Rural round-up

09/09/2015

Bright Foods tipped as Silver Fern bidder – Fran O’Sullivan:

Chinese Government backed Bright Food is understood to be the party which has been in negotiations with Silver Fern to take a stake in the NZ meat company.

Bright is a wholly Government-owned State Owned Enterprise.

But the negotiating vehicle is understood to one of Bright’s four listed subsidiaries. One of those subsidiaries – Bright Dairy & Food – took a majority stake in Canterbury milk processor Synlait Milk for $82 million in 2010.

Late last week speculation suggested the proposed deal would be announced today by Silver Fern Farms. . .

Waikato farmer wearing undies and gumboots chases burgler – Florence Kerr:

An attempted robbery was thwarted by an angry Waikato farmer who chased down the not-so-clever burglars wearing his undies and his gumboots.

Fed-up with continued thefts from his and neighbouring farms, Ohaupo farmer Arnold Reekers was forced into action in the early hours of Sunday morning when he heard his quad bike beeping as the thieves attempted to hot-wire the vehicle.

And despite having a knife pulled on him by the would-be thieves, Reekers wouldn’t hesitate to do it again saying continued thefts would drive farmers to take up arms despite pleas from the police for people not to take matters into their own hands.  . . 

Agility to drive value – Hugh Stringleman:

Fonterra chairman John Wilson has hit back at repeated criticism the huge co-operative has lost its way or not delivered on the promise it once held.

“I do sense the frustration of farmers with critics who come out of their holes when global milk prices are low,” he said ahead of the annual results release on September 24.

Wilson is one of three farmer-directors who retire by rotation this year to face the farmers’ vote in October. . .

New Zealand sheepmeat – maximising the cut:

Softer overseas demand for New Zealand sheepmeat – particularly out of China – which has curtailed New Zealand sheepmeat producers’ returns in recent months, has largely been driven by decline in demand for the forequarter portion of the carcase, says agribusiness specialist Rabobank in a recently-released report.

The report, New Zealand Sheepmeat: Maximising the Cut – Breaking It All Down, says it is important for producers to understand the breakdown of the animal and market demand for specific products as it ultimately determines the farmgate price. 

“While farmers are paid on a per head or per kilogramme basis, the price they receive is calculated from the summation of all the products derived from the animal – from the extensive array of cuts, to the offal, co-products, skin and wool,” says report author and animal protein analyst, Matthew Costello. . .

 

Foreign investment decisions could be fast-tracked – Brook Sabin:

The Government is considering speeding up foreign investment decisions, but Finance Minister Bill English is giving a cast-iron guarantee the rules won’t be watered down.

The Overseas Investment Office (OIO) considers whether to approve high-value and sensitive land investments from overseas buyers. It then makes a recommendation to the Government, which ultimately decides whether the sale can proceed.

The most high-profile sale currently before the OIO is the 14,000ha Lochinver Station, which China’s Shanghai Pengxin wants to buy. The application has been held up for more than a year, but the Government is finally close to deciding whether it will go ahead. . .

Investment reduces AsureQuality profit:

AsureQuality posted a 9% drop in 2015 annual profit and expects a further decline in 2016 as the state-owned food safety company steps up investment for future growth.

Profit fell to $11.4 million in the 12 months ended June 30, from $12.5m a year earlier, the Auckland-based state-owned enterprise said in a statement posted on the Treasury website. It expects profit to decline further to $10.6m in 2016 before increasing to $12m in 2017, according to its 2015-2018 statement of corporate intent. . .

Organic farming is actually worse for climate change than conventional farming –  Deena Shanker:

Organic food is booming right now, as more and more people choose what they perceive to be healthier, more environmentally friendly food.

But a new study published in the June issue of Agriculture and Human Values suggests that organic farming, as it currently stands, is not as sustainable as it could be, and when done on a large scale, even produces more greenhouse gases (“GHGs” are heat-trapping compounds that contribute to climate change) than its conventional counterpart.

To determine the difference in emissions of organic agriculture versus conventional, University of Oregon researcher Julius McGee used state-level data, available through the United States Department of Agriculture and the Environmental Protection Agency, that showed agricultural GHG emissions from 49 states from 2000 to 2008. . .  Hat tip: Utopia

Biofilms in the Dairy Industry:

Recent high-profile contamination scares within the international food industry have highlighted the need for best practice when it comes to dairy manufacturing. After 15 years of research into dairy biofilms, there is now a cornerstone publication for a better understanding of the current science, and ways to reduce the occurrence of biofilms associated with dairy manufacturing.

