Risk good reason for sale

April 10, 2013

Opponents of the government’s programme for the partial sale of a few state owned assets are seizing on the risks to investors.

They purport to be worried that people who buy shares in Mighty River Power might lose money.

Their concern is no more than crocodile tears because they also complain that only the wealthy will be able to afford the shares.

But in raising fears of potential losses, they appear not to understand that if no shares are sold the government carries all that risk.

The risk of investment in non-core assets is not a reason for continued state ownership. It’s a very good reason the state should divest itself of them.

The government ought to ensure every cent of public money is put to best use.

There is potential gain in any business but there is also a potential for loss and that’s not a risk the state should be taking when there are far better uses for its very scarce resources.

While we’re on the subject of risk, Landcorp has told Shanghai Pengxin, which took over the former Crafar farms from receivers, that its investment will make a loss this year.

Chief executive Chris Kelly said the drought has had significant affect on revenue. Extra capital expenditure by Shanghai Pengxin has also been required.

People opposing land sales to foreigners are concerned about profits going overseas. At least this year, the owners will be losing money.

The risk the state takes in owning non-core assets is also illustrated by Landcorp’s half-year report:

At the time this report went to the printer, an operating result of around$6 million to $8 million for the full year 2012/13 was expected. Since then,Landcorp has experienced the worst widespread drought in many years. As a result, it is unlikely that the Company will report an operating profit for the year and consequently it is not likely to pay a full year dividend.
Around $1.6 billion in assets and no dividend. There are far better, and less risky, uses for public money than that.

 


Swedes to buy Hart farms

February 1, 2013

Southern Pastures Limited Partnership, a group of Swedish investors, have Overseas Investment Office approval to buy eight Waikato dairy farms from Graeme Hart.

Swedish investors have government approval to buy eight Waikato dairy farms owned by NBR Rich Lister Graeme Hart.

The farms were part of 29 former Carter Holt Harvey dairy farms near Tokoroa – supporting almost 20,000 dairy cows over 30,000ha, on land converted from forest – put up for sale in 2010.

They were marketed for $225 million, with the cheapest at $5.1 million, suggesting the Swedish deal is likely to be worth tens of millions of dollars.

Ex-All Black captain Graham Mourie will run the farms for the Swedes. . .

The 16 former Crafar farms, the sale of which caused the xenophobes so much angst, covered about 8000ha and carried 16,000 cows.

That sale was believed to have been for about $200 million.

On the face of it, the Hart farms look like a bargain when compared with the Crafar ones but – and I stand to be corrected on this – I think the Crafar farms are on much better land.


Crafar farm sale delay costly

December 5, 2012

PGG Wrightson has finally received repayment of loans over the Crafar Farms of about $25 million now the sale of the properties to China’s Shanghai Pengxin Group has gone through.

The people protesting about the sale for political reasons wouldn’t have considered the businesses which wouldn’t have got their money back until the deal was finalised.

The delay would have been costly for creditors and there are probably some who will still be owed money.


Crafar farms sale finally settled

December 1, 2012

It’s taken far longer than it ought to have, but the sale of the former Crafar farms has finally been settled.

Today, after a long and extensive process, the Receivers from KordaMentha have secured final settlement with Pengxin New Zealand Farm Group Limited for the Crafar Farms.

Pengxin New Zealand Farm Group Limited’s offer was accepted by the Receivers two years ago and has been subject to many hurdles, opposition and challenges.

Brendon Gibson of KordaMentha said “despite a long and challenging process, we are happy to have secured the sale of the Crafar farms at a very pleasing price. Following extensive local and international marketing of the farms as individual units and as a group, Pengxin’s offer was far and above the best received so we are very satisfied to secure final settlement.

“We have operated the properties for three years and the farms will be handed over as a full going concern for Pengxin and Landcorp. The farms we inherited required some hard work and investment during a volatile economic environment, the support of our appointing banks, staff and sharemilkers during these challenging three years has been exceptional. We understand the new owners and operators will continue that work and investment in the farms. . .

While I don’t think the government should be farming that is a political view about best use of public money which doesn’t reflect on Landcorp’s ability to manage farms.

The company makes a poor return on capital.

But the farms it owns and manages are generally well run and the former Crafar farms should do much betteer under Landcorp management.

 


Rural round-up

November 10, 2012

Synlait Farms Takes Out South Island Farmer of the Year title for 2012

Canterbury-based dairy enterprise Synlait Farms clinched the Lincoln University Foundation’s South Island Farmer of the Year competition for 2012 last night (Thursday 8 November 2012) with an entry that judges hailed as a prime example of New Zealand’s leadership role in innovative and entrepreneurial agricultural practice.

Chief Judge Bob Simpson said that all four finalists demonstrated leadership, excellence and innovation.

“Any of the finalists could have won this award tonight,” Simpson said. “But in the finish it was Synlait’s blend of family-based traditional farming practices with the very best of modern corporate innovation and management systems that saw this multi-farm company stand out. Synlait’s approach to its people, its stock and its land can be held up as an example of what can be achieved when good leadership and good people go hand-in-hand.” . . .

