Iwi occupying Crafar farm

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.

Could isn’t would

The High Court’s decision to send the decision on the Crafar farms’ sale back to the Overseas Investment Office raises the question of how could a foreign buy be better than a local one.

Shanghai Pengxin was committed to spending $14m or more if necessary to bring the farms up to scratch economically and environmentally.

It also agreed to set up an on-farm training facility for dairy farm workers and provide a couple of scholarships for trainees.

A New Zealand buyer could do all this and more but could isn’t would.

If Shanghai Pengxin was able to buy the farms it would have to fulfill its commitments local buyers would not.

This means a local buyer could get a property at a lower price than a foreign buyer was prepared to pay then do less with it.

Business New Zealand says the court ruling raises concerns over fairness and neutrality.

Chief Executive Phil O’Reilly says the decision seems to imply that future overseas investors would find it harder to succeed against a local bidder, even if the overseas investor was prepared to offer substantially more.

“If a local bidder could show that they would meet the same Overseas Investment Act criteria as an overseas bidder, then, according to the High Court decision, the overseas bidder would not be able to succeed.

“This is because the criteria in the Overseas Investment Act do not include the bidding price.

“This implies that a lower offer by a local bidder would trump a higher offer by an overseas bidder, where both bids met the OIA criteria.

“Great legal uncertainty would result from potential overseas investors meeting numerous stringent criteria then finding themselves having to meet local legal challenges.

“This could have a severe impact on the willingness of overseas interests to invest in New Zealand, just at a time when New Zealand needs every ounce of overseas capital to get our economy more productive and successful.

“This implied disadvantage against overseas investors is serious and requires scrutiny and possibly amendment to the Overseas Investment Act to ensure a fairer, more commercially neutral set of criteria,” Mr O’Reilly said?

The ruling calls into question all other decisions made by the OIO.

It will also be concerning anyone contemplating a farm sale in the near future because as Rob Hosking points out it will rule out some potential buyers.

That might please people who think land prices are too high but it will also mean bigger losses for creditors waiting for money from the sale of distressed assets.

Facts missing from figures

The Sunday Star Times put the sale of the Crafar Farms into perspective with a story on how much land has been sold to people from which countries in the last five years.

Figures released by the Overseas Investment Office show that of the 872,313 hectares of gross land sold to foreign interests over the past five years only 223 hectares were sold to Chinese.

People from the landlocked principality of Liechtenstein had purchased 10 times more land than the Chinese – 2,144ha in the same period.

The top buyers were the United States, Canada, United Kingdom, Australia and Israel. The United States had 194 purchases for a total of 193,208ha.

The figures do not show if there are any New Zealand ownership shares involved.

Nor do the figures show how many of the purchasers were sales from foreigners to foreigners and Inquiring Mind points out the difference between net sales and gross sales.

Nor do they include how much land owned by foreigners was sold back to New Zealanders.

Last week the sale of land to foreigners got a lot of attention but the purchase of foreign-owned shares in Dairy Holdings by New Zealanders has not got nearly as much attention.

Yet this sale brought a 25% share in 58 farms covering nearly 15,000 effective hectares, back into local ownerhsip.

Another omission from the discussion on sales of land to farmers is facts on what they do with it.

A farm in our neighbourhood is owned by  Frenchman. We have friends from Wales and the United States who own land here and whose farming and environemtnal practices and community involvement would put many New Zealand farmers to shame.

It isn’t where the owners come from, it’s what they do with the land that really matters.

Does he know what he’s suggesting

Sean Plunket is with the majority who don’t support the sale of the Crafar farms to foreigners.

But does know what he’s suggesting when he writes:

 . . . So my suggestion to the Occupy diehards: pick the nicest of the 16 Crafar farms to camp on, pack up your mung beans and your hacky sacks in your old kit bags and occupy some land to highlight an issue that really matters to so many New Zealanders. . . 

The right of the protesters to occupy public spaces has been subject to debate. That would not be the case with the farms – they are private property.

Regardless of the nationality of the owners, anyone who tried to occupy the farms could be charged with trespass.

It’s possible Plunket has got his tongue in his cheek but even so his comments will add to a growing concern among farmers that the public don’t understand that the property rights which apply to small areas of land in town apply just as much to large ones in the country.

Quote of the day

. . . When other sales of land to overseas owners are considered, and the safeguards written into the consent considered, the outcry over this bid has been disproportionate.

Its real importance to New Zealand is the extent to which it strengthens ties with a market fast becoming this country’s most important economic lifeline. – ODT

Crafar farm bid approved

Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman have accepted the Overseas Investment Office recommendation to approve the sale of the 16 Crafar farms to  Milk New Zealand Holding Limited (Milk New Zealand), a subsidiary of Shanghai company Pengxin.

“It is clear that all criteria under sections 16 and 18 of the Overseas Investment Act 2005 have been met, therefore we accept the recommendation of the OIO to grant consent,” Mr Williamson said.