Biofilms in the Dairy Industry provides a comprehensive overview of biofilm-related issues currently facing the New Zealand and international dairy sector. . . 


Chinese-NZ partnership wins

09/05/2015

The company which bought the former Crafar farms has won an award for turning the business around using New Zealand management, labour and skills.

Milk New Zealand, owned by Shanghai Pengxin, was last night named supreme winner at the 2015 HSBC New Zealand China Trade Association Business Awards in Auckland.

Shanghai Pengxin bought Crafar Farms in 2012 for more than $200 million.

Gary Romano, chief executive of Pengxin International, said the award was recognition for how they had run the farms.

Shanghai Pengxin’s purchase of the farms was controversial – but Mr Romano believed it had been good for New Zealand.

“Look, as a New Zealander, I did think to myself, am I doing something that’s good for New Zealand as well as my company?

“After speaking to a number of economists and thinking clearly through this I’ve come to the view that there is absolutely no downside to foreign investment.

“I think some of the things that the Overseas Investment Office does are very correct.

“So, things like making sure there’s been no money laundering, the right amount of taxes have been paid, people of good character, and that we’ve paid a fair price for the assets in a contestable process – all those things are very, very useful for New Zealand.”

He said once those tests had been passed, such investment provided oxygen for the economy. . .

The combination of foreign investment and local skills has been a winning one which shows the benefits that can result from allowing overseas ownership of some land.


We’ve grown

09/08/2014

Foreign investment is an issue which bubbles away in the background with the occasional boil over, usually based on emotion not facts.

This week’s fuss over the sale of Lochinver Station is a prime example.

The rules for foreign investment were already tight and National tightened them further.

Foreign buyers of sensitive land must convince the Overseas Investment Office they can meet strict criteria – including delivering greater economic, environmental and social benefits than a local buyer would.

This isn’t just a matter of ticking boxes.

A friend manages farms owned by a foreign company and he says they are strictly monitored to ensure they are doing what they said they’d do.

This isn’t good enough for politicians who sense an opportunity to grab a headline and garner votes.

The concern is that if emotion rules, New Zealand and New Zealanders will be poorer.

Foreign investment brings benefits as John Roughan points out:

Foreign investment seems to have done us no harm. In fact we would be a smaller, meaner, more worried place without it. We’ve grown.

Prime Minister John Key has said if there’s a run on our land the government will act.

There is a need for a discussion on what would constitute a run and the total area of foreign ownership we should allow.

But that should be based on reason not emotion.

Foreign investment has helped us grow and poor policy based on  political opportunism by politicians desperate for attention could threaten future growth.

We’ve grown and we need some foreign investment to ensure we keep growing.


Labour tries to out-Winston Winston

05/08/2014

Labour has forgotten that is trying to out Winston-Winston Peters on sales of land to foreigners:

The next Labour Government will keep rural and residential land in Kiwi hands, Labour’s Finance spokesperson David Parker says.

“New Zealanders are sick of seeing their farms and homes sold to overseas buyers with the profits and opportunities going offshore. No overseas person has the right to buy our land.

The opportunities stay here where the land is, so do the jobs which go with it.

The profit is only what’s left after costs – including the purchase price, wages, repairs and maintenance, development and tax – are paid.

A friend is New Zealand manager for overseas investors who own several farms. That company reinvests all its profit in the farms and adds more money from other investments elsewhere for development which includes a very expensive experiment with organic farming.

Their money is making the farms better and they are putting far more into the country than they are taking out.

“In all but the rarest of cases, sales of rural land to overseas buyers will be banned. Non-resident investors will also be banned from buying existing Kiwi homes.

What will those rarest cases be and who will decide?

“Changing who owns what already exists does nothing to increase New Zealand’s output. It just sells off New Zealand’s profit stream and kills off the Kiwi dream of owning our farms and homes.

It could increase New Zealand’s output if the investment improved production.

“Labour will reverse the current approach so that overseas buyers of rural land will have to prove they will create more jobs and exports than any New Zealand investor. Given New Zealanders are among the best farmers in the world it is an extremely hard hurdle to get over.

The hurdles overseas must leap are already very high and include the creation of jobs.  Among other conditions local buyers don’t have to meet but foreigners do is allowing public access.

New Zealand farmers are very good but they often lack the capital to be even better.

“This will ensure our farms are not priced out of the reach of New Zealanders.

If that is the case it would also mean the vendor gets less to invest elsewhere.

“We will also limit the discretion of the minister to ignore recommendations from the Overseas Investment Office.

“Labour will also restrict sales of residential homes to any non-residents unless they intend to move here, helping to keep the Kiwi home ownership dream alive, especially for young New Zealanders currently locked out of the housing market.