Landcorp ready to run Crafar farms – Andrea Fox:

State farmer Landcorp says its Chinese client Shanghai Pengxin will settle the Crafar farms purchase with receivers on November 30 and it is scheduled to start managing the dairy farming estate the next day.

Landcorp chief executive Chris Kelly said that to the best of his knowledge this was the timetable that would mark the end of the tortuous three-year Crafar farms sales process.

Landcorp’s management of the 16 central North Island farms is a condition of Government consent to the controversial sale to the Chinese company, which has waited through a string of court challenges and consent processes to put its money on the table as receiver KordaMentha’s preferred bidder. . .

Wool growers asked for $10m – Gerald Piddock:

Wools of New Zealand is asking for $10 million from strong wool growers in a capital raising offer to expand its sales and marketing capabilities.

The raising would give strong wool growers the opportunity to invest in a grower-owned sales and marketing, company, chairman Mark Shadbolt said.

The company has made significant inroads into transforming Wools of New Zealand into a commercial entity, aimed at connecting customer to grower, he said. . .

Wine sector senses a whiff of recovery – Claire Rogers:

The wine industry is on the mend after a gruelling few years that prompted a string of closures and collapses, New Zealand Winegrowers says.

One recent high-profile casualty, Hawke’s Bay winery and vineyard Matariki Group was put into receivership in September owing creditors, including the Government, about $11.2 million. Receivers PricewaterhouseCoopers said the winery struck financial trouble after reduced harvests in 2011 and 2012 led to weak sales, and that was compounded by a lack of capital.

New Zealand Winegrowers chief executive Philip Gregan said the 2012 harvest was down 19 per cent on 2011, and that had dealt another blow to the industry, which had been struggling since 2008 with over-supply and weak demand from the global downturn. . .

Sea air tenderises spring lamb – Jon Morgan:

Logan Brown’s head chef Shaun Clouston takes a bite, chews thoughtfully, swallows and then licks his lips.

“By crikey, that’s beautiful,” he says, shaking his head slowly, wonder in his voice.

On the plate is a lamb rump, finely sliced, with kumara, crushed peas and roasted tomatoes. It’s a simple dish. “I want the lamb to be the hero,” Clouston says.

This is not any lamb. The meat is from a young spring lamb, only 4 months old when it was sent to slaughter, and from a farm on the coast south of Whanganui. . .

Kiwi to Lead International Tree Society

A Dunedin arborist became the first-ever Australasian president of the International Society of Arboriculture (ISA) last week.

Mark Roberts, an experienced arborist and academic director of horticulture training firm Thoughtplanters, is the second non-American elected to lead the 88-year-old society.

More than 20,000 arborists from 18 countries are members of ISA today. . .


Rural round-up

October 23, 2012

New growing sites may help save kiwifruit - Jamie Morton:

The Psa bacterium is here to stay so growers must manage it, says horticulture expert.

Kiwifruit growing regions outside the Bay of Plenty could soon play bigger parts in a $1 billion-a-year industry battling a bacterial scourge that is here to stay.

Professor Ian Warrington, co-president of the International Horticulture Congress, has suggested ways New Zealand could live with Psa-V, which has now spread as far as Hawkes Bay since its discovery in heartland Te Puke nearly two years ago. . .

Landcorp denies Crafar farms ale meddling – Andrea Fox:

Landcorp chief executive Chris Kelly says he’s getting fed up with suggestions that, as intended Crafar farms manager for Chinese purchaser Shanghai Pengxin, he is frustrating iwi efforts to buy two of the central North Island farms.

The state-owned enterprise boss said he had heard the rumours and they were “simply not correct”.

However he said that as the two farms at Benneydale constituted a significant 25 per cent of the whole 16 farm Crafar estate package, personally, he would be asking Landcorp’s future Chinese partner to consider why it would want to sell them. . .

 

Trial may be of global importance:

The Clutha Agricultural Development Board’s latest project, on the value of probiotics to calves in their first few weeks of life, is believed to be of national and possibly international importance.

The project involved about 300 calves on three farms in the Clutha district.

In New Zealand, only one limited study of the possible weight gain and health benefits to calves has been done previously, and the board was thought to be undertaking a “significant study of national and perhaps international importance”, the board said. . .

Future of sheep farming ‘not flash‘ – Sally Rae:

The potential for New Zealand’s primary sector is significant but the industry must get better at how it takes its products to markets, both individually and collectively, New Zealand Merino Company chief executive John Brakenridge tells Agribusiness reporter Sally Rae.

Imagine New Zealand without sheep and without a sheep industry.

That is a scenario New Zealand Merino Company chief executive John Brakenridge poses.

A scenario that he says is “actually quite on the cards” if the status quo continues. . .

Bettering deer genetics just the job for Sharon – Sally Rae:

Sharon McIntyre reckons her new role as DEERSelect manager is about “a perfect fit” for her skill set.

The Gore-based farm consultant, who has been heavily involved in genetics for 25 years, was enthusiastic about the part-time position.

She has provided technical assistance to Sheep Improvement Ltd (SIL) for five years and it was a “logical step” to be involved with improving deer genetics as well.