“We are satisfied that Milk New Zealand’s application for consent meets the criteria set out in the Act,” Mr Coleman said.

The approval follows the receivers, KordaMentha’s acceptance in late 2010 of Milk New Zealand’s bid for the farms.

Milk New Zealand’s acquisition will further support the supply of high quality dairy products into the Chinese market and help set the foundations for further economic and export opportunities with China.

Stringent conditions policed by the OIO will ensure that Milk New Zealand’s investment delivers substantial and identifiable benefits to New Zealand. These include investing more than $14m into the farms making them more economically and environmentally sustainable; protecting the Nga Herenga  and the Te Ruaki pa sites and improving walking access to the Pureora Forest Park and Te Rere falls.  An on-farm training facility for dairy farm workers will also be established.

If the application meets the Act’s criteria the ministers had little choice but to approve the bid.

But this won’t be the end of the matter:

A press release just issued by the Michael Fay backed Crafar Farms Purchase Group says the decision to approve the farm sale to Shanghai Pengxin Group was “wrong in law and, if not overturned by Judicial Review, sets up open season for any foreign buyers wanting New Zealand land.”

The Group said it is the highest New Zealand bidder ($171.5 million), offering $21.5 million more than the Government’s farming SOE, Landcorp.

The Group confirmed it would proceed with a Judicial Review launched earlier this week to try to stop the land from being sold offshore.

But the Herald puts the purchase of the farms into perspective:

The 16 Crafar farms have a combined area of approximately 7,893 hectares.

In the last two years, consent was granted for overseas persons to acquire 357,056 hectares of agricultural land.

Consents granted involving agricultural land by country of majority ownership, are:

* United States to acquire 25,306 hectares of farm land

* Germany to acquire 6,834 hectares of farm land

* Switzerland 9,727 hectares of farm land

* Australia 3,861 hectares of farm land

* United Kingdom 22,600 hectares of farm land

* Hong Kong to acquire 759 hectares of farm land

I don’t remember any fuss over any of those sales nor over the sale of a total of 650,000 to foreigners approved by Labour in the nine years it was in government.

There are very stringent conditions on the sale:

• The individuals with control of Milk New Zealand must continue to be of good character
• Milk New Zealand must invest a minimum of NZD $14m in the properties
• Milk New Zealand and their associates must not acquire an ownership or control interest in milk processing facilities in New Zealand unless a 50% or more ownership or control interest in those facilities is held by non-overseas persons
• Milk New Zealand must establish an on-farm training facility for dairy farm workers and must meet the capital cost of establishing this facility
• Milk New Zealand must give two scholarships of not less than NZD $5,000 each year to students of the on-farm training facility with the first two scholarships to be awarded by 31 December 2013
• Milk New Zealand must use reasonable endeavours to assist Landcorp to extend its business to, and market its products, in China
• Milk New Zealand must provide public walking access over Benneydale Farm and Taharua Station, in consultation with the Department of Conservation  and the New Zealand Walking Access Commission
• Milk New Zealand must take reasonable steps to protect and enhance existing areas of significant indigenous vegetation and significant habitats of indigenous fauna and flora on the properties
• Milk New Zealand must register a heritage covenant in respect of the Te Ruaki pa site on Tiwhaiti Farm
• If required by the Office of Treaty Settlements, the Applicant must transfer the Nga Herenga pa site (approximately 1.6ha located on Benneydale Farm) to the Crown for nil consideration.

The third point, restricting ownership or control of milk processing here to no more than a 50% share, should allay concerns about food safety and standards.

The OIO’s recommendation is here; the decision summary is here  and background information here.

The only question I’m left with is why the receivers insisted on selling the operation as a whole rather than offering up individual farms.

They say they would not have got as much that way but I find that difficult to believe. The demand for individual farms would have been much greater than it was for the whole operation and therefore the price ought to have been higher.

 

Shearer climbs off wrong side of fence

David Shearer has finally climbed off the fence on which he’s been perching since he became Labour leader and taken a position pm something.

But he’s gone to the wrong side.

He says the Government must not sell the 16 former Crafar farms to a Chinese company as  it’s not in the national interest.

But the government doesn’t own the farms.

They are private property on which large sums of money are owed and the receivers must do what they can to recoup as much from the sale as possible.

It would definitely not be in the national interest, nor in that of the creditors, to have political interference stymie a sale at a higher price in favour of one which would recoup around $40 million less.

Shearer wasn’t part of the Labour government which sabotaged shareholders’ value in Auckland Airport with the refusal to let a Canadian pension fund buy it but he ought to know about it the damage it did.

The Crafar farms have become a symbol but while a big holding for an individual person or company they are a very small percentage of New Zealand farmland, only about 1% of which is foreign-owned.

Kiwiblog points out a good deal more was sold by Labour:

Labour during their nine years in office approved the equivalent of the Crafar farms being sold to foreign owners every single month! Yes the Crafar farms are around 9,000 hectares and Labour approved 650,000 hectares – equal to 75 Crafar farms.

