural land. While there is no federal law that restricts foreign investments of agricultural land, the federal government does monitor certain foreign acquisitions and landholdings in agricultural land through a federal reporting law known as the Agricultural Foreign Investment Disclosure Act (“AFIDA”) of 1978. Essentially, AFIDA requires certain foreign persons to disclose their interests in U.S. farmland to the U.S. Department of Agriculture (“USDA”). Some states also have laws—which often correspond with AFIDA—that require foreign investors to report their interests in farmland within the boundaries of the state. However, AFIDA serves as the primary source of statistical data concerning foreign ownership and investments in U.S. agricultural land.
In a U.S. House Report from the Committee on Agriculture (H.R. Rep. No. 95-1570, 2d Sess. (1978)) discussing AFIDA prior to its enactment, congressional concern was focused on the economic strains many family farmers were experiencing and the declining number of family-farm operations across the nation. According to the report, “[i]ncreased land prices, higher taxes, escalating costs of agricultural inputs, greater transportation expenses, and other operating costs have combined with low farm product prices to push many farm families to the brink of economic disaster.” The Committee claimed that increased foreign investments in U.S. agricultural land “is seen by many” as a factor that adds to the economic pressures affecting family-farm operations.
According to the House Report, many members of Congress contend that foreign investments in agricultural land are harmful because it does not offer the same economic-stimulating and job-producing benefits as foreign investments in the U.S. business or industry sectors. The House Report claimed that farmland as an investment rather than a means of production threatens “the continued viability of family farms” because these investments escalate land prices, which increases property taxes and makes it difficult for beginning and existing producers to purchase or expand their farming operations.
The Committee cautioned that foreign investments may force farmers to lease farmland from absent foreign owners that are not concerned “with production but capital appreciation,” which threatens the “traditional owner-operator pattern” that is essential to the nation’s family-farm system. Absentee foreign ownership may contribute to, according to the Committee, the “concentration of U.S. farm operations” controlled by only a few parties and the conversion of agricultural land into nonfarm uses, which could impact farm and food prices. Accordingly, the Committee concluded that the most significant question concerning foreign investments is the effect they have on agricultural land prices, and that “reliable data on the extent and rate of foreign investment” in farmland is necessary to determine the effect of these investments.
However, the House Report asserted that determining the impact of foreign ownership and investments in farmland “is difficult to gauge…because of the lack of data on the nature, magnitude, and scope of foreign investment activity.” Specifically, the Committee pointed to a study conducted by the General Accounting Office (“GAO”)—published on June 12, 1978—that found that no accurate data exists on foreign ownership of agricultural land, and that it is unlikely to obtain accurate data under the current state and local recording efforts. As a result, Congress enacted AFIDA to collect this data in order to monitor foreign investments in U.S. agricultural land.
Enacted in 1978, AFIDA established a nationwide system for collecting certain information about foreign investments and ownership of U.S. agricultural land. Under AFIDA, a “foreign person who acquires or transfers any interest…in agricultural land” is required to disclose their interest in the land to USDA. 7 U.S.C. § 3501(a).
The information foreign persons must disclose under AFIDA is listed at 7 C.F.R. § 781.3, which includes information such as their name, address, citizenship, the type of interest acquired or transferred, legal description of the land, and the acreage. The data collected from these disclosures are compiled into an annual report and made public by USDA’s Farm Service Agency (“FSA”). The most recent report contains data on foreign ownership of U.S. farmland through December 31, 2020.
Parties determining whether they are subject to AFIDA’s reporting requirement must first determine whether they are a “foreign person” as defined under the federal law. The law defines “foreign person” as an individual who is not: “a citizen or national of the United States”; “a citizen of the Northern Mariana Islands or the Trust Territory of the Pacific Islands”; or someone “now lawfully admitted to the United States for permanent residence, or paroled into the United States, under the Immigration and Nationality Act.” 7 U.S.C. § 3508(3)(A).
Additionally, the term “foreign person” includes foreign governments and entities organized under the laws of a foreign government or its principle place of business is located outside the U.S. Further, a U.S. entity is considered a “foreign person” under AFIDA if a foreign individual, entity, or government holds “a significant interest or substantial control” over the domestic entity. 7 U.S.C. § 3508(3)(C).
Foreign persons have a “significant interest or substantial control” of a domestic entity when a foreign person or multiple foreign persons who are “acting in concert” collectively hold 10% or more interest in the domestic entity. Foreign persons that “may not be acting in concert” have a “significant interest or substantial control” when they own an interest of 50% or more in a domestic entity. See 7 C.F.R. § 781.2(k). Unfortunately, the term “acting in concert” is not clear because AFIDA, including the associated regulations and handbook, does not define the term or provide guidance on the meaning of the term.
