By Gareth Vaughan
If New Zealand is to benefit fully from growing agricultural export opportunities in Asia, New Zealanders need to welcome international capital into the country and realise that their land isn't going anywhere even if foreigners buy it, or else sit back and watch other countries steal the opportunity, says ANZ Group CEO Mike Smith.
Speaking to interest.co.nz in a Double Shot interview, Smith said ANZ's recently released Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand report didn't make sufficiently clear how big New Zealand's need for equity investment is if it's to embrace the opportunity.
Smith outlined the findings from the report, commissioned by ANZ and done by Sydney-based consulting firm Port Jackson Partners, in a speech in Auckland in September. In this he said New Zealand could more than double the value of annual agricultural exports by 2050 and generate an additional NZ$550 billion of revenue, or potentially as much as NZ$1.3 trillion, as Asian demand for protein surges.
And speaking after the release of the report in October, Graham Turley, the managing director of ANZ NZ's commercial & agri banking, suggested a huge amount of capital would be required to obtain such a level of agricultural export growth with an estimated NZ$210 billion needed to drive growth and profitability and NZ$130 billion for farm turnover.
NZ 'perfectly positioned for exponential rise in demand'
Yesterday Smith said the rise in Asian demand for the type of agricultural products New Zealand produces was going to be "exponential" and New Zealand was perfectly positioned to capitalise.
"But the key is access to capital," Smith said. "Perhaps what that report didn't make sufficiently clear was that that is equity capital. You need to bring that in."
"New Zealand traditionally has relied upon international investment. And it will continue to have to rely on international investment because it can't generate that capital on its own from a domestic base, quite clearly, it's just too much," said Smith
"You're talking $300 billion, $400 billion. It's therefore very, very important to welcome international capital into the country and that's maybe where there's a bit of an issue."
Quizzed about the controversial topic, and hot political potato, of foreign ownership of New Zealand farms, Smith said this was an emotive issue rather than a rational or logical one.
"The land is going nowhere. It stays here. And if you think back through history, most of the (foreign) capital has come from the UK, or from Australia, or from the US. It's now coming from Asia so what's the problem?"
'Debate the elephant in the room'
Smith said the "hard choice" New Zealand faces is if we don't welcome Asian capital and investment, it'll go somewhere where it is welcome.
"And that's the hard choice. So as a farmer do you want that opportunity to be realised or are you willing to let it go to Argentina or to Brazil, or to the US or Ukraine, or wherever?"
"So I think that's the issue, that's the elephant in the room. It has to be debated. But as I say, I think it's an emotive issue because you can't take the land with you. It's always going to be here."
Smith's comments come after the long running push by China's Pengxin International Group to buy the central North Island Crafar farms out of receivership faced strident opposition but ultimately succeeded. Critics of asset sales to overseas interests such as Milford Asset Management's Brian Gaynor argue New Zealanders need to develop long-term investment thinking, realise there are good returns to be made in their own country, and stop selling all their assets to foreigners or resign themselves to being "serfs in their own country."
Meanwhile, in terms of tapping into the Asian opportunity, Smith suggested it was important for the Government, the agricultural sector, business - including producers and downstream operators looking to add value to agricultural commodities - to work together, with the education sector, to recognise this as New Zealand's opportunity for the future.
"On the doorstep there is this massive demand for protein and calories which is going to be virtually unsustainable, it's huge the growth," said Smith.
'Farms need to be properly structured in terms of equity & debt'
Asked about the Reserve Bank's recent highlighting of a worsening of the indebtedness at some of New Zealand's biggest dairy farms, Smith said any business - including farms - needed to be properly structured in terms of the amount of equity it has to debt.
"That goes without saying. And I think to become too highly leveraged in an agricultural business is quite dangerous in terms of the (economic) cycle being much longer of course than a normal business, so it is more vulnerable if it has high levels of debt," said Smith. "So I can understand where they (the Reserve Bank) are coming from."
ANZ New Zealand is the country's biggest rural lender.
This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.
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The ANZ report Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand has been serialised on this website in seven parts, which you can find here ».