Shearer wasn’t part of those governments either, but what has changed that made those sales right and this one wrong? Nothing but an increase in xenophobia, emotion and political opportunism.

Prime Minister John Key says:

“The wholesale sale of land in New Zealand is not in New Zealand’s best interests, and that was why we sought to toughen up the overseas investment act,” he said. “At around about 1 percent, I don’t think we have a substantial issue.”

The Overseas Investment Office has strict criteria for approving land sales to foreigners.

If there is a need for that to be stricter it should be done properly and on principle.

Political interference which overrides the criteria for an individual case is not in the national interest, especially when there is no guarantee that the consortium which is the under-bidder would not then on-sell some or all of the farms; nor that some or all of the new purchasers wouldn’t be foreigners too.

 

Xenophobia robs opportunities

The Australian government has warned that a “xenophobic campaign” would rob farmers of opportunities presented by the increasing demand from Asian countries for secure food supplies.

Just 1 per cent of agricultural businesses by number, 11.3 per cent of farmland and 9 per cent of water entitlements have some foreign ownership, a report released yesterday says, according to The Australian Financial Review.

Assistant Treasurer Mark Arbib said foreign investment had significant benefits and that there were already rigorous controls.

However, the Coalition said the report relied on faulty data and the National Farmers’ Federation called for the threshold at which the Foreign Investment Review Board must examine foreign investment in agriculture to be slashed to about $23 million from $231 million.

The Australian Bureau of Agricultural and Resource Economics and Sciences’ report acknowledges growing public concerns but cautions against bowing to them.

“Concessions to concerns about sovereignty, distrust or fear of foreigners are likely to come at an economic cost to countries that restrict the inflow of foreign capital,” it said.

Trade Minister Craig Emerson echoed this, warning Australia could pay a high price for “Hansonite” opposition to foreign investment in agriculture.

“Pessimists and political opportunists see the desire for food security of major emerging countries as a threat. In truth, it is an unsurpassed opportunity for Australian farmers,” Dr Emerson said.

The growing demand for safe, high quality food is also an opportunity for New Zealand farmers and the wider economy.

Some see that threatened by foreign ownership of land and that is partly what is behind the opposition to the proposed acquisition of the Crafar farms by the Chinese company Penqxin.

But as Fran O’Sullivan says:

I don’t believe it is in New Zealand’s long-term economic interest to allow xenophobia, whipped up by a rival (late-comer) bid, to damage a relationship cemented by years of diplomacy by officials in this country and China.

There will be more to the OIO decision than mere political cosmetics. Penqxin will have made sure that its business plan includes processing milk powder from the Crafar farms within New Zealand and to export branded high-value products back to China. Thus it ought to pass the OIO’s muster.

That is also where the value proposition for New Zealand-sourced dairy production lies. Not simply in exporting vast quantities of milk powder to Fonterra’s customers and competitors offshore (including within China) for them to refine. This will lead to more jobs in New Zealand – not fewer.

Appealing to xenophobia in their increasingly vehement opposition to the Penqxin bid does the consortium led by Sir Michael Fay no credit.

The receivers are duty-bound to get the best return for the farms and it appears the New Zealand bid is well short of the Chinese one.

If it wasn’t for the relatively new markets for our primary produce in Asia, particularly in China, New Zealand’s economic position would be in a very dire position.

It is in our mutual interest to further trade and other relationships.

Providing safe-guards are in place to ensure farms aren’t mined and produce meets the high standards on which our reputation is based we have more to gain than lose from foreign investment.

Landcorp has conflict of interest – Fay

Sir Michael Fay who is part of a group of dairy farmers and Iwi wanting to buy the 16 Crafar farms says the bid is being kneecapped by Landcorp.

“Landcorp is lending a New Zealand face and New Zealand expertise to an overseas bid that fails to meet the Overseas Investment Office test of adding value to an asset,” says Sir Michael. “Shanghai Pengxin admits it knows absolutely nothing about dairy farming.

Landcorp’s involvement is nothing more than an attempt to sanitise a deal that stinks in the minds of most New Zealanders.

“Chris Kelly says Landcorp is doing a good deal to enhance dividends to the Government, Landcorp’s owner. But Landcorp is effectively helping to shut out a New Zealand bid, competing against our own dairy farmers and flying in the face of public opinion polling that shows more than 80% of New Zealanders want the Government to actually step in and stop the sale of the Crafar farms to foreign buyers.

The SOE should be enhancing dividends but Fay isn’t the first to complain that it competes with private individuals and companies in doing so.

“Under its Statement of Corporate Intent Landcorp is supposed to have regard to the best interests of the community in which it operates. Clearly in this case it is direct conflict with the interests of the Central North Island farming community and the New Zealand public in general.