“The National Government is ignoring the legitimate concerns of New Zealanders about New Zealand land and houses being sold to overseas interests.

These concerns are largely based on emotion rather than facts.

A very small proportion of farm land is owned by foreigners and the problems with housing are largely a result of planning restricting the supply in Auckland and the earthquakes in Christchurch.

“Instead of accusing New Zealanders of being xenophobic, John Key and Steven Joyce should respect New Zealanders’ desire to keep New Zealand land in New Zealand hands,” David Parker says.

The accusation of xenophobia is because the protest is loud when it is a Chinese buyer and quiet to non-existent when it is from other countries like the USA, Britain, Australia or Germany.

Wee parties can get away with outrageous policies because they can always use the excuse they didn’t have the numbers to get them enacted.

The bigger parties are usually more circumspect.

Labour has forgotten this in trying to out Winston Winston Peters with this dog-whistle to the xenophobic.

It is also ignoring the benefits from the sale:

Stevenson Group, the concrete, quarrying and engineering firm that owns Lochinver Station, ran an extensive tender before agreeing to sell the 13,843 hectare farm to Shanghai Pengxin and says it will reinvest the funds in other businesses. . .

 The Stevenson family has owned Lochinver for 60 years but started as a drain-laying business in 1912, expanding into quarrying and construction in the late 1930s, and making concrete blocks from 1946. The original 5,260 ha Lochinver farm was acquired in 1958 and the family expanded to 16,595 ha “breaking the wild country into farming land” with “an enormous amount of hard work.”

“Farming is not the core business of Stevenson Group,” chief executive Mark Franklin told BusinessDesk. The company is freeing up capital to invest in other businesses such as expanding its Drury quarry, he said.

Franklin said the company had “really intensive discussions with lots of people both domestically and internationally. You can be very clear, anyone who was interested, I have spoken to.”

While Lochinver has a rateable value of more than $70 million, the purchase price hasn’t been disclosed. Still, Franklin said Pengxin’s offer wasn’t necessarily the highest on price alone and his company had considered a range of factors including retention of workers and the future of the property. Lochinver was more a farm enterprise than a farm. “In New Zealand a lot of people own farms but this is part of a supply chain.”

He said Pengxin had a long-term strategy to build a vertically integrated business.

The value in the property was “in its ability to grow a lot of grass,” which made it attractive for both dairy support and wintering stock, he said. Sheep farming was likely to remain a core part of the business. . .

The owner gets a large amount of money to invest in its core business, the new owner will bring money into the country, spend more on running and improving the property which will require employing locals and using local goods and services.

Federated Farmers which supports foreign investment in general has some concerns over the sale of Lochinver.

While Federated Farmers supports positive overseas investment into New Zealand’s farming system, it is concerned the potential sale of Lochinver Station to Shanghai Pengxin Group Co. Limited, may not provide sufficient benefit to New Zealand.

“Since there is no requirement to publicly notify applications to the Overseas Investment Office, Federated Farmers is frankly uneasy about the potential sale of Lochinver Station to Shanghai Pengxin,” says Dr William Rolleston, Federated Farmers President.

“New Zealand absolutely needs foreign investment but it has to be of benefit to the local and national economy. 

“That is why a ‘substantial and identifiable benefit’ test was incorporated into the overseas investment decision tree, further bolstered in 2012 by a High Court decision adding a “with and without” counterfactual test. 

“This was to ensure any investment, such as the one being proposed, has benefit over and above just making a farm work better.  Since Lochinver Station is highly regarded in farming circles there must be something very special and we are keen to know what that is. . .

He might be reassured by a speech Prime Minister John Key made to Federated Farmers in 2010:

. . . I want to take this opportunity to outline the Government’s position on overseas investment and talk about the changes we are making to the approvals regime.

In summary, we recognise the huge contribution that overseas investment makes to Kiwi jobs and Kiwi incomes.

New Zealand benefits from openness, both in trade and in investment.

However, New Zealanders have legitimate concerns about some aspects of overseas investment, particularly when it comes to land.

I share those concerns.

Good policy is a matter of striking the right balance.

We have reviewed the rules around overseas investment. For the most part, we think those rules are appropriate and the overall legislation is sound.

However, we have made a few adjustments to the approvals regime and given ministers increased flexibility to consider a wider range of issues when assessing proposed investments. . .

What I want to say first is that you, as individual farmers, and as members of Federated Farmers, have been right in the middle of recent debates about overseas investment, because a lot of those debates have been about land.

I’m sure that between you, you have some strong views and quite possibly some mixed views about overseas investment.

