An opposition-dominated Senate report on Wednesday called for the threshold for scrutiny of foreign farm purchases to be slashed to A$15 million ($13.87 million) from the current $248 million minimum.
"To be realistic the threshold clearly needs to be much lower for farmland and agribusiness," said Bill Heffernan, inquiry chair, senior opposition senator and farmer.
Any move to tighten foreign investment rules is likely to upset China, Australia's biggest trading partner, and possibly hinder farmland investment at a time when Canberra is seeking to boost its agricultural output to become the food bowl of Asia.
China is encouraging its firms to expand overseas to increase food security for its 1.3 billion people.
Chinese investors last year bought Australia's biggest cotton farm Cubbie Station and China's Shanghai Zhongfu Group has approval to invest around A$700 million to build a sugar industry in northwest Australia.
The Australian Senate inquiry was set up after farmers complained that foreign investors were buying up smaller holdings and avoiding Foreign Investment Review (FIRB) scrutiny.
Australia is the world's second largest wheat exporter and third largest exporter of beef and raw sugar, with agricultural exports worth around A$36 billion a year.
The conservative opposition, which includes a National rural-based party, has yet to detail its foreign investment policy, but will likely pay close attention to the report to shore up support from farmers ahead of national elections.
Elections are due on September 14, with opinion polls showing the Labor government will be swept from power.
Opposition treasury spokesman Joe Hockey, who will be Treasurer if the conservatives win power, has said the opposition is considering a threshold as low as A$15 million.
"These proposals are not intended to discourage foreign investment in any way. Rather they are designed to improve transparency and to reassure the Australian people that foreign investment is not contrary to the national interest," Hockey told business leaders in a speech on Tuesday.
Current data shows concerns in Australia over Chinese investment are largely misplaced, with FIRB approving just A$27 million of investments from China in the year to June 30, 2012.
That compares to traditional farm investor countries Canada (A$1.42 billion), the United Kingdom (A$550 million) and the United States (A$500 million). Australia's Graincorp is still awaiting shareholder and regulator approval for its A$3 billion takeover by U.S. agribusiness giant Archer Daniels Midland Co.
China's farm stake is dwarfed by its $10.5 billion investment in Australia's mining sector in 2011-12.
A joint Australia-China study into two-way farm investment last December found China believed it was discriminated against by the FIRB rules, which give the Australian treasurer veto power over deals deemed against the "national interest".
A poll by Australian foreign policy think tank the Lowy Institute on Monday found 57 percent of Australians believe there has been too much investment from China.
But the Australian Bureau of Statistics said 89 percent of Australian agricultural land is wholly Australian owned, while a further six percent is majority Australian owned, in line with foreign investment levels of the early 1980s.