68 Comments
Mr Smith,
First, fed up with the old land not going anywhere argument, that is NOT the issue it is the earnings off it going somewhere other than to its NZ owner
Foreign capital can come in via joint ventures, not owneership
That's ownership, ownership, ownership - please do not use the word "investment" as a substitute for it'
It is not okay for us to become mere tenants in our own land
It is not okay that our land is unaffordable for OUR people
Now you can go jump in the lake
Fast forward to 2050 under Smiths proposal - Most farm land will be owned by foreign entities. Many people will be living in Ghettos on subsistant incomes. Government debt can't be repaid. The foreign investors will employ armed guards to protect their land and crops.
He then acuses us of being emotive about the issue when in fact NZers are being logical and rational. It is very logical and rational to maintain ownership of the land that produces food when the worlds population is increasing and needs the food and especially the increased protein.
Fighting for what is right when coming from a logical and rational point will get emotive Mr Smith, especially when people with agendas like yours are around.
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Australia and New Zealand stand to capture an additional A$0.7-1.7 trillion and
NZ$0.5-1.3 trillion respectively in agricultural exports between now and 2050.
Two major errors of ineptitude dilute the value of this ambitious research exercise - the additional export estimates are too wide to be credible and are predicated on an incredibly distant forecast horizon. Any statistical analysis to secure finance to underwrite such nebulous growth paramaters would fail at the first hurdle.
Let's get real and concentrate on the next five years - not one economist had the GFC pencilled in as far back as 2003.
AGree, we should start taxing google on its income earned in NZ....its where the advertising is sold so simple tax it here.
The asian guys'n'gals will be in the same game. At the very least they'll just ship out the food at cost and do the big markup in the asian homeland.
regards
Talk about an ulterior motive. This guy is probably scared of what is going to happen to all the morgages his bank wrote up on the grossly inflated farm values. These look like they are starting to head downwards and without the Chineese mop up all the forced sales their losses will be even greater. Yep he would happily sell this countries sovreignty down the river to maintain his bank's profit and his presumably obscenely high salary and bonus.
The Chineese either want our produce or not, and in a world heading for food shortages they will be grateful that we will sell to them. They would not allow the sale of their ecconomic crown jewels and why should they. Neither should we. Further more they have nothing to add to our knowledge or capacity in agriculture.
I suspect that the Chineese motives are in securing future food supply at minimum cost and without any regard for whoose face they walk over. A more constructive approach that serves both ours and their interests would be 50/50 joint ventures in developing agricultural ventures in third world countries where the skills and market opertunities would raise their ecconomies also.
Well we just borrowed 50 billion and it looks like we are in deeper than when we started. So what are the Chinese going to do different?
This guy can take his advice and stick it where the sun doesn't shine.
I got told by a friend acouple of weeks ago that the Aussie banks are about to dump hundreds of dairy farms on the international market mainly directed towards Asia mostly over 10 mil. He's just softening us up ANZ, is getting burnt, he wants the Taxpayer to help him out by selling the golden goose. Its hard to believe National is not in on this, oh for some opposition.
It's very obvious that he's just talking his book. He couldn't care less about NZ agriculture, all he's concerned with is his non-performing agriculatural loans and the best way to stop them defaulting, which is to sell the farms to overseas mugs with plenty of dodgy cash. I wonder how much money ANZ gives to the National Party to ensure they look after their sponsors?
Ah, but I am old enough to remember the Freezing Works were all owned overseas until Alliance in Southland came along and took on the old boys. Just one small example of our long history of insufficient local capital.
And while there'sd the occasional bit of teary-eyed nostalgia fer the Killing Floors of Yore (mainly from the Union Organisers who bought and paid for the Labour Party), it's hard to find much sentiment about who actually supplied the Capital for said Floors. Folks were just pleased to be able to work on 'em.....
Oh how times have changed.
Always enjoy your informative posts Andrewj. Looks like we've both darn the hard yards in our youth and it's done us no harm. I look back on the many jobs I did while at university with great satisfaction, railway yards- 2 years, scrub cutting, fencing. Drove a truck for Hawkes Bay Farmers out of Waipawa during the hay season - worked every day for six weeks and did up to 20 hour days - wouldn't get away with that now - but it helped pay for the only new car I ever owned - a $3,000 Subaru.
Kids these days don't get the opportunities we once had.