DEERSelect runs a system to evaluate the genetic worth of stags which then allows breeders and finishers to select for desirable traits in their deer herds. . .


Criticised for following law?

August 16, 2012

What is David Parker saying? (starts at 1:01)

. . . it was that it was a legal decision not the right decision. The Court found that the Minister acted within his powers to approve the sale of the Crafar Farms to the Pengxin Shanghai syndicate but not that he acted reasonably because that’s not their mandate?

Is he criticising Land Information Minister Maurice Williamson for following the law?

If he had acted illegally would that have been reasonable?

It might be on Planet Labour. But in New Zealand under National the government follows the law.


Will there be a snap debate on this too?

August 16, 2012

On Tuesday parliament had a snap debate on the sale of what were the Crafar farms to Shanghai Pengxin.

It was called by the Opposition who, for reasons which are based far more on emotion than reason, are opposed to selling farm land to foreigners.

Last night Russel Norman’s Bill to restrict the sale of land greater in area than 5 hectares was defeated.

The bill was defeated by 61 to 59 with National, United Future and ACT opposed.

Quite why the Opposition have such an attachment to farmland when their policies show they have little understanding of farming or interest in its success escapes me.

I also don’t understand why farmland engenders such emotion when sales of companies like this go unremarked:

Foley Family Wines, owned by the California-based billionaire Bill Foley, will take control of New Zealand Wine Company, adding the Grove Mill, Sanctuary and Frog Haven brands to its suite of local wines.

NZ Wine Co shareholders approved the merger at a special general meeting in Blenheim today, with about 99 percent of votes cast in favour, the company said in a statement. 

The merger, which will see Foley take an 80 percent stake in the Marlborough-based company, has not yet been approved by the Overseas Investment Office.

Foley already owns the luxurious Wairarapa Wharekauhau estate and is chairman of two Fortune 500 companies, insurance firm Fidelity National and banking and payments technology company, Fidelity National Information Services.

He also owns the Vavasour, Goldwater, Clifford Bay and Dashwood wine brands.

NZ Wines shares are listed on the NZX alternative market and last traded at 92 cents.

I have no problem with this investment or foreign investment in general. Bill English explained earlier this week the country has a lot to gain from foreign capital.

But if the control of farm land and its produce by foreign owners exercises the opposition, why aren’t they equally concerned by what looks like a significant investment in another primary industry?

Could it be it’s not foreign investment per se but the nationality of the investors which is at the root of the opposition to the Crafar farms by the Opposition?

Contributions to Tuesday’s debate included speeches from Maurice WilliamsonTodd Mclay, Jonathan Coleman, and David Bennett.

And yesterday’s debate on Noramn’s Bill included this speech from Jonathan Coleman who had to withdraw the comment daconomics but introduced the term yokelnomics:


Rural round-up

August 11, 2012

Shanghai Pengxin finally able to get on with its dairy investment – Allan Barber:

After one of the most drawn out sagas of recent times, the Court of Appeal’s ruling at last looks as if Shanghai Pengxin can complete its takeover of the Crafar farms.

The Fay/Maori Purchase Group has announced it will not make any further appeal, but, in Sir Michael Fay’s case, it will go back to business as usual and, in the case of the two Maori trusts, continue to negotiate the acquisition of two farms. However the iwi are still considering an appeal against the latest decision, while negotiations continue.

This sale process has caused much debate and involved very costly court cases which in the end have merely served to review and confirm the original decision and it’s hard to see on what basis a further appeal could expect to succeed. . .

Wintering barns ‘good idea’ not obligatory - Shawn McAvinue:

Wintering barns are a good idea but shouldn’t be made mandatory, says a Western Southland dairy farmer. 

    Dairy farmer Philip van der Bijl said the new winter shed on his Broad Acres farm, near Mossburn, was worth the investment. 

    If Environment Southland forced farmers to build sheds that would take money out of the farming community and only make Australian banks wealthier, he said. . .

Red cattle light up Shannon farm - Jon Morgan:

The late afternoon rain clouds have fled to the Tararua Range and a watery sun casts a soft light across the rolling pastures. In this light, a mob of cattle take on an exotic hue, their velvety, chocolate-red coats radiating a warm, lustrous glow. 

    It would be wrong to say farmer Kelvin Lane is unmoved, but he’s showing off his cows and his eyes are on their straight backs, muscled bodies and calf-bearing hips. 

    It is the dark red colour that first attracted him to the cattle, which are of the uncommon red poll breed. “They’re different, aren’t they?” he says. . .

A Hereford fan for life – Sue O’Dowd:

North Taranaki beef breeder Rodney Jupp is on a mission to introduce “Hereford Prime” beef to the region’s palates. 

    Right now he’s negotiating a deal with a Taranaki butchery, and hopes the meat will be on sale in the province within the next month. 

    “I’m working really hard to get Hereford Prime launched in Taranaki,” he said. . .

Pipfruit Growers Expect Slightly Improved Profitability

Pipfruit growers are expecting a small improvement in profitability this year, due to a lift in prices.

