Oh for some science on Crafar farms sale

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.

25 Responses to Oh for some science on Crafar farms sale

  1. robertguyton says:

    “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.”

    Excuse my ignorance, Ele, but how is that ironic?
    Russel’s a New Zealand citizen, saying that he and his party have no prejudice about the nationality of people applying to buy land here – New Zealand land should stay in the hands of New Zealanders.

    Like

  2. Don McKenzie says:

    Some NZer’s in places of influence are remaining quiet on;

    a) the Chinese company buyer has virtually an interest free loan from the Chinese Govt. You might ask why?

    b) There will be nothing to stop them putting in a processing plant on the same basis as Synlait in the South Island and using the law to force Fonterra to supply them at “cost’ on the same basis as is supplied to supermarkets. Undermining Fonterra will get us nowhere.

    My opinion is that the Chinese purchase has a sting in the tail quite unlike that of land sales to other foreign buyers

    Like

  3. Paul Bailey says:

    Enzas an iconic brand? Enzas been a tranished brand every since it has been in the hands of Turners & Growers.

    Like

  4. Paul Walker says:

    I have to say I just don’t get this. I can’t see what the economic problem is with foreign ownership of land. What is important about ownership is the efficiency of use of any asset. You want the owner of an asset to use that asset as efficiently as possible. The nationality of the owner is irrelevant.

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  5. robertguyton says:

    The ‘problem’ is not an economic one, Paul, but one of sovereignty.

    Like

  6. Adolf Fiinkensein says:

    Russel Norman doesn’t know much about share milking.

    In my experience the share milker makes considerably more profit than does the land owner.

    So, let’s invite the Chinese to come in and buy every dairy farm in NZ so then our cockies can send the buggers broke.

    On a serious note, the sting in the tail really is the risk of Chinese gummint surrogates setting up production facilities and, a la previous scandals, destroying Fonterra’s hard earned and valuable international reputation for quality.

    Like

  7. Paul Walker says:

    “The ‘problem’ is not an economic one, Paul, but one of sovereignty.”

    Exactly, there isn’t a problem …. other than xenophobia.

    Like

  8. jabba says:

    “New Zealand land should stay in the hands of New Zealanders” .. a little late bOb. Norman is getting as much air time he can get and always sidesteps the questions and goes on about Green Party propaganda .. I assume Turei is away somewhere as it’s about she was given a go .. NZ needs to see more of her.
    I guess when the Greens form the next Govt with Labour, Mana and Winny1st they will buy back all land, banks and companies owned by those awful foreign people?

    Like

  9. Cadwallader says:

    The some is one of “sovereignty.” If I were the landowner (not a mortgagee in possession) and I wished to sell my farm to a willing buyer, that is my choice which is pinioned on my personal sovereignty.

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  10. JC says:

    “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,”

    Nope. Mafs “National Dairy Farm Model for 2011 shows the average total milking area per farm to be about 150 hectares and total farm value including buildings and forest to be about $5 million, ie, roughly a value of $33,000 per ha. The Crafer farms were to sell 8000ha for $210 million, ie, roughly $26,000 per ha.

    If anything, the Chinese bid would help to hold up land values at a time dairy farmers need every bit of equity they can get to keep the bank manager away from the door.

    The sad facts of the matter are that the Chinese have moved rapidly away from the Communist model to one of evolving democracy with individual property rights recognised in law (2007) , out of isolation towards integration in the world community whilst NZ is heading back towards where the Chinese were about 1960.. xenophobic, selectively racist, isolationist and with weakening property rights.

    Look, dairying here is immensely valuable to NZ but its return on capital comes about not only from reasonable increases in milk prices, but larger and thus more economic units, and two thirds of the ROC comes from land price increases.
    Add in the slightly dodgy concept of a gateway like Fonterra that restricts competition and innovation and we have an industry that carries significant enduring risk.. and one way of reducing that risk and improving marketing and innovation is to diversify farm ownership.

    I’m fearful that our dairy land xenophobia and single seller approach is only profitable in the short term and ultimately self defeating in the face of global competition and innovation.
    Look no further than the canning of the idea in the MacKensie Basin for very large farms and herds, huge concrete pads for feeding and shelter, more efficient collection and utilisation of waste and better control of runoff.

    Thats a sign of a myopic community beset by rules and fanciful notions of what a dairy farm should look like.. its an innovation killing culture.

    JC

    Like

  11. robertguyton says:

    Paul – sovereignty = xenophobia?

    “Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory.”

    “Xenophobia is defined as “an unreasonable fear of foreigners or strangers or of that which is foreign or strange.”

    Odd…

    Like

  12. Andrei says:

    Xenophobia be damned!!!!!

    The ruling elite are quite content to transform ordinary Kiwis into Chinese serfs just to keep their property values high, to serve their own selfish interests.

    Perhaps we wouldn’t have as much overseas debt, especially to the Chinese if we built our own railway rolling stock at Hillside instead of firing the workers there and giving their jobs to Chinese.