AFIDA’s reporting requirement applies to foreign persons with a direct or indirect interest in farmland. A direct interest in farmland means the foreign person has title to land. On the other hand, foreign persons generally have an indirect interest when they hold an ownership interest in an entity, such as a business or corporation, that has title to the agricultural land. In either case, the foreign person is likely required to disclose their ownership or leasehold interest.
Next, foreign persons must determine whether they hold a type of interest that is subject to AFIDA’s reporting requirement. While AFIDA defines “any interest” as “all interest acquired, transferred or held,” there are some exceptions. 7 C.F.R. § 781.2(c). For example, foreign persons that take an interest in agricultural land to secure a debt are not required to report this interest. Another type of interest exempt from the reporting requirement include leaseholds of less than 10 years. Thus, if a foreign person holds any interest in farmland not exempt under the regulations, they must next determine whether their interest is in “agricultural land.”
Under AFIDA, the term “agricultural land” means land totaling 10 or more acres in the aggregate that is used for forestry production or land currently used, or used within the past 5 years, for farming, ranching, or timber production. 7 C.F.R. § 781.2(b). Land totaling less than 10 acres in the aggregate that generates annual gross receipts exceeding $1,000 from the sale of agricultural or timber products is considered “agricultural land.”
Land used for forestry production is considered “agricultural land” when 10% of the land is “stocked by tress of any size, including land that formerly had such tree cover and that will be naturally or artificially regenerated.” 7 C.F.R. § 781.2(b). In general, farming, ranching, and timber production means growing crops, livestock, or trees. However, under AFIDA, it also includes activities described under the U.S. Department of Labor’s Standard Industrial Classification Manual, Division A, Major Group 07 (Agricultural Services), Industry Group 085 (Forestry Services), and Industry Group 091 (Commercial Fishing). Some activities listed in these classifications include soil preparation services, crop services, other animal services, contracted timber production services, forestry marketing and management plans, and catching or taking of certain fish for a commercial purpose. Accordingly, certain foreign persons will be required to report their interest in the land where they are conducting these types of activities.
Most often, foreign persons disclose their interests in U.S. farmland by delivering a FSA-153 report form to the Farm Service Agency (“FSA”) office in the county where the tract of land is located within 90 days after the date of such acquisition or transfer. However, some transactions are complex or require multiple filings, usually when a tract of land is located in multiple counties or a foreign person has acquired separate tracts in multiple counties. In these instances, USDA may grant permission to a foreign person to file their disclosure reports directly with the agency.
Sometimes, foreign persons are penalized for failing to comply with the federal reporting requirement. Foreign persons that are determined by USDA to have violated AFIDA by either failing to report, submitting an incomplete report, or reporting false or misleading information may be subject to a fine up to 25% of the foreign person’s interest in the agricultural land. Late filings may be penalized at 0.1% of the fair market value of the foreign person’s interest in the land for each week the violation continues, up to 25%.
State Reporting Laws
Some states (Arkansas, Illinois, Indiana, Iowa, Kansas, Maine, Minnesota, Missouri, Nebraska, North Carolina, North Dakota, Ohio, and Wisconsin) require foreign persons and entities to report their purchase or ownership interest in farmland within their state. In general, these state reporting statutes often correspond with the federal reporting law under AFIDA. However, some states only require certain foreign investors to report their interest in land used for certain agricultural purposes, such as crop farming or timber production.
Pennsylvania and South Dakota have enacted statutes concerning reporting, but these states do not have reporting requirements separate from AFIDA. Rather, these states have enacted laws that require its states’ department of agriculture to review AFIDA data to ensure compliance with its states’ restriction on foreign ownership of agricultural land.
To view the state-level reporting statutes, see the NALC’s Statutes Regulating Ownership of Agricultural Law chart here.
Due to the lack of reliable data on foreign ownership of U.S. agricultural land, Congress enacted AFIDA to establish a nationwide system for collecting information on certain foreign persons investing in farmland. Since its enactment in 1978, there has been very little substantive change to AFIDA. Recently, there have been some legislative proposals introduced in Congress that seek to amend certain provisions of AFIDA. In the coming weeks, NALC will publish an article discussing these proposals currently being considered by Congress.
To read AFIDA’s statutory text, click here.
To read AFIDA’s associated regulations, click here.
To read the Farm Service Agency’s AFIDA handbook, click here.
The most recent and all previous AFIDA reports are available on FSA’s website here.
To view NALC’s state compilation of states’ reporting statutes, click here.