The Ministry for Primary Industries has released an analysis of pipfruit production and profitability as part of its annual Farm Monitoring Report series. The report is based on models of a Hawke’s Bay and a Nelson orchard and an overview of the financial performance of typical orchards, based on information gathered from a sample of growers and industry stakeholders.

A cool spring delayed flowering and harvest by around two weeks this season. Hawke’s Bay also had below-average temperatures and lack of sunny weather over summer. . .

Anti-GM campaigners warn of dangers – Gerald Piddock:

Two Australian farmers are warning New Zealanders to make sure their country remains free of genetically engineered and modified organisms. 

    Allowing GM products to be produced would put at risk New Zealand’s clean green brand, they say. 

    Western Australian farmer Bob Mackley and Victorian farmer and anti-GM advocate Julie Newman are touring New Zealand to deliver their message. With them is Green Party primary industries spokesman Steffan Browning. They were in Ashburton last week. . .

Entries open for 2013 Ballance Farm Awards:

Entries are now open for the 2013 Canterbury Ballance Environment Farm Awards.

The Awards, which have been running in the region for 10 years, celebrate responsible land stewardship and sustainable farm management practices.

Jocelyn Muller, the Canterbury Regional Coordinator for the Ballance Awards, said the awards continue to go from strength – to – strength in Canterbury.

“The Awards recognise and celebrate that best practice on-farm management is good for business and good for the environment.   . .


Shanghai Pengxin has nous to run farms – court

August 8, 2012

The Court of Appeal is satisfied that Shanghai Pengxin has the nous to run what were the Crafar farms.

The Court of Appeal has turned down a bid by merchant banker Michael Fay and two Maori trusts to stop the sale of 16 Central North Island farms, saying it was satisfied with the general business acumen and experience of the Chinese buyer.

Judges Mark O’Regan, Terence Arnold and Douglas White dismissed the judicial review, saying Jiang Zhaobai’s ability to bring himself from humble beginnings to become “a person of some stature in the Chinese commercial world,” would satisfy the minister making the decision in approving the sale of the Crafar family farms.

“The information provided to the ministers was sufficient to enable them to determine that he and the other controlling individuals had generic business skills and acumen relevant to the Crafar farms investment,” Judge Arnold said in delivering the judgment.

“We see nothing in the language, taken in context, to indicate that Parliament had in mind that an investor must have any particular combination of the requisite skills and experience,” the judgment said.

Agri-business experience was only one factor which needed to be taken into consideration.

 “While apparently important, it did not lead to a conclusion that was insupportable or unreasonable in the absence of that experience.”

The judges said even if the ministers erred in accepting Pengxin’s agribusiness investments, “it is unlikely that we would have exercised our discretion to grant a remedy.”

That’s because the ministers decided the foreign investment would have a substantial benefit to New Zealand, the deal hasn’t been settled and creditors are still waiting on repayments, and that the farms are being operated by the receiver in a manner than presumably “involves minimal further investment.”

Those who oppose the purchase forget about the creditors who are owed millions of dollars. The higher the purchase price, the more the creditors will recover.

I don’t think the state should be farming but Landcorp farms are generally well managed. Their experience and Shanghai Pengxin’s money should be good for the farms and the stringent conditions imposed by the Overseas Investment Office will result in benefits for the country too.


Whose money is it?

April 22, 2012

Opponents to the sale of the Crafar farms to Shanghai Pengxin, and other foreign investment, talk about the owners taking money out of New Zealand.

But whose money is it?

Anti-Dismal clearly explains it’s ours and it’s useless anywhere else:

. . . Let us assume for a moment that these evil foreigners make a NZ$1 profit which, in an effort to piss-off Michael Fay, they wish to take it back to China. How do they do it? Clearly a New Zealand dollar isn’t worth anything in China so the Chinese holder of NZ currency will have to sell their NZ$1 to buy Yuan. But why would anyone want to buy said NZ$1? The only use for a NZ$s is to buy something made in NZ. Thus the buyer of the NZ$s must want it to buy a NZ export of some kind. What is Michael Fay’s problem with this? The NZ$1 doesn’t go overseas in any meaningful way, it gets spent on New Zealand produced goods and services no matter who gets the profits from the ownership of the farms. If a New Zealander gets the profits they spend them on New Zealand made goods and services, if a foreigners gets the profits they sell the NZ$s to someone who wants to buy New Zealand made goods and services.

In short New Zealand will not lose “around $15 million in earnings every year” if the Crafar farms are sold to the Chinese. For New Zealand’s wealth and prosperity, it does not matter where the profits  from New Zealand businesses end up. All that matters for the New Zealand  economy is that New Zealand remains a place where business transactions  take place – irrespective of who owns the business. New Zealand’s (real) wealth is the amount of goods and services produced each year, no matter who owns the business that do the producing. What we want is for firms to be owned by whoever will use those resources most efficiency, no matter what their nationality. Any investment that moves resources towards a more efficient use is a good investment for New Zealand, again no matter what the nationality of the investor . . .

The farms in question are already owned by foreigners – the banks which put the business into receivership.