    DISGRACEFUL!!!!!!!!

    Like

  13. robertguyton says:

    Well expressed. I’m with Andrei.

    Like

  14. Paul Walker says:

    “Perhaps we wouldn’t have as much overseas debt, especially to the Chinese if we built our own railway rolling stock at Hillside instead of firing the workers there and giving their jobs to Chinese.”

    Two words: comparative advantage.

    Like

  15. Paul Walker says:

    “Well expressed. I’m with Andrei.”

    So you like being poor. Well that’s up to you but most people don’t and they would want NZ to do the things its good at and maximise its wealth.

    Like

  16. Paul Walker says:

    “Paul – sovereignty = xenophobia?”

    Being but capital-xenophobia is still xenophobia.

    And why does having foreign investment in NZ mean that we don’t have authority over NZ?

    Also if ownership of land means a loss of sovereignty then what about ownership of other factors of production? Do we lose sovereignty when foreigners own say machines or buildings in NZ? Why/why not?

    Also if foreign ownership of factors of production by foreigners is bad should we stop NZers investing overseas?

    Like

  17. robertguyton says:

    Land, Paul. Farm land. It’s not a machine. It’s not a building. It’s land.

    “Being but capital-xenophobia is still xenophobia.”

    Y’what?

    Can’t make any sense at all from your truncated ‘statements’.

    Like

  18. JC says:

    “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.”

    And according to the Maf National Dairy Model 2011 a genuine true blue homegrown Kiwi who owns his farm produced a cash surplus of $570,000. Thats pretty good, and out of the kindness of his heart he donated $197,000 of interest to his foreign owned bank.. thats 34% of his surplus and might well be considered a “kind of rent”.. doncha think?

    Don’t know about you chap(esses), but it seems to me that over the dairy industry, whether you rent, sharemilk or own, you are going to pay a lot of money to foreigners, and they will determine yours and the nation’s “sovereignty” when it comes to a crunch.

    Go ask the Irish, the Greeks, the Spaniards and a few others in Europe what “sovereignty” means to them and they will tell you its a joke given their obligations to foreign countries and banks, and in this country where we owe over $300 billion to other countries and foreign banks its only slightly less of a joke.. a difference of only a few dollars per kg of milkfat, or a tonne of logs, meat, wool and a few other commodities.

    JC

    Like

  19. Paul Walker says:

    The payment to the landowner under share-cropping is a form of rent. To what is going on note that share-cropping was a lot more common in the past and in poor countries today. In these situations insurance markets and welfare nets are not as well organised as they are in rich countries today.

    Consider a situation where a share-cropper pays a fixed money rent to the landowner. If his harvest is bad then he could be in trouble, he still has to pay the lander but may not have the funds available to do so. Or even if he can pay his rent he may have little leftover to survive on. If the share-copper is risk adverse he will not like such a situation. He would rather work for the land owner as an employee and get a fixed wage. In this situation the landowner faces all the risk of bad harvests. But the landowner will not be too keen since unless he can monitor the employee, why would the employee work hard? That is there is a moral hazard problem here. The landowner would prefer a fixed rent contract since it gives the share-cropper an incentive to work hard.

    What a share cropping arrangement does is trade off the incentive effect against the risk effect. Paying a percentage of the crops as a rent gives the share cropper some incentive to work hard since he keeps any output over and above the rent but also moves some of the risk towards the landowner. If the harvest is bad then the share cropper only has pay the same percentage of his crop as rent and thus he is partly protected against crop failure. The amount of his rent adjusts to the harvest..

    Like

  20. Paul Walker says:

    “Land, Paul. Farm land. It’s not a machine. It’s not a building. It’s land.”

    So?!

    Let me ask again, Why does having foreign investment in NZ mean that we don’t have authority over NZ?

    Also if ownership of land means a loss of sovereignty then what about ownership of other factors of production? Do we lose sovereignty when foreigners own say machines or buildings in NZ? Why/why not?

    Also if foreign ownership of factors of production by foreigners is bad should we stop NZers investing overseas?

    Like

  21. JC says:

    “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.”

    Hmm, does this mean that NZ investments in other countries of some $100 billion are somehow exploitative, unethical, threatening to foreign flora and fauna, bad for native rights and global warming and destroys sovereignty as the Greens say such foreign investment is for NZ?

    JC

    Like

  22. jabba says:

    Well expressed. I’m with JC

    Like

  23. robertguyton says:

    You know, it’s the sincerest form of flattery!

    Like

  24. jabba says:

    A group of 10 Chinese nationals in Darwin say they face a choice of applying for asylum in Australia, or undertaking a risky voyage to New Zealand, where they would not face mandatory detention.
    Now this group of Chinese will be welcomed by the Greens

    Like

  25. […] Oh for some science on Crafar farms sale (homepaddock.wordpress.com) […]

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