Unfortunately, much of the debate in recent months has been stirred up by politicians who are more concerned about getting on the news than they are about well-thought-out policy.

We are likely to see more of this tub-thumping and political posturing in the lead-up to next year’s election.

Politicians who were unwavering advocates of trade and investment when they were in government have somehow turned into defenders of Fortress New Zealand while in opposition.

Their views appear to have changed 180 degrees, for the sake of politics.

That is a shame, because at stake here are New Zealand jobs, New Zealand incomes, and New Zealand futures.

The reason we allow investment to flow between countries – both into New Zealand and out of New Zealand – is because it benefits New Zealanders.

We don’t do it for any other reason – we do it because we benefit from it.

In particular, overseas investment in New Zealand creates jobs, boosts incomes, and helps the economy grow.

Overseas capital can make things happen here that wouldn’t otherwise happen, grow businesses that wouldn’t otherwise have the means to grow, create jobs that otherwise wouldn’t exist, and pay wages that are higher than they would otherwise be.

Overseas capital makes New Zealand a vastly more productive country.

So there is absolutely no way we could enjoy the standard of living we do without overseas investment.

And part of that standard of living is being able to afford the education, law and order, and health services that our families want.

A recent study concluded that overseas investment in New Zealand lifted national income by around $5 billion between 1996 and 2006. That is an estimate of the return to New Zealand from overseas investment, over and above the cost of paying interest and dividends on that investment. . . .

He gave examples from the wine industry.

Since the year 2000 the number of wineries in New Zealand has almost doubled, and the industry directly employs 6,000 people.

This expansion of the wine industry into one of our most important export industries has largely happened because of overseas investment.

That investment has not just been into big producers, like Montana, but smaller wineries like Craggy Range, Sacred Hill, Dry River and Te Awa.

Overseas investment has allowed the industry to grow exponentially, and also develop from being a small and family-based sector into a more capital-intensive and technologically-advanced industry with real global connections.

Overseas investment also plays a positive role in New Zealand agribusiness, providing a vital source of capital for ongoing expansion and growth. PGG Wrightson, Synlait, CRV Ambreed and Anzco are good examples of such investment. . .

He also pointed out investment is a two-way street.

New Zealand businesses and individuals are themselves investing abroad.

There has been considerable investment, for example, by New Zealand dairy farmers in overseas farms. Fonterra, of course, has processing facilities in a number of different countries.

A free flow of investment also allows New Zealanders to diversify their savings across different countries and different industries. Most of the savings that are in the Super Fund, for example, and in many KiwiSaver funds, are invested overseas.

In fact, the total amount of equity investment into and out of New Zealand is surprisingly balanced. According to the latest figures, New Zealanders have around $53 billion of equity invested abroad while overseas investors have $61 billion of equity in New Zealand.

So international flows of investment – both into and out of New Zealand – are very important for our standard of living. . .

Then he addressed concerns about foreign investment:

I’m sure most people have these concerns from time to time, because as New Zealanders we have a very real and very profound sense of attachment to the land.

For one thing, our economy is based on agriculture so we recognise and respect that the land has an important economic value.

We also have a strong tradition of aspiring to own land – our own house, section, lifestyle block, farm, or block of native bush. We are not entirely comfortable as tenants – we want to put our roots down and call some place our own.

We also value outdoor pursuits – tramping, hunting, fishing, camping and picnicking – and even when we don’t do those activities, we like the fact that we could if we wanted to.

Our tourism marketing is very focused on New Zealand’s natural beauty, and we’re proud of it.

I have recently said myself that we don’t want to end up in a position where New Zealanders are tenants in their own country.

So I think the fact that people are concerned with overseas ownership is perfectly legitimate.

But we should be careful not to let those concerns get out of hand.

For a start, about a third of New Zealand – including our most iconic land – is protected by being in the conservation estate. So no-one from overseas can come in and buy Mt Taranaki or the Franz Josef Glacier, for example.

Second, it is a simple fact that land can’t change nationality. People can change nationality, of course, and factories can be relocated overseas. But a piece of land in New Zealand will always be here in New Zealand.

Because it will always be here, the use of that land will always be subject to New Zealand laws and regulations. And ultimately we as New Zealanders get to determine what those laws and regulations will be.

Third, and contrary to what some people might think, there hasn’t been an acceleration of overseas sales in recent years.

In fact, as at a couple of days ago, only 11, 203 hectares of land has been sold so far this year. That is certainly well below the peak of 380,000 hectares that were sold in 2006.

Fourth, the issue of whether businesses and properties are owned by New Zealanders or people from overseas, is for the most part, squarely in our own hands.