If they were bought by New Zealanders, they’d be funded, at least in part by foreign debt, adding to our already heavily indebted state and paying interest to foreign-owned banks.

Why is paying interest to  foreign lenders not regarded as a problem if letting a foreign owner take some of the profit from their investment is so bad?


Ministers follow OIO law

April 20, 2012

Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman have approved the new recommendation of the Overseas Investment Office (OIO) to grant consent to Milk New Zealand Holding Limited to acquire the 16 Crafar farms.

“New Zealand has a transparent set of laws and regulations around overseas investment,” Mr Williamson says.

“Those rules recognise the benefits that appropriate overseas investment can bring, while providing a range of safeguards to protect New Zealanders’ interests. They are applied evenly to all applications, regardless of where they are from.

“We have sought to apply the law in accordance with the provisions of the Overseas Investment Act and the guidance of the High Court.

“We have carefully considered the OIO’s new recommendation. The OIO sought advice from Crown Law and independent legal advice from David Goddard QC. The Ministers also sought advice and clarification from Mr Goddard.

“We are satisfied that on even the most conservative approach this application meets the criteria set out in the Act and is consistent with the High Court’s judgment.”

The Ministers have followed the law, and the High Court’s stricter definition of it, as they are bound to do.

Opponents of land sale to foreigners won’t like it but the correct way to deal with that is to change the law, not to go against it.

Former Minister Chris Carter tried that with the Whangamata marina, was taken to court and lost.

Dr Coleman said the consent came with stringent conditions.

“These 27 conditions have been imposed to ensure Milk New Zealand’s investment delivers substantial and identifiable benefits to New Zealand,” Dr Coleman says.

The conditions require Milk New Zealand to invest $16 million into the farms and to protect and enhance heritage sites.

“The combined effect of the benefits being delivered to New Zealand as a result of this transaction is substantial.”

The land is already in foreign hands – that of the banks and the receivers are bound to get the best price for it.

I’m not convinced they went about that the best way – the farms were offered for sale individually or as a package but I don’t know if they actively tried to market them to locals.

Whether or not they did, the best offer on the table now is the one approved today.

If the land was sold to New Zealanders they would not be required to do anything with it at all, they would not have 27 conditions imposed on them nor be required to make any further investment as the purchasers, Shanghai Pengxin, are.

A copy of the OIO’s new recommendation is here.

A copy of the OIO’s decision summary is here.


Farm sales up, most to locals

April 19, 2012

Farm sales increased 109% in the March quarter it doesn’t necessarily signal the start of a boom.

“Sales over the three months to March reflect the strengthening of the rural economy, bolstered by favourable growing conditions, very good levels of production, solid market returns and a positive climate for borrowing,” said Brian Peacocke, rural market spokesperson at REINZ.

All regions, apart from the Hawkes Bay, recorded an increase in sales in the March quarter compared with a year earlier. Canterbury showed the largest increase, up 39 sales, followed by Waikato on 38, while the Hawkes Bay dropped 4 sales.

“Irrespective of the above, a note of caution is clearly emerging as the industry prepares for winter, with the expectation that income levels may moderate next season, and given seasonal variabilities, it is unlikely the combination of current benevolent factors will be repeated for some time to come,” said Peacocke.

Critics of land sales to foreigners argue that they price locals out of the market.

The media release doesn’t mention the nationality of the buyers but there haven’t been many Overseas Investment Office approvals for sales this year so most of the properties must have been bought to locals.

Among those sales would have been ones engineered by one of the major banks which has been carefully and quietly sorting out heavily indebted customers who weren’t going to be able to farm their way out of their problems.

The bank has been working under the radar on purpose, usually selling to neighbours, sometimes doing some much-needed maintenance before looking for buyers.

Had the receivers for the Crafar Farms followed this example, the chances of properties being sold individually and to locals would have been much greater.

 


Certainty and predictability needed

April 12, 2012

Sir Graeme Harrison, chair of the  NZ International Business Forum, wants the Cabinet ministers considering the Crafar farm sale to Shanghai Pengxin to give a clear signal foreign investment is welcome here:

NZIBF chairman Sir Graeme Harrison makes the point that foreign investors are prepared to respect the rules but they need predictability and certainty that when conditions are complied with the investment will be able to proceed.

“That is why the current uncertain situation with regard to the Crafar Farms is so negative for New Zealand’s interests. It risks detracting from New Zealand’s attractiveness as an investment destination at a time when there is strong competition for foreign investment from other countries.”

Sir Graeme’s determined push follows a strong statement by Auckland Regional Chamber of Commerce chief executive Michael Barnett who railed against the way the Shanghai Pengxin bid had been demonised by late-comer bidders in an appearance on Q&A at the weekend.

Fran O’Sullivan has added Sir Graeme to her unofficial roll-call of business people who are finally stepping up and saying this country needs to protect its reputation as a fair regime for foreign investors.

But the big question is why is that only Sir Graeme, Barnett, BusinessNZ’s Phil O’Reilly and George Gould have been prepared to openly speak up for what matters in this area. The paucity of open debate on the pros of foreign investment is astounding and business does need to step up here.