I was just talking to Brian Kelsy at the Npr airport the other day. The transpot industry is a tough one, with the works controling prices. We always used to do our own hay and used Steves, but you never know we could have met. I carted alot of hay in the Uk and loved it, always got a beer at the end of the day and most farmers were hilarious. Getting paid was another story. I got a new car in 1982 for 3k too, 3 or 4 years later the same car cost 10k new. Those were the days, that was real inflation.
How interesting we may indeed have met! I slept for the first two weeks in my new car in the Waipawa camping grounds - not easy as I'm almost BH's size! Then I stayed at the local hotel, finally spent two weeks literally sleeping on the floor of a run down house owned by another driver. We ate off the top of the fridge - the only "furniture" in the house.
Took my truck to some amazing places - sure was hard work - a lot of the country where we picked up hay was very steep.
I started my first teaching job very fit I can tell you, LOL.
You are a failure Mike. You have presided over the greatest ballsup in NZ history. Its your fault. You did this to all these people. They are losing their farms their homes their businesses. You and your mates. Dont think for a minute we are suckered by your weasel words now.
Yeah, been listening to ppl for 3 or 4 years now and it seems to be a huge cluster-*. In some ways Ive got limited sympathy as they did take the debt on willingly....on the other hand if its something or maybe the life you want there isnt much other choice. I think really they have been used as fodder, otherwise useless financial ppl have taken full advantage....
regards
Ok so strip away some B/S and the innocence.
These banks went into the rural sector to make money, it was only about the money and the warning signals were there all along.
http://www.agresearch.co.nz/our-science/agricultural-systems/people-in-…
encouragement
http://www.side.org.nz/IM_Custom/ContentStore/Assets/8/28/d1967e385405a…
In 2008, under the Basel II capital framework, the Reserve Bank accredited the four major banks in New Zealand to use their own models of relative riskiness in calculating capital requirements for different types of lending. A condition of accreditation was that banks addressed, to the Reserve Bank’s satisfaction, weaknesses in their modelling of rural capital exposures and potential losses.
http://ideas.repec.org/a/nzb/nzbbul/june20112.html
http://www.converge.org.nz/watchdog/20/02.htm
2009 Colin Riden
http://www.agprodecon.org/node/90
Remember National banks push for equity partnerships due to clients having too much debt, how do those investors feel today? Anyone got money in 'MyFarm'?
http://www.country-wide.co.nz/article/9383.html
this webpage has been removed. why?
www.nationalbank.co.nz/equitypartnerships
Thw law as it was in 2008
OVERSEAS INVESTMENT IN FARM LAND
The OIO cannot approve the purchase of farm land by an overseas person unless it has first been offered on the open market in New Zealand in accordance with the procedures set out in the Regulations. The Minister of Land Information can waive this requirement, but only if the purchase is likely to result in substantial and identifiable benefits to New Zealand. >>> They are going to want to take this one down too http://www.scoop.co.nz/stories/BU0705/S00329.htmNew approach to farming capital from The National Bank
Farmers seeking additional capital to fund more productive farms have a new funding option with the launch today of The National Bank’s Rural Growth Funding.
“This is possible because the Rural Growth Funding provides capital on the basis of a property’s potential value and a farmer’s proven ability to realise that potential."