What I mean is that no-one can be forced to sell their business to an overseas investor, just as no farmers can be compelled to sell their land to foreigners.

Obviously with mortgagee sales or receiverships things get a little more complicated but, in general, people who feel very strongly that New Zealand-based assets should remain in New Zealand hands are free to sell only to New Zealanders.

The problem is that it’s people who don’t own the land who are complaining and wanting to dictate to whom the owners can sell.

Moreover, New Zealanders can always buy land and other assets back. What makes that difficult isn’t the rules around overseas investment, it is the fact that New Zealand has a poor savings record and therefore a relatively small stock of capital available for investment.

If, as a country, we saved more, we would own more of the assets in New Zealand, including land, as well as being less in debt to overseas lenders.

Finally, there are specific safeguards contained in the Overseas Investment Act and in the regulations which the government makes under that Act.

Over the past year or so the Government has been reviewing this system of rules, to make sure we have got the balance right between three key objectives:

welcoming desirable investment, in recognition of the benefits it brings for New Zealanders

providing a stable investment environment, where the rules are settled and everyone is clear about what they are; and

addressing public concerns about overseas investment, particularly in regard to land.

This review has come to three conclusions.

The first conclusion is that the Overseas Investment Act is a fundamentally sound piece of legislation.

The Act makes it clear that it is a privilege for overseas people to own or control sensitive New Zealand assets.

In particular, it lays out that foreign investment in land is only acceptable if it substantially benefits New Zealand, according to a range of factors which include, among other things:

  • the creation of new job opportunities in New Zealand
  • the introduction into New Zealand of new technology
  • increased export receipts for New Zealand exporters
  • the introduction into New Zealand of additional investment for development purposes
  • increased processing in New Zealand of New Zealand’s primary products
  • protection of native bush and other indigenous vegetation; and
  • protection of game species and walking access.
  • In addition, farm land has to be offered on the open market so that New Zealanders can bid for it as well.

These are very stringent criteria.

In fact, these are the very same criteria that Phil Goff was trying to pass off as brand new policy a few weeks ago. I welcome his endorsement of the current provisions of the Overseas Investment Act which, of course, was passed by his government back in 2005. . .

The third conclusion we came to was that a couple of additions should be made to the existing rules.

These additions would make sure that all public concerns about overseas investment, both now and in the future, could be covered off under the rules.

So the Government is adding two more factors that ministers must consider when they assess the benefits of a proposed overseas investment in New Zealand land.

The first new factor is very wide-ranging and looks at whether New Zealand’s economic interests will be adequately promoted by overseas investment.

This will allow ministers to consider, for example, whether any of our key exports are in danger of being controlled by an overseas entity, or whether there are non-commercial motivations driving a proposed overseas investment.

The second new factor is a “mitigating factor” which looks at whether the investor has a meaningful commitment to New Zealand involvement in the running or oversight of the investment.

That could include, for example, part ownership with New Zealanders, appointing New Zealanders to the board, or listing on a New Zealand exchange.

These two new factors will be weighed up alongside all the existing factors when ministers consider applications for investment.

We are also going to outline the Government’s policy on foreign investment more clearly by amending the Directive Letter issued to the Overseas Investment Office.

This will make things clearer for both the Office and for overseas investors.

So in conclusion can I stress that we allow overseas investment to flow between countries – both into New Zealand and out of New Zealand – because it benefits New Zealanders.

With the appropriate checks and balances in place, this investment is good for jobs, wages and growth.

After reviewing the overseas investment regime, and making some amendments to it, the Government is satisfied that we do now have the appropriate checks and balances. . .

National strengthened those checks and balances.

Foreign investors must jump very high hurdles and if they don’t meet the conditions imposed on them by the OIO – conditions which are strictly monitored – they cannot keep the property.

The Overseas Investment Office has yet to make its decision on the sale of Lochinver.

If it does approve the deal, the strict criteria it must apply, made stricter by National, will ensure that the benefits to New Zealand are greater than any which would come from the sale to a New Zealander.


Pengxin posts operating loss on NZ farms

01/12/2013

Pengxin Group which bought the Crafar farms last year reported an operating loss in their first year.

Pengxin New Zealand Farm Management reported an operating loss of $1 million in the year ended June 30 on revenue of $10.5 million, according to its first annual report to the Overseas Investment Office. The farming operation, managed by state-owned enterprise Landcorp, was hit by the drought within six weeks of Pengxin purchasing the land, sapping milk production and driving up costs to buy additional feed.