“It’s no wonder so many New Zealand farmers have had a gutsful of Landcorp if they can’t see this conflict. Perhaps Landcorp should be the first SOE to be sold off and the whole lot can be returned to New Zealand farmers who will certainly do a better job of running those farms than a Government department.”

The difficulty in selling the Crafar farms as an entity shows that it wouldn’t be sensible to try to sell Landcorp as a going concern. But I’d be happy for it to gradually sell off its farms one by one until it put itself out of business.

If the government has a role in farming it is in training, research and irrigation, not in business which competes with the rest of us.

Sir Michael says the argument about Landcorp being charged with making good returns for Government was a stupid line to run to justify the SOEs involvement in the Shanghai Pengxin Crafar bid.

“The Government will do much better out of the 16 farms being retained in New Zealand ownership with all the dividends staying in New Zealand and all the wages, salaries, payouts and taxes flowing into local communities and the Government’s coffers

“Landcorp is at best an average farmer of the vast tracts of land it holds and generally returns much lower production figures than their neighbours. Now they are setting themselves up as tenant farmers of land that the public demands should be retained in New Zealand ownership.

“Where’s the sense or their mandate for that?”

I don’t have a problem with foreign ownership per se. Regardless of who owns the farms most of the wages, salaries, and taxes would be paid in New Zealand. If they’re owned by foreign-based people or companies some of the payout and dividends would go overseas, but only after overseas money came in for the purchase and further investment.

But I agree that Landcorp’s return isn’t particularly good.

The $1.6 billion tied up in its assets would be better used elsewhere and not in competition with the private sector.

Fay led local team ups offer for Crafar farms

A group of North Island farmers, led by Sir Michael Fay has increased its offer for the Crafar farms.

The original offer was for only nine of the 16 farms, the new offer is to pay $171.5 million for all 16 farms.

The Overseas Investment Commission is appraising an offer for the farms from a Chinese based group.

“Our group of farmers is the only other buyer for all the farms in this sales process and following satisfactory due diligence we are ready to go,” said Sir Michael. “As soon as we have a signed deal with the receivers they can hand over the keys and we’re ready to walk onto the land. Obviously that’s subject to the Overseas Investment Office rejecting the current Chinese contract.”

Sir Michael said the group was a mix of Iwi and local farmers who already own dairy farms in the Central North Island and who don’t have the complication of needing OIO approval.

“We’d like to be on the farms before Christmas to get them up to full production for the new season starting in mid 2012.”

Sir Michael said the average per hectare price was an accurate reflection of current land, asset and herd values and the opportunity to closely inspect production figures would need to confirm the value of the $171.5 million farmer group offer.

Steve Bignell, of Stretton’s Chartered Accountants in Taupo is the lead negotiator for the group of farmers and says the average $28,500 per hectare offer placed the contract price in the leading bracket for dairy farm sales in the area and across New Zealand.

Federated farmers says the bid is the best option for keeping the farms in New Zealand hands but the Overseas Investment Office should complete its investigation of the Chinese offer without bias.

“As a Kiwi would I like these farms to remain in Kiwi ownership? You bet I would,” says Robin Barkla, Federated Farmers Dairy Vice-President who farms in the Bay of Plenty. . .

“While my heart says one thing my head says that because there’s a live OIO application, we need to let it go through all the necessary hoops.

“The OIO process must be clean for if there’s any hint of favouritism or bias, then we risk becoming a South Seas Venezuela. Anything like that would spook international investors and dangerously drive up interest rates.

“That said, Sir Michael Fay is doing exactly what Federated Farmers has called for. Assembling a group of Kiwi investors to make a sizeable but credible bid for these farms.

“It certainly provides the receiver with a great option should the Pengxin Group bid fall over,” Mr Barkla concluded.

That’s a reasoned response.

The Chinese offer was first on the table is, I think, for a higher price and is part way through the OIO process.

The receivers have a responsibility to get the best price  accept the best offer for the creditors on whose behalf they are working. If the OIO accepts the Pengxin Group bid then it would be difficult for the Fay-led bid to succeed if it is offering a substantially lower price.

If however, the locals increase their offered price so it is close to that of Pengxin then the receivers might have a more difficult choice to make.

UPDATE:

RadioNZ reports the receivers say the Pengxin offer is still the best.

Rural round-up

 Go Mr McGill – rivettingKate Taylor writes:

Good news and another step up the politicial ladder for my friend Paul McGill.

 Current Nuffield Scholar, former Kellogg’s Scholar, convenor of this year’s Grand Final of The National Bank Young Farmer Contest in Masterton….. he’s now also president of Wairarapa Federated Farmers. . .

The price of milk – Claire Browning on food security:

The true price of milk is its cost, in distracting us from the bigger issue: what policy and regulation is needed, to secure quality food for ordinary — all — New Zealanders

Why assume milk guzzling is such a good thing? Why should it not cost, since it does? . .

