Does farming give best return on $1668.7m?

Landcorp has confirmed it’s bidding for the 16 Crafar farms.

That’s a board decision and because it’s an SOE the government can’t interfere.

It might however, ask some questions on behalf of the taxpayer including:

• How will the costs of borrowing affect Landcorp’s already dismal return of  around .6% on its  $1668.7m  investment?
• If a debt to debt plus equity ratio of 11.1% at last balance date was above plan, what’s planned for the current year?
• How will the purchase fit with the company’s mission: “To provide shareholding ministers with maximum sustainable financial returns“?
• If the bid is successful will the company keep all of the other farms it owns and leases?
• How much land does the company plan to own and lease?

And the public might ask:

• Do we really want the state which already farms 1.5 million stock units on 105 properties with a total area of 374,948 hectares to add another 16 farms to its portfolio?
• What do we want in return for our  $1668.7m investment?
• Is farming the best way to get it?

Then perhaps we could have a calm and reasoned discussion on state ownership of assets in general and Landcorp in particular.

Selling everything at once would be stupid, but so is keeping everything for fear of the emotional reaction that greets a hint that perhaps state ownership isn’t always the best use of scarce public capital.

There will be a case for keeping some SOEs and there is a case for selling others. One reason for sales is that the opportunity cost of ownership for some of the assets is far greater than the return from them.