“The critical focus for Pengxin and Landcorp was to manage the welfare of all animals on the property, and protect the farming position for the subsequent season,” the report said. . .

Will the xenophobes who complain about profits from foreign-owned businesses go overseas be just as concerned that the loss has been sustained by foreigners?


NZ First needs a headline

29/11/2013

Colin Craig is a younger, fresher option for people who might have been attracted to Winston Peters.

Craig’s Conservative Party has been getting headlines and that’s bestirred a New Zealand First MP to go in search of one too.

He found it in NZ First will stop farm sales to foreigners:

. . . New Zealand First is calling for a complete halt to sales of farmland to non resident foreign buyers, its primary industries spokesman Richard Prosser says.

“Under a New Zealand First-influenced government there will be no more sales of farmland to non resident foreigners, full stop.

“This road leads to peasantry and New Zealanders being tenants in our own country,” Prosser said.

Not surprisingly the rhetoric isn’t supported by the facts:

Though there is no formal record of how much land is owned by offshore investors Overseas Investment Office land information manager Annelies McClure said “Current best estimates are that between 1% and 2% of New Zealand farmland is held by overseas interests.”

That figure excludes forestry and land, such as areas of native bush, not in productive use. . .

Prosser’s rant has been prompted by plans for Synlait Milk to sell to the Pengxin Group.

He doesn’t factor in the foreign exchange this will bring into the country and what those who sell their shares might do with the money they’ll get for them.

But then that wouldn’t get the attention-grabbing negative headline he wanted.

It might not do him and his party any good though because the Conservatives are not keen on foreign ownership either.


Foreign investment isn’t easy here

09/11/2013

The New Zealand Initiative is researching foreign direct investment and is seeking information:

The $200 million sale of the Crafar farms to Shanghai Pengxin generated a storm of controversy last year, as well as massive legal fees as teams of lawyers waded through rivers of red tape to get the deal across the line.

Yet if the same deal were proposed in Australia, it would apparently have passed with barely a squeak of protest under their Foreign Direct Investment rules, while in Canada it is a more complicated “maybe”.

It seems not all FDI regimes are created equal, particularly as inbound investment is often subject to grey-area factors that are not captured in the black ink of the rules.

We would like to tap into the knowledge of our international friends and followers, so perhaps you can help us:

In what international jurisdictions would the purchase of $200 million (US$165 million) of productive farmland by a Chinese conglomerate have gone through smoothly, and in what countries would it have been red-flagged, as it was in New Zealand?

Your input will be included in our second FDI report, which compares New Zealand’s inbound investment policy framework to other international jurisdictions. All submissions will be published anonymously.

If you would like to help us, please do so in email form to khyaati.acharya@nzinitiative.org.nz by 18 November 2013.

The NZI has comparisons with other countries:

Australia: A $200 million investment would appear to be able to sail through because it is below the investment threshold of A$244 million that triggers Australia’s FDI rules.

Canada: A $200 million investment would appear to sail through at the Federal level because it would be under the threshold level of C$344 million that applies to Chinese investor as China is a WTO-member. However, perhaps it would trigger FDI scrutiny at the provisional level, perhaps most particularly in Alberta, Quebec, Saskatchewan and Manitoba, all of which restrict significant investments by overseas persons in productive farmland.

Hong Kong: Presumably, no FDI restrictions would apply to a $200 million purchase in Hong Kong.  But does Hong Kong have $200 million of dairy farmland to purchase?

Korea: We understand that South Korea does limit investment in arable farmland given its limited availability and national significance, but we don’t have any details.

Singapore: We understand that Taiwan does not consider productive land to be a sensitive national asset and applies no monetary threshold to inwards FDI. If so the investment should sail through.

UK: We understand that the United Kingdom would impose no screening requirement on such a transaction and has no monetary threshold for triggering scrutiny, nor is farmland regarded as a ‘sensitive area’.  Presumptively, the purchase would sail through.

USA: At the Federal level the purchase would sail through since all a foreign purchaser of US farmland is required to do is to disclose the purchase to the Secretary for Agriculture.

Foreign investment in farms isn’t easy here.

A New Zealander who manages a farming business for an international company tells me that going through the Overseas Investment Office was a long and difficult process.

It took ages, and was expensive, even when the company was selling a farm it already owned here to buy another and had a good record of employment, development, and responsible stewardship of and best environmental practice on its properties.


Rural round-up

02/11/2013

Fonterra on notice – Hugh Stringleman:

Fonterra is on notice from its leading independent director, Sir Ralph Norris, that another food safety scare would have serious global implications.