One of the glaring omissions from the list is anyone from Fonterra.

I can’t understand why the company which sells most of its produce overseas and which itself owns farms in other countries, is opposed to foreign ownership here.

As Sir Graeme says, we need foreign investment to make up for our own lack of savings:

“Foreign investment is what plugs the gap in our low domestic savings rates. Without it, ratings agencies could react by increasing New Zealand’s (already high) credit risk rating and interest rates will rise.”

Would the people so strongly opposed to foreign investment be quite so sure of their stand if their mortgages increased without it?


Oh for some science on Crafar farms sale

April 9, 2012

When the Prime Minister announced the mental health package last week his chief science advisor Sir Peter Gluckman explained how it had been based on science.

If only a similar process could be applied to foreign ownership of land, in particular the sale of the Crafar farms.

In yesterday’s Q&A interview by Shane Taurima of Land Corp chair Jim Sutton tried to give the facts but Russel Norman mostly used emotion.

RUSSEL         Well, we certainly don’t need this foreign investment. I mean, all it’s doing in this case is driving up the price of rural land, because they’re paying a very large price for it in order to pay off an Australian owned bank who are the ones who are exposed because they leant too much money to Crafar.

The banks will get their money before anyone else. Those who miss out will be the unsecured creditors, most if not all of which, will be small, locally owned businesses. Each day the sale is delayed the costs increase, eating in to what will be left for creditors.

So we don’t need this money.

No? It’s better for us to have more foreign debt than equity?

This farm was going to be developed one way or another. It would be producing food one way or another. The key thing for New Zealand is we have this tremendously valuable strategic asset, which is arable land with access to water, food-producing land. That food-producing land will only become more important as time passes, and for us to hang on to that strategic asset is critical to our economic future.

It’s not one farm but many. If they’re not developed by a foreign owner they might be developed by a local one, or ones, but there will be no oversight of that nor recourse if they’re not. And if the development is undertaken it will be funded by borrowing from foreign lenders.

SHANE           Mr Sutton, New Zealand First leader Winston Peters, he says that if the deal goes ahead, it will mean Landcorp will end up paying about $18 million a year to the landowner. In other words, he says a New Zealand SOE will end up being a tenant of a foreign company here in New Zealand. Is that true?

JIM                 No, that is not true, and I think what is important to realise is we as a sovereign nation are perfectly entitled to make rules for foreign people wishing to buy farmland in New Zealand, and if we want to do that and have more restrictive rules than we have got, let’s do it, let’s make it clear what they are, and let’s apply them without fear or favour to everybody who comes from overseas and wants to buy a farm in New Zealand.

Exactly, we should make the rules and apply them fairly.

SHANE           Can I just clarify – so Landcorp won’t be paying any rent at all?  

JIM                 No, we won’t be paying rent. We’ll be a share-farmer. A share-milker. SHANE           Mr Norman?  

RUSSEL         Clearly, what a share-milker does is they hand over a proportion of the production to the owner of the land in lieu of rent. It’s a kind of rent. So without mixing words, clearly they’ll be paying rent. They’ll be a tenant in the land, which is effectively what a share-milker does.

By Norman’s reasoning, the land owner is paying rent for the cows, machinery, animal health products and other inputs the share-milker funds.

SHANE           Mr Norman, don’t you have to be careful that you’re not encouraging an anti-Chinese feeling? After all, we’ve had a number of other nationalities buy land without the same reaction. Don’t you have to be careful?

RUSSEL         Yeah, I think that’s a fair comment. Um, the Greens have had a very consistent approach. I mean, we think that New Zealand land should stay in New Zealand ownership, um, and we don’t care the nationality of the person applying – whether they’re Australian, American or European or Chinese.

Just a teeny bit of irony when this is said in an Australian accent.

JIM  . . .  If I were Chinese looking at this and wondering whether New Zealand really had its heart in building the economic partnership with China, I would wonder why Canadians, Americans, Italians, Germans, Australians, Brits, can come into parts of New Zealand, buy farm after farm after farm after farm and nobody in Wellington blinks an eyelid. But when the first Chinese…

RUSSEL         The Greens do.  

JIM                 …company comes along for this, all of a sudden it becomes a threat to our sovereignty, and I just think,‘How would I feel about that if I were Chinese?’ And I know what I would feel about it. 

We know how the Chinese feel about it from another Q&A interview with David Mahon, managing director of Mahon China Investment Management who has lived in China for 25 years.

SHANE      Do we run the risk of having that reputation being tarnished if the deal doesn’t go through?  

DAVID       We do. Certainly this would be something that not just in China, but throughout Asia with our major trading partners and these sizeable economies – India, Indonesia – would look upon this as being New Zealand as a narrow country after all, that New Zealand actually is racist in terms of its view of who it would like to be its business partners, which I think would be a sad misreading of New Zealand, because I don’t believe that New Zealand is actually racist. I think that this particular Crafar deal has triggered some unfortunate debate in lesser media, and I think it has become politically useful to some in New Zealand, given the fact that, um, you know, we have a very dynamic democracy. And so, in a sense, the real issues, I think, have been lost. But if this doesn’t go through, New Zealand will have a lot of repairing to do across Asia and certainly in China.