Focus on farm jobs educators urged – Mark Hotton writes:

The public perception of agriculture and other primary industries must change to make them more attractive to Southland’s brightest young people, high school heads of department were told yesterday.

In a presentation designed to encourage teachers and career advisers to recommend careers in primary product industries to students, Lincoln University lecturer Dr Jon Hickford said Southland’s economy was heavily reliant on the rural sector so it was vital skilled people were being encouraged into the industry.

There was a real need to encourage young people into the sector because that was where the province’s wealth was being generated, he said.

Hat tip: Tony Chaston who wrote:

It is ironic this story broke on the same day the government announced a $55 million youth employment, and job training package aimed at building the skills of our young people for the future.

This site last year expressed concerns about lack of funding at Lincoln University to allow agricultural lecturers to properly cover the three areas of teaching, extension and research. Following  up on these issues it appears a significant turnaround has been achieved and new appointments should improve the quality of that service.Thats good news but how much of that $55million will be directed to agriculture I ask? . .

Red meat strategy shows a path to sustainable sector profitability – Beef+ Lamb NZ;

The Meat Industry Association (MIA) and Beef + Lamb New Zealand (B+LNZ) have today released the Red Meat Sector Strategy with the Prime Minister, the Rt Hon John Key and the Minister of Agriculture, the Hon David Carter. The strategy reflects broad recognition of the underlying challenges to the sector’s sustainable profitability, but also clearly identifies the opportunities for the sector to realise its full potential and continue to be a principal driver of New Zealand’s economy.

“While the sector currently generates nearly $8b annually in export earnings and forms the basis of the visual and social landscape of New Zealand, over time its profitability has been inconsistent and often unsatisfactory, as is reflected by conversion of sheep and beef farm land to other uses such as dairy farming and forestry,” said Mike Petersen, B+LNZ Chairman.

In this context, MIA and B+LNZ initiated the development of this sector strategy – with unprecedented input from the sector and underpinned by extensive data and in-depth analysis by Deloitte – to identify ways of achieving sustainable profitability and promote re-investment in the industry. . .

Largest in the world – from Rural News:

 THE NEWLY-OPENED New Zealand Ruminant Methane Measurement Centre (NZRMMC) is the largest purpose-built facility of its kind in the world.

Opened last week by Agriculture Minister David Carter the Palmerston North-based facility provides New Zealand scientists with an opportunity to accurately measure methane emissions from more than 25 ruminant animals at the same time. . .

Locals can’t rival Crafar bid – Richard Rennin in NZ Farmers Weekly writes:

Despite increased confidence in the dairy industry it looks unlikely individual sales of Crafar farm properties would raise more than if they are sold as one.

` The prospect of another Chinese company bidding for the 8000ha Crafar portfolio has had local farmers like Raetihi’s Gerry Dekker asking why the farms could not be sold off individually.

Dekker’s concerns, expressed in a letter to The New Zealand Farmers Weekly, have been echoed by Federated Farmers dairy head Lachlan McKenzie. . .

Farming families honoured – Helena de Reus writes:

Families who have owned the same farm for more than a century will be honoured at the New Zealand Century Farm Awards in Lawrence next Saturday.

Twenty-two families from around the country will attend the official function at the Simpson Park complex, with four receiving sesquicentennial awards (150 years). . .

Passion for High Country and painting – Sally Rae writes:

 High country artist Norman Sinclair is looking forward to a trip to the Waitaki Valley next week.

Not only is he having an exhibition at the Kurow Museum – coinciding with the South Island sheep dog trial championships at nearby Hakataramea – but he will also fit in some duck-shooting in the Hakataramea Valley. . .

Selling single better for all

The government has turned down Natural Dairy’s attempt to buy the Crafar Farms.

Hon Maurice Williamson and Hon Kate Wilkinson have today declined consent to Natural Dairy (NZ) Holdings Limited to acquire the Crafar farms.

The Ministers’ decision covers the applications by Natural Dairy (NZ) Holdings Limited to acquire UBNZ Assets Holdings Limited and 16 of the Crafar farms.

The Ministers also declined consent to UBNZ Assets Holdings Limited’s retrospective application to acquire the four Crafar farms it purchased in February 2010.

“We concur with the Overseas Investment Office’s recommendation that consent should be declined,” the Ministers said.

That’s not surprising, nor is the news that Landcorp isn’t putting in a fresh offer for the 16 farms, although it is intimating the existing one would stand should the receivers show any interest in it.

Landcorp says it would still be interested in the purchase but is unlikely to substantially increase its original offer.

The company makes a pitiful return on the capital it already has invested in farms, it shouldn’t take on any more, not even to sort them out then on-sell them individually.

That would mean the state taking on the risk and passing on the benefit to individuals.

Federated Farmers president Don Nicolson wants the farms back on the market to be sold individually. A view which Adolf has been promoting from the start.

That would increase the number of likely buyers and could well result in a better total price than if the farms were sold as a unit.

