Another poor return from Landcorp

Landcorp’s full year results to June 2013 are very sorry reading.

The company made a net operating profit of $12, 959,000; a net loss after tax of $18,067,000 and paid a $5 million dividend.

It attributes the poor return to last year’s drought which hit milk production and livestock prices.

There would be few if any farms in the areas where Landcorp operates that didn’t have an equally tough year.

But none would have $1,694,900 in assets.

Landcorp has a very big asset with a very poor return.

Performance in recent years hasn’t been as bad as last season but even the best isn’t a good return on the asset:

landcorp

The company has a good reputation for staff training and genetics but neither require the state ownership of farms.

The one compelling argument for the continued ownership of the farms is as a land bank for treaty settlements.

But once they are concluded there is no need for the state to be in the business of farming.

Then the land should be sold, farm by farm, over time so as not to flood the market and depress prices.

The farm management expertise and genetics could be sold as separate companies.

That would provide far more money for research, training and other projects which would return more for the country such as irrigation infrastructure than will ever be available from Landcorp’s dividends.

12 Responses to Another poor return from Landcorp

  1. Mr E says:

    It’s been a long term question ” should the government have a major share in farming?”
    I have mixed feelings. The properties have always been a good source of training, and application of science. Often leading the industry in environmental applications, genetics and some might say good management. But many have questioned if it is fair that they compete with other farms. Recently the CEO stood up in front of 1000 farmers and told them it was fair that cooperative meat companies paid them a premium for their product. And if farmers could pool together they could also apply for such premiums. It went down like a lead balloon.
    I’m reasonably happy to sit on the fence on this item. I can see pros and cons for holding investment vs selling investment. To me it is a 6 of one half a dozen of another option.

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  2. homepaddock says:

    The question to ask is, could other investment get a better return and the good the company does including training, research and application of science be done in another less capital intensive way?

    I think it could.

    Like

  3. Gravedodger says:

    Ele is right on the money here.

    Landcorp is a massive disruptive influence on farm economics.

    Since the farms are underpinned by a culture of “we are immune to reality” they impede the market from responding to real economic signals, hence the inane and arrogant suggestion about Meat payments from the bean counter.

    A classic example of the influence the state farm has, was when the Waiau branch railway line that had already been shortened back to Culverden was facing a closure enforced by the necessary albeit economically stupid replacement of the railbridge over the Hurunui at Medbury.
    “The annual one off movement of the consignment involving the Molesworth draft would be better on rail to Addington.”
    It would have been better economic sense to have hired all the horsefloats available and use them to cart the cattle south.
    The state farm negotiates generous contracts for drenches, farm chemicals, services such as commissions and other inputs.
    Great but as anyone with a passing knowledge of economics 101 understands that generosity is funded entirely by the weaker small business units buying on the same market from the often single sellers.

    The annual returns are abysmal as profits show and the hidden subsidies often reduce options for more needy and desirable claims by Doc and other Government entities for assistance.

    Mr E makes a valid point about the opportunity to use the state farm to augment research and development but the facts are somewhat at odds with that, there is a natural resistance from the on the ground managers and the bean counters are oblivious.
    Such research is best conducted around the universities and training farms of which there are several options.

    Government should only run a business where the rewards preclude the market providing a viable solution,
    Landcorp is not in that arena, it is merely a repository for another bunch of troughers to act out their fantasies and we the taxpayers subsidise it all leaving hidden costs to fall on the private sector.

    Sell the viable units and add the unwanted lands to the already struggling Department of conservation. Then the subsidies will at least fall where the market dictates they should be, not with pretend farmers and tryhard executives.
    Of course the totally misguided unintended results that have much tenure review country now depreciating in a spiral of mismanagement or total ignore is another matter.

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  4. Blokeinauckland. says:

    This is a good example of the “merits” of state ownership. Which is where Guyton wants the state to go. I guess he’s saying it worked in the Soviet Union we should embrace it here.

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  5. Mr E says:

    Extension of research is a challenging thing. I perceive Landcorp to be a local testing grounds for research. Universities and training farms often don’t have a local presence.
    Even Landcorp lacks a local presence. But stronger than Universities in many areas.

    Please recognise the systematic disinvestment of local research by AgResearch. If landcorp also disappears a big testing ground is gone.

    Like

  6. Mr E says:

    BlokeinAuckland,
    I guessing many in the left simply argue for the sake of arguing. I’m convinced they do it for political gain as logic is so often ignored.

    I’m suggesting a big grey area in the sale of landcorp. For this reason I think a thorough independent review is necessary. A great fight from the left or right will simply results in a mash of mute points. An independent review is what is needed.

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  7. robertguyton says:

    Both Bloke and Mr E say they are guessing – and their conclusions reflect that.
    Mr E has run up against Ele’s pet topic – Landcorp and her yearning to sell it to private interests, an opinion her Overlords require her to broadcast. I’ll be very interested to see if Ele engages with Mr E on this – I doubt she will as Mr E’s logic is intact on this issue. Ele’s, otoh, is completely subsumed by her ideological opposition to State-ownership.

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  8. Mr E says:

    Could being the operative word. Good reason for a thorough independant review me thinks.

    Like

  9. robertguyton says:

    Very wise and responsible, Mr E.
    Ele, attacking Landcorp reveals your Right-wing ideologies in a way that has us thinking that you are not taking a balanced approach. Being backed by Gravedodger confirms that.

    Like

  10. homepaddock says:

    I’d welcome an independent review because I am confident it would confirm that investing 1.6b in farms isn’t the best use of money and that the good things Landcorp does could be done at least as effectively and less expensively by others.

    It’s not the company I’m criticising Robert (in the post and subsequent comments I’ve said it does some things well), it’s tying up all that money in assets which provide such a poor return to which I object.

    Like

  11. Mr E says:

    Ele,
    Your alternative investments don’t appear to lend themselves to financial gain.
    If you are to criticise Landcorp returns you need to do it over a longer term and include capital gains for it to be fair.
    But I think you are more interested in the intangibles?

    Like

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