There wasn’t a whisper when a controlling interest in Turners and Growers was sold to a German company, even though it owns the iconic ENZA brand.

There was some, but not nearly as much, murmuring about land sales to people from Germany and the United States. But there has been much more about this particular deal and it appears to be not just because the buyers are foreign but because they are Chinese.

I wrote last month about our visit to farms owned by a Swedish family which showed the good it can do.

If we shut the door completely on foreign ownership, we will be the poorer for it.

The rules on foreign ownership were tightened recently. If there is a need for further tightening, let them be tightened but base any change on sound reasoning not emotion and definitely not on xenophobia.


Would they pay the creditors?

March 22, 2012

A UMR surveys shows 70% of New Zealanders oppose the sale of the Crafar Farms to overseas investors, regardless of the buyers’ nationalities.

The poll (with a sample size of 750) was commissioned by the Crafar Farms Purchase Group and was carried out the weekend before the Labour Party unveiled its revamped overseas investment policy on March 11.

Purchase Group spokesman Alan McDonald said the poll reflected the consistent view that New Zealanders oppose the sale of productive farm land to overseas investors of any nationality.

Shanghia Pengxin has offered to pay $210 million for the farms. The Crafar Farms purchase group has offered only $171.5m.

I wonder what those surveyed would think about some $40 million in debts going unpaid if the farms weren’t sold to the people who have made the only offer acceptable to the receivers so far?

Do they realise that most, if not all, of that debt is owed to unsecured creditors, most of whom will be local people and small businesses who supplied and serviced the farms?

Do they feel so strongly opposed to the sale of the farms to foreigners that they would be prepared to pay those creditors?


Whole greater than sum of parts

March 8, 2012

Why did the receivers of the Crafar farms not offer the properties individually rather than only attempting to sell them all as a job lot?

I’ve asked this question several times and it’s been based on a misconception because the receivers did offer the farms separately or together.

A comment from JC yesterday pointed to a column by Fran O’Sullivan who explained:

“But KordaMentha receiver Brendon Gibson confirms there was no real difference between the way the Crafar farms were marketed here and overseas.

The wording used in the advertising material in New Zealand was quite explicit in what was being offered. “There is the potential to purchase a single property, a selection of properties, or the entire portfolio,” the advertisement stated.

This was patently clear in copies of the NZ advertisements which Bayleys placed.

The firm had been instructed to market the portfolio to the widest potential buyer audience possible and secure the best possible outcome by maximising the value of its clients’ property assets.

The receivers are duty-bound to get the best price.

Given there would be a much larger market for individual farms than the whole lot as a package I’d have thought that selling them separately would have raised more money than selling them all together.

Obviously not in this case where the value of the whole is greater than that of the sum of the parts.

It could be that those interested in single properties thought they’d get a bargain and didn’t offer enough. It could be that decent offers were made for the better properties but not enough was offered for the run-down ones.

There might be other explanations, but whatever the reason, the best offer was from  Natural Dairy but was turned down by the Overseas Investment Office. The next best offer was from Shanghai Pengxin and both were for all the farms as a package.


Who else would they vote for?

March 7, 2012

The Sunday Star Times was excited by the 100 emails Prime Minister John Key received from people opposed to the sale of the Crafar Farms to Shanghai Pengxin, calling it a heartland backlash.

One farmer said he had been a National supporter for 45 years but the agreement to sell the farms to Chinese interests ahead of New Zealanders was the “final nail in the coffin”.

Key received more than 100 emails or letters opposed to the sale, most within days of the announcement of the deal with Shanghai Pengxin.

“For many years I have voted for National and I believe in the philosophies. I am utterly disappointed at the decision to sell the farms to a foreign buyer … 2011 will be the last time I vote for National,” one said.

Another wrote: “We have always supported you, and National, but we aren’t with you on this. We have to let you know how strongly we feel about this.”

One wonders how much these people understand about the National Party’s philosophy and principles because there is nothing there that would restrict the freedom of people to sell their own land to the highest bidder nor is there anything that would support xenophobia.

Regardless of that, 100 emails isn’t many on a hot-button issue.

“Pretty much on any issue in New Zealand I’ll get 100 emails,      and sometimes I get 10,000 emails if it’s a significant      issue. So there’s a mixture of views, no doubt about that,”      he told TV One’s Breakfast show.   

Mr Key said the Crafar farms sale was not the main issue farmers raised with him.   

“Certainly I’ve been around a lot of rural events – the      Waimumu Field Days, the Golden Shears on Saturday night – and that’s not really the issue they’re coming up and talking  about,” he said.   

“Some farmers come up to me and say `Look, I own the farm, it’s my property right and I should be able to sell it to      whoever I like.’ Others say they don’t want the farmland going overseas. There’s definitely a range of views but I don’t see it hurting National support.”  