Who will buy Crafar farms now?

The chances of the Hong Kong based Natural Dairy company passing the Overseas Investment Commission hurdles to allow it to buy the Crafar farms weren’t high to start with.

There’s even less chance now that the company front-woman May Wang has been bankrupted.

So who’s likely to buy the farms now?

It shouldn’t be Landcorp – it is one of the State Owned Enterprises giving a poor return on investment which was highlighted in a report on SOE performance released this week.

The best thing the receivers could do would be to stop trying to sell the farms as a single entity and offer them singly.

The rural real estate market is sluggish but the chances of attracting buyers able to buy single farms is far greater than finding someone willing and able  to buy the lot.

Farm sales and property values drop

The volume of farm sales and prices paid dropped in the three months to August.

From a high of $4,650,000 in August 2008 the three month median price for dairying properties is down by a third to $3,100,000 in the latest REINZ Rural Market Report statistics released today.

Only 17 dairy farms were sold in the three months to August, one less than in the same period last year and significantly below the 67 transactions in the three months to August 2008. Just three dairy farms sold in August at an average price of $2,543,333, and the average price per hectare decreased to $31,598 from $36,435 in July. The average price per kilogram of milk solids has fallen further to $33 from $37 in July, $40 in June and $45 in May.

 

From a peak of $90,125 in August 2009, the average price per hectare of all types of farms has fallen to $29,739. The 192 farms sold in the three months to the end of August is an increase on the 183 in the same period last year, but less than the 516 transactions in the three months to August 2008.

The national median farm sale price eased up from $1,118,500 for the three months to July to $1,127,754 for the three months to August 2010. Well down on the median of $1,742,500 for the equivalent period in 2008, the latest August figure is fractionally above the median for all farms of $1,000,000 for the same three months in 2009. However with the low number of sales currently occurring, price fluctuations, both upwards and downwards, can be impacted by the range of prices of the mix of properties being sold.

On a regional basis the largest number of farm sales during the three months to August was 31 in Canterbury, 24 of them grazing properties, and 27 in Southland, 11 of them grazing properties.

During the past year median prices for farms have declined in eight out of the 14 districts. In the three months to August 2010 compared with the corresponding period in 2009, farm sale prices were down in Waikato from $1,663,655 to $1,187,500, Bay of Plenty from $1,000,000 to $920,000, Hawkes Bay from $1,800,000 to $945,000, Manawatu/Wanganui from $1,275,000 to $1,200,000, Wellington from $3,005,000 to $1,935,000, Canterbury from $1,300,000 to $1,200,000, Otago from $937,500 to $712,000, and Southland from $1,200,000 to $1,125,000.

There was another decrease in the number of sales of lifestyle properties from 1088 at the end of July to 1066 in the three months to the end of August, and the national median selling price eased from $447,500 at the end of July to $436,750 last month. While the August 2010 median is still up on $430,000 for the same three month period in 2009 it is below the August 2008 median of $450,000.

The decline in sales and prices is due to both the recession and the boom which preceded it.

Farm prices for all properties soared on the back of increasing dairy prices until it was cheaper to buy an existing dairy farm than to purchase sheep or cropping land and convert it.

There used to be a rule of thumb that you should never pay more than three to five times the value of a property’s gross income when buying a farm. That was disregarded for not just dairy properties but sheep and beef ones with much less earning potential.

The value of a property is most important when you’re buying or selling or if it’s highly mortgaged.

Lower prices may make it easier for people to get in to farming or increase their land holding, although credit is still pretty tight. But they will also be causing older farmers to re-think their retirement plans and they will be having a detrimental impact on equity of those with mortgages.

That won’t matter if the people can cover interest payments and ride out the current downturn. But it will put pressure on people who were struggling before prices dropped.

However, banks will be mindful that there’s no point pushing for sales when prices are dropping.

The protracted process of the sale of the Crafar properties won’t be helping farm sales and that’s when it’s possible for overseas investors to own farms.

The volume of sales and property prices would drop even more if farm ownership was restricted to New Zealanders.

Ban wrong response to concerns over foreign ownership

The Green Party’s members bill seeking to ban overseas investment in New Zealand land over five hectares is the wrong response to concerns over foreign ownership.

The media release says:

Today Dr Norman released a Member’s Bill that would effectively stop the purchase of New Zealand’s productive dairy industry by restricting the sale of farmland over five hectares to overseas investors.

I think that should read restricting the sale of farmland over five hectares to New Zealanders because the Bill says:

4 Purpose

The purpose of this Act is to: prevent foreign ownership of sensitive land.

 5 Sections 16 and 17 deleted and replaced

Sections 16 and 17 of the principal act are deleted and replaced with

“16 No overseas investment in sensitive land

No consent can be granted for overseas investment in sensitive land.”

This is  a knee-jerk reaction to concerns over the purchase of the Crafar farms by Chinese investors. 

