AUSTRALIA'S foreign investment rules for farmland are making us an international laughing stock, Independent senator Nick Xenophon said yesterday.

The debate over foreign ownership of prime agricultural assets has been reignited by Treasurer Wayne Swan's decision to approve the sale of the giant cotton farm, Cubbie Station in southwest Queensland, to a Chinese-led consortium.

Textile manufacturer Shandong Ruyi has an 80 per cent stake, with Australian wool firm Lempiere holding the rest.

But conditions imposed by Mr Swan include a requirement for the overseas partner to reduce its stake in Australia's largest cotton producer to 51 per cent within three years.

Mr Xenophon branded it "a mongrel of a deal" which "gives a veneer of Australian involvement but results in Australia losing control of a strategic asset".

"Try buying an asset like this in China - it's not going to happen," Mr Xenophon said.

"There's a joke at international forums that Australia is the Free Trade Taliban because we are such free-market purists."

Mr Xenophon is a member of the Senate Rural and Regional Committee due to complete its report of an inquiry into the Foreign Investment Review Board's national interest test by September 12.

Chairman Senator Bill Heffernan would not discuss the likely recommendations yesterday but said major changes were needed.

"At the moment, the so-called national interest test is a phoney political thing," Senator Heffernan said.

SA Premier Jay Weatherill said the furore over the sale was a "distraction" from underlying water management issues. "There should be more water put back in the river," Mr Weatherill said from Loxton where he will today launch the Fight for the Murray vessel, which is travelling from the Riverland to the Lower Lakes.

"Cubbie Station is emblematic of people taking too much water out of the river for cotton and rice growing.

"It's immaterial who owns the water. The critical issue is how much water is taken out of the system."

Mr Weatherill dismissed suggestions that the Federal Government should have purchased the Cubbie Station.

"What we want is a plan that puts back sufficient water to guarantee the health of the river," Mr Weatherill said.

"Quite where that comes from, whether Cubbie Station or another irrigator, is in a sense immaterial."