While it may be inaccurate and unfair, Fonterra is saddled with the melamine adulteration in China in 2008 and the DCD fertiliser concerns earlier this year, followed by the precautionary recall because of a botulism scare in August.

“That means it is important for Fonterra to learn from the whey protein concentrate events. The fact that the botulism scare was a false alarm doesn’t diminish the work of (our) inquiry,” Norris said. . .

Focus goes on communication – Alan Williams:

Fonterra’s communications team is being renewed as public relations contractor Baldwin Boyle Group (BBG) makes way for more in-house employees.

Five of the 33 recommendations made by the independent inquiry for the board concerning the botulism scare in whey protein concentrate are aimed at better communication.

The first recommendation is that Fonterra needs to continue building a directly employed, strong, specialist, and experienced communications team.

That should be done in key global markets, supplemented with contracted, high-calibre local expertise where appropriate. . .

Tough year for tulip grower – Alison Rudd:

Spring brings magnificent swathes of colour to Southland as hundreds of hectares of tulips bloom. But for tulip producers, the flowers are a byproduct and the real value of the plant lies in its bulb. Reporter Allison Rudd talks to one of the van Eeden family about the changing industry.

For many decades, van Eeden Tulips was the only tulip bulb producer in New Zealand of any significance.

For 45 years, it supplied most of the bulbs grown by commercial flower growers, home gardeners and council parks and reserves departments, before branching out into exports in the late 1990s. . . .

More Southland dairy farms expected – Terri Russell:

Low sheep returns and high milk prices have contributed to a rise in dairy farm conversions in Southland.

New dairy farm conversions totalled just seven for the 18-month period to July. But a recent spike in new conversions comes after Fonterra announced its record forecast payout of $8.30 per kilogram.

Environment Southland consents manager Stephen West said there had been more dairy farm conversion applications in the past four months than there had been in almost two years.

The surge in conversion numbers also coincides with the plan change 13 deliberations drawing to a close.

Plan change 13 has required all new dairy farms to obtain a resource consent before becoming operational since April last year, and the decision on whether the rule will become permanent will be made in December. . . .

No dividend, but Alliance’s system sorted – Sally Brooker:

Shareholders who packed out the Alliance Group Ltd roadshow meeting in Oamaru last week were told they are not getting a dividend.

Chairman Murray Taggart, an Oxford farmer who has taken over since Owen Poole retired on September 30, said times had been ”tough for meat processors and exporters”.

The equity ratio and operating cash flow were good, but not sufficient for a dividend. . .

Fonterra Acquires Stake in Bega Cheese Ltd:

Fonterra Co-operative Group Limited has acquired a 6 per cent shareholding in Australian dairy company Bega Cheese Limited.

The 9.3 million shares were purchased at AUD4.95 per share for a total cost of AUD46 million.

Fonterra Chief Executive Theo Spierings said, “Australia is an important market for Fonterra, and we are committed to growing our already strong presence.

“There has recently been a lot of consolidation activity in the Australian dairy industry. It is important that Fonterra participates, and we have confidence in Bega and the strategy it is pursuing,” said Mr Spierings. . .

Foreign investors buy more South Island farmland:

The Overseas Investment Office (OIO) has approved the application by a Singaporean investment management company to buy half the shares of New Zealand Pastures Limited, a locally-owned company that operates seven South Island sheep and beef farms.

The farms :Three Rivers, Grantham Springs, Hitchin Hills, Quailburn, Hills Creek, The Styx and Huntleigh, cover almost 23,500 hectares.

Singapore company Duxton Asset Management is buying the shares on behalf of itself and two other overseas investment funds. . . .

Stalwart’s last stand gets support of mates – Ruth Grundy:

When his mates got wind John Hough was making his ”last stand”, they thought they would go along for the ride.

The Rakaia shearer and Shearing Sports New Zealand official who will only admit to being ”not 70 yet” began shearing at 18 and first competed in open-class shearing 40 years ago. . . .

#gigatownoamaru appreciates its rural hinterland.


Yili to buy Oceania Dairy

28/12/2012

Chinese company Yili Industrial Group plans to spend $214 million building an infant formula plant in South Canterbury in a deal that will see it take over Oceania Dairy Group.

Yili will acquire Oceania to access its land resource consents to build a plant over 38 hectares in South Canterbury, according to a notice on the Shanghai Stock Exchange on Dec. 18. The Chinese firm said it’s attracted by New Zealand’s relatively cheap raw milk and the prospect of the free-trade agreement with China completely removing Chinese import tariffs by 2020.

The plant is scheduled to be completed by June 2014 operating at 60 percent capacity, with annual full capacity of 47,000 tonnes expected in the 2016/17 year.