If there is a problem with overseas investment in our land, this Bill isn’t the solution.

Not all land over 5 hectares is sensitive, nor is it all farmland.

 New Zealanders’ lack of wealth in comparison to that of people  from some other countries could make us vulnerable but overseas investment can have benefits too.

It’s not just who owns land but what they do with it, and its produce, which matters and most of that is controlled by local authority regulations and central government laws.

A blanket ban on land sales over five hectares is an overreaction to what, at least at this stage, is a problem of perception rather than reality.

We need to have a discussion on the benefits and risks of foreign ownership and if there is a need for legislation it should be based on facts not emotion as this Bill is.

Landcorp not preferred bidder for Crafar farms.

Landcorp’s bid for the Crafar farms has been rejected by the receivers.

Receivers Michael Stiassny and Brendon Gibson of KordaMentha confirmed today that over 50 offers were submitted on all or parts of the portfolio from a range of buyers.

They were pleased with the strength of the offers, however Landcorp was not among the preferred tenders, they said in a brief statement.

Good.

The SOE should not be competing with private businesses and individuals in land acquisition and it should be gradually reducing its landholding, not increasing it.

As I said here and here, the  $1668.7m it has invested in farms returned only $10 million by way of  a dividend to the public coffers last year.

That capital would give a better return for agriculture and the country as a whole if it was spent in areas such as research and initiatives to encourage more students in agriculture and related fields.

Not where they’re from but what they do here which matters

Whether our ancestors, paddled, sailed, or flew here, they brought with them a variety of skills and cultures which have helped make us and our country what it is.

Now that our birth rate is hovering at or below natural replacement level, immigration is at least as important as it was in the past.

You’d think that means we’d welcome people bringing their expertise and money, but that’s not necessarily the case, especially when it comes to those wanting to buy farm land.

The Herald reports:

. . .  at least 24 countries have been given approval to invest in the agricultural sector, covering 154,855ha and a wide range of sectors from sheep farming to viticulture.

 I suspect they mean that people from at least 24 countries, which is different from the countries themselves, and that’s not necessarily bad.

Westpac chief economist Brendan O’Donovan says foreign investment generally has been an integral part of New Zealand’s growth.

“Because we’ve always had a capital shortage and we’ve been very dependent on foreign funding and foreign firms,” O’Donovan explains. . .

 

New Zealanders buy into foreign companies and land, he says. “If you expect to be able to buy land in other countries then you’ve got to be prepared to sell it here.”

Adolf at No Minister, agrees and points out that New Zealanders may well have bought a greater area of land in other countries than foreigners have bought here  over the last five years.

Although not all countries allow non-nationals to buy land which is one of the issues Federated Farmers is considering. While mindful of the importance of overseas investment, Feds president Don Nicolson says:

“. . .  I think it’s very important that we have reciprocal rights for purchasing in the countries that may be willing to invest in our land and assets here.

“We can only lease [land in China] so at best people are saying surely these people should only be able to lease land in New Zealand.”

New Zealanders buy land in North and South America, Australia, South Africa and central Europe, he says.

“I think if you talk this through with people clearly they need to understand that we need capital flows into this country … and when you start going through how it plays out people do back up.”

Federated Farmers is reviewing its position on foreign ownership.

“Our position of old has been that, well they can’t take the land with them, provided they acknowledge New Zealand law and institutions and provided they pay taxes in New Zealand then what is the issue?” Nicolson says.

“We want to have capital flow into this country – the last thing we need is anything that would spook capital flight.”

However, Fonterra chair Sir  Henry van der Heyden is less enthusiastic. He  said  low-cost pastoral agriculture is New Zealand’s point of difference and warned we must be careful not to give away our competitive advantage.

“Or we will pay the price,” van der Heyden says.

Van der Heyden wants to start a public debate over who should own prime pastoral land and questions why, given our temperate climate and soil and water resources, land is not seen as a strategic asset.

“Why shouldn’t it be under [New Zealand] control and ownership?”

He didn’t explain how this view sits with the co-operative’s farming ventures in China and Chile, although, at least in China,  Fonterra leases land because foreigners aren’t permitted to own it.

It’s unfortunate that the discussion on overseas ownership now is being driven by fears the 16 Crafar farms may be bought by a Chinese company. Policy on matters as important as this should be formed on general principle not particular prejudice and, as O’Donovan says:

“The key thing in all of this is to set clear rules because what we’re talking about is property rights, you can’t go changing the rules midstream,” he says.

“If there’s any no-go areas for foreign investors then it should be put on a register so it’s clear … and everyone knows what the rules are.”

It’s not just potential purchasers who need certainty, would-be vendors do too.

Land sales are more emotive than other assets because people have a perception the family silver is being sold, he says.

“There’s a limited difference between a foreigner owning a company here versus the land underneath that company.

“The question is always what do you do with the money [from] the asset that’s been sold,” O’Donovan says.