People who change allegiance on a single issue aren’t strong supporters to start with, and any farmers who think they’re not happy with National only need to look at yesterday’s debate on changes to pastoral lease rentals to see how much worse off they’d be with a Labour-led government:

The Crown Pastoral Land (Rent for Pastoral Leases) Amendment Bill will replace the land valuation basis for setting rents on  pastoral leases (on mainly high country farms) with a system based on the income earning potential of the  farm land.

Labour MP Raymond Huo said his party was opposing the bill because it was subsidising some high country farmers and did not reflect the real worth of the Crown owned land.

Agriculture Minister David Carter accused Labour of the politics of jealousy and envy and said their policies in Government had shown a “lack of care for the most fragile farming environment’’ in the country.

He said former prime minister Helen Clark had attempted to “drive’’ the farmers off the land and turn it into part of the conservation estate.

The Government now wanted to allow farmers to pay a rent based on the income they could take off the land while maintaining it for future generations. The Crown, he said, had proven to be a poor caretaker of the high country land.

The loss of tussock at the top of the Lindis Pass is a sad reminder of what happens when the Crown tries to replace the high country farmers who have looked after pastoral lease land for generations.

Another example of how poorly Labour understands farming was last year’s beat-up on how much tax they pay.

As Cactus Kate asks, if farmers aren’t going to vote for National, who would they support?

. . .  Labour who will tax the sale on their farm at 15% who along with the Greens will make them pay for their pollution and treat them as the rich pricks they deserve to be treated as?  NZ First…hehe…..

The small number of farmers who have their noses in a knot over the farm sales are shooting the wrong target.

I have nothing against the sale of the farms to foreigners but those who do should be directing the ire at the receivers who insisted on selling the farms as a job lot rather than individually.  That would have opened up a far larger number of would-be buyers and made it much easier for locals to make realistic offers.


Before and after or with and without?

March 1, 2012

Did Justice Forrest Miller’s ruling on the Crafar Farm sale reflect parliament’s intention when it passed legislation governing overseas purchases of farm land?

Sally Peart, a partner in Marks and Worth Lawyers doesn’t think so:

In order for consent to be granted, the ministers must be satisfied the benefit to New Zealand from the acquisition is likely to be “substantial and identifiable”. Justice Miller’s decision turns on the way in which this assessment is made.   

The wording of the Act lists the factors to be considered and requires a determination of whether the overseas investment will, or is likely to, result in certain benefits, for example, the introduction into New Zealand of additional investment for development purposes.   

What it does not state is what the starting point for that assessment is.   

Logic and the wording of the legislation suggests the current state of affairs (in this case, the run-down condition of the Crafar farms) must be the starting point. Justice Miller      describes this as “a before and after approach”. In other words, compared with the current position, will the overseas investment result in increased benefit to New Zealand?   

Justice Miller states this approach is incorrect and ministers ought to have taken a different approach, a “with or without” approach.   

This approach looks at what would happen if the investment did not proceed. In other words, would the benefits arise anyway even if the investment did not go ahead?   

In the Crafar farms case, he concluded the benefits would arise anyway on the basis someone would buy the farms and upgrade them.

This may well be the case, but is that an approach that flows from the wording of the legislation?   

In my view, it is not. More to the point, in my view it is a considerable stretch to say the OIO’s approach is one which is misdirected as to the law.   

A New Zealand buyer could do the same upgrading and make similar other investments as a foreigner would, but there is no requirement to do so nor comeback if it’s not done.

However, if foreigners buy New Zealand farmland the OIO can impose conditions on them which they must meet.

The fact this decision by the minister has taken nine months in itself is embarrassing for us on the international stage,      let alone the fact it has now been sent back to be made again. This is ironic considering one of the relevant factors is “whether refusing the application is likely to adversely      affect New Zealand’s image overseas”. Even the “with or without” approach of Justice Miller would struggle to refute that one. . .    

It is not a simple matter and the government is seeking advice on seeking a declaratory ruling on Justice Miller’s ruling:

Prime Minister John Key said at his post-Cabinet press conference he would be“uncomfortable” if his Ministers made a decision on the bid to buy the 16 Crafar family farms without having a firm grasp on the judgment, which found the Office Investment Office “materially overstated” the benefits to the New Zealand economy of the bid.

The government is “keen to make sure that the Overseas Investment Office fully understands the judgement from Justice Miller,” he said, especially given the Michael Fay-led consortium of rival bidders has taken the matter to the Court of Appeal.

 “Until that position is clarified, I think it would be extremely dangerous for any party, either the ministers or the OIO, to move forward,” Key said. “That leaves the government in a terrible position, because Ministers ultimately could be judicially reviewed again and no-one wants to be in that position.”

Given the lack of certainty, Key said he would be surprised if the OIO made an early recommendation. 

It is a very serious matter which will seriously limit foreign purchases of farm land.

That might please the xenophobes who don’t understand the positive impacts from foreign investment but it is almost certainly not what parliament intended when the legislation was enacted.


Iwi occupying Crafar farm

February 20, 2012

Members of an Iwi have moved on to one of the farms in the Crafar group, claiming it’s their ancestral land and should be returned to them.

Someone with a better understanding of these matters might contradict me but I thought that claims over ancestral land were between Maori and the Crown and could not involve privately owned land.


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