The deal is subject to Overseas Investment Office and Chinese government approval.

This will increase competition in the milk market which ought to help with OIO approval.

It will also attract the xenophobes who will complain about profits going overseas.

But the company plans to spend $214 building the plant which is a significant investment that will provide jobs.

It will be buying milk from local farmers and employing locals to process it. It will also be buying other local goods and services, paying rates and tax.

All of that will be good for the local and national economy.


Hostility to foreign investment holds NZ back

20/10/2012

New Zealanders’ hostility to foreign investment could damage the agricultural sector’s chances of becoming a trillion-dollar “food bowl” to Asia.

One of the issues identified in ANZ’s Greener Pastures report was a shortfall in capital.

Farmers will need up to $201b extra between now and 2050 and another $130b to support retiring farmers:

Traditional sources of funding- debt and retained earnings- would not be enough to bridge the gap.

“Inevitably, foreign investment will be an important part of the answer, but the pace of investment cannot get too far ahead of public opinion without undermining its sustainability,” the report said.

One survey quoted found 82 per cent of Kiwis believed foreign ownership of farms and agricultural land was bad.

ANZ commercial and agri managing director Graham Turley said the sector could work harder at educating urban New Zealand.

“We’ve built New Zealand off foreign capital, and we’ve done that reasonably wisely,” he said.

“They just need to increase their awareness of foreign investment being a good thing, that it creates access to market, it brings in technology and allows us to expand the productive base of our economy.”

The ANZ report noted that the Overseas Investment Office’s test for the sale of agricultural assets lacked clarity and transparency, and that the regime was seen as too restrictive by some.

Turley said the Crafar farms OIO saga was a “fringe” distraction from the real debate, which should be about how to attract and deploy foreign capital to the country’s advantage. . .

The xenophobic attitude to foreign investment isn’t helped by the media. Take this headline as an example: More kiwi farms could fall into foreign hands.

The story is about seven farms in a receivership sale which are being advertised internationally.

That’s sensible business practice and could mean they might be bought by foreigners but falling into foreign hands is an emotive and unnecessarily negative way to describe it.

The media ought not to feed xenophobia, nor should politicians. But we’ve had a couple of examples of that from the opposition in the past week.

They were quick to seize on criticism of Huawei, the Chinese company which has a telecommunications contract here when it was accused of spying. There’s been no response to the report which exonerates it.

Labour, the Green Party, NZ First and Mana keep calling for more jobs but they are feeding hostility to foreign investment which will be necessary for economic growth needed to provide those jobs.

The full Greener Pastures report is here.


Turkeys make NZ look Mickey Mouse

22/08/2012

If you listen to opponents to foreign investment in New Zealand you could be forgiven for thinking the Overseas Investment Office is merely a rubber stamp for anyone with a whim to buy land or  a business here.

It’s far from easy and from the applicant’s side the Wellington turkeys make New Zealand look Mickey Mouse:

THE IMAGE presented by the Overseas Investment Office (OIO) and the Crafar Farms situation made New Zealand look like “Mickey Mouse turkeys” to German company BayWa, says Geoff Hipkins, the new chief executive of Turners & Growers (T&G).  

As BayWa went through processes of buying the major shareholding in T&G, Hipkins says its impression of the OIO was of a huge government department “all-powerful and telling the world what to do”.

“They didn’t believe me when I said it is actually four people stuck in the bowels of the Land Transfer Department, snowed under because they had this issue re Crafar Farms; that’s why [BayWa’s] case had been delayed,” Hipkins told the HortNZ conference in Auckland.

“They all looked at me and virtually said to a man, ‘b****’. They couldn’t believe our foreign investment was controlled by such an august group.

“Then you throw in the Crafar farm situation, where you have the judiciary changing the rules of the game with five minutes to play. They couldn’t understand that situation. You try to explain that to people wanting to spend hundreds of billions in this country.

“We really looked like Mickey Mouse turkeys and that is the only way I can explain it. The question was asked, ‘Is it because we are German?’ That was quite literally the thought going through the BayWa executives’ minds.” . . .

A friend who manages a farming company owned by overseas interests tells me a similar story.

Getting approval for purchases – even if it is using money gained from selling another farm in New Zealand – is a long, complicated,  frustrating and very expensive process.

He says it wasn’t the fault of the people he was dealing with. They administer the law but they don’t make it and contrary to what the xenophobes would have us believe, successive governments have made it harder.


Will there be a snap debate on this too?

16/08/2012

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:


Crafar farm bid approved

27/01/2012

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.

 


Xenophobia robs opportunities

23/01/2012

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.


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