“If you think that you can invest it either somewhere else in New Zealand or overseas and generate a greater return on it, then where’s the issue.”

This is something which is  often overlooked. For every buyer there must be a seller. If money is brought in to New Zealand to purchase land the vendor is then able to invest the proceeds in more land or other ventures and the foreigners investing here bring more than money.

An Italian bought a farm in the Hakataramea Valley, realised it was similar to where he grew up in northern Italy which produced good wines. He planted  grapes and last year opened the Waitaki Valley’s first winery.

We have friends who came from overseas, invested money they brought with them in farms, settled on them with their families and are making a positive contribution to their new communities and New Zealand agriculture.

These examples may well be able to be countered by anecdotes of other people who took more than they contributed but bad farming isn’t peculiar to foreigners.

Regardless of who owns the land, it’s now who they are or where they come from, but what they are permitted to do with it which is most important.

Selling Crafar Farms as unit limits buyers

The sale of the 16 Crafar farms as a single unit excludes most potential buyers.

Federated Farmers president Don Nicolson says:

“. . . our concern as a Federation is the receivers’ clear desire to sell the 16 farms as a complete unit.

“Federated Farmers does not believe Bayleys, KordaMentha or the Crown should remove the opportunity from New Zealand farmers to acquire individual farms. In saying this, we welcome Landcorp’s statement that if successful, it will move to sell down the portfolio.

Few individuals here, and not many overseas, have the desire and financial ability to buy 13 dairy farms and three drystock properties.

The receivers may be doing what they think is best for the banks for whom they’re acting in attempting to sell everything as a package, but this is a case where the sum of the parts might be worth more than the whole. Selling the farms individually may raise more money and it would certainly increase the number of potential buyers.

Feds is also concerned at what it sees as the underlying issue – the weakness of New Zealand’s capital markets.

“With relation to CraFarm, Landcorp is really the only bid we know of that doesn’t involve significant overseas capital.

“This probably still reflects the finance company implosion that burnt through vast amounts of domestic capital. New Zealand is utterly dependent upon overseas capital and rectifying this is a major policy challenge for Government and an issue for corporate and rural New Zealand.

“Farms and businesses are still being bought and sold but that’s largely using foreign capital, either directly through outright sale or indirectly through lending from banks, much of which is using overseas funds. . .

The Federation is reviewing its policy on overseas investment too:

“. . . We cannot stifle the entrepreneurial endeavour of New Zealanders wishing to realise the value of their hard work.

“Yet equality of investment opportunity must, I believe, become part of our trade negotiation stance. If we can not secure freehold title abroad then that must be reciprocated in our country-by-country trade agreements.

“This is not the nuttiness from the political fringe, which suggests keeping New Zealand only for New Zealanders. Bumper sticker slogans don’t make for good public policy and if Australia applied that to us, we’d see some upset Kiwis losing their investments over there.

“Overseas investment can be extremely positive, as Shania Twain’s 2004 purchase and development of Motatapu and Mt Soho stations has shown. Kiwis likewise own farms in Canada as well as the Americas, Europe and Australia but it’s based on equality of opportunity.

I am cautiously supportive of foreign ownership of land and see many benefits in an injection of foreign capital. However, not every country is as liberal about foreign ownership as we are and this raises an element of unfairness.

Don raises a good point that if we let foreigners buy our land we ought to be able to buy theirs and reciprocal purchase rights could be something to consider in  trade negotiations.

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.

Random impertinent questions about the Crafar farm sales

1.How would the public, which doesn’t like coprorate farming, react to the suggestion a private company that already owned 105 farms wanted to buy the 16 Crafar farms?

2. Would it make a difference if a company which didn’t already own farms but was foreign owned wanted to make a bid?

3. Would it make a difference if the company wanting to bid was Landcorp, an SOE?

4. If Landcorp buys the 16 Crafar farms should it sell some of the 105 farms it already owns?

5. How much land should Landcorp have?

6. Is Landcorp a good farmer?

7. Does it have expertise in farm development?

8. If so how does its record of development compare with that of private farmers or companies?

9. Should the taxpayer have $1668.7m tied up in farms?

10. Are dividends of $10m last year, $13m in 2007/08, $12m in 2006/07 and $3m in 2005/06  good returns on that investment?

11. Would there be bigger dividends for New Zealand agriculture – and all New Zealanders – if some or all of the $16668.7m was invested in irrigation, agricultural research and education or training instead?

12. Would New Zealand be better off if some of that money was invested in something other than agriculture – health or general research and education perhaps?

13. Why doesn’t Landcorp invest in processing and fertiliser co-operatives as most other farmers do?

14. Do they support NZ Inc?

15. Should the state be in farming?

16. Why can’t individual New Zealanders or private companies afford to buy the Crafar farms individually or as a group?

17. Can a corporate entity ever be as good at farming as individuals and families?

(A nod to Cactus Kate who’s so very good at asking random impertinent questions.)