The banks in this country make huge profits and pay huge salaries,
Return on equity from NZ's big 4 banks easily tops that of their parents with an average of 18.9% as Westpac's Gail Kelly draws 'line in the sand' at 15% ANZ New Zealand CEO David Hisco was paid A$3.26 million (about NZ$4.14 million) for the bank's 2012 financial year, meaning he was probably the highest paid New Zealand bank boss this year. http://www.interest.co.nz/bonds/61942/return-equity-nzs-big-4-banks-eas…- Well if they are so smart and have such good economists and risk analysis why do they find themselves in this position? They want to make huge profits, huge salaries and then when it goes wrong hand it to the taxpayer, well I dont think so sunshine. This problem belongs with the banks and the banks shareholders,lets leave it there. If you want innovation in agriculture you need to collapse the price of land and charge realistic interest rates. This would allow new young enthusiastic farmers on the land, thats not what the banks want they want all of us to wear it as we sell our 'golden goose'.Low interest just allow the indebted and inefficient to remain in business. My siggestion to ANZ would be to fire those responisble and apologise to the shareholders. This is just a practise run the real trouble starts when the house bubble collapses, so lets get it right now, reward comes with risk, you want one then you get to take the other. Stop being such groveling,snifling, gutless shits and face your responsibility for past decisions like the rest of us. Go earn your money. The farm values are too high even with foriegn ownership they wont make money, we are selling the Asians a lemon, I hear they deal with getting ripped off like the Russians, lets hope so. http://www.independent.co.uk/news/uk/home-news/alexander-perepilichnyy-…
The proportion of the current account deficit that is attributable to the investment income imbalance (a net outflow to the Australian-owned banking sector) grew from one third in 1997 to roughly 70% in 2008.[26]
So you sell our land to the Chinese who import peasant workers from China to produce the food which is exported back to China along with revenue due on the profits. China already imports 5000 workers into NZ every year. This is in addition to 5000 Indians and 1200 workers from Thailand. Unskilled immigrant workers take jobs from the low paid which swells the benefit take. What is the advantage to the NZ economy and jobs if the land is sold to the Chinese? The government need to get off their collective arses and find export markets for our produce that Kiwis can fill using the land that belongs to them and not owned by a supremacist, expansionist, foreign power.
Great vidio by Mr McWilliams that really explains the issues not only facing farming in NZ but NZ itself....are we prepared?
http://www.youtube.com/watch?feature=player_embedded&v=81U07CqFPYs
Has anyone done the maths on this?
Doubling our agriculture exports would require $300 to $400,000,000,000 of imported capital (equity plus debt) according to this bank guy.
Now, assuming this is possible, we could double our $20 billion export income from ag to $40 billion per year at todays prices. At a reasonable return on equity or interest of 7% that would cost our economy $25,000,000,000. per year. So his plan would mean our current account is worse off by $5billion per year - funded of course by more borrowing or asset sales. What a deal!
It gets worse. Imported inputs to acceive this incredible lift in ag. output would be considerable. Machinery, fuel, transport costs etc could easily chew up a third of the gain so that's another $7 billion.
I'm sure Mike Smith knows all this, you don't suppose his bank would stand to benefit from all this debt creation?
The investment example has already been set in our forestry industry. Kaingaroa forest has provided the Harvard Endowment fund with stellar returns. This entity is incorporated in the Cayman Islands. Profits have not been reinvested here at all. Similarly with Telecom; all those investment profits should have meant the taxpayer didnt have to build the fibre network, but yet again Taxpayers are bent over. The Hobbit; apparently we have all already paid out $8 each towards a ticket to this Corporation. Overseas investors are lining up to TAKE not to GIVE.
The truth is money is being printed at a frantic rate and these 'investors' in agri-business are desperate to be rid of it and into real assets.
With a money changer for Prime minister dont think the Government will care a dam. Similarly, most of the population is too busy sucking on the teat of credit-based consumption to care. I was stuck on an excavator for a couple of days this week which had one of those radios from Japan that doesnt match our signal band and so was stuck on radio Gaga for the duration. What a hellish experience; nothing but hobbit news, Hollywood scandal, some party news, a bit of sport news and prizes prizes prizes. I long ago have become a spectator in this farce. Blank stares are the norm if you try and discuss issues not directly related to happy times NOW!
Well snippy, they got covered bonds past the RB, now they have the OBR coming next to protect shareholders at the expense of depositors. I take this as a hint to whats next and the decision has been made just a matter of releasing it to the media in bits, they will get away with it me thinks. They have the inside running every race.
Smith said any business - including farms - needed to be properly structured in terms of the amount of equity it has to debt.
Oh Mike, Mike, Mike
Your Bank wasn't thinking of that when it phoned the farmer who had not long purchased another property to tell him his neighbor was on the market and did he want to buy it. Yes the farmer could have said no but the Bank has a responsibility as well. Just keep loading them up until they tip over then say they should have kept more equity.
What were the Bank core values - "Do the right thing", "Own your actions"
Wilks - "But farmers are not the only guilty party. The banks also played a role by watering down loan terms and conditions to win business. Borrowers took comfort in banks' readiness to lend them money. Inexperienced customer managers were vouching for their farmer clients' ability to repay."
FYI, a couple of comments have been deleted from this thread. Please keep the following in mind (which is located at the bottom of every story on interest.co.nz):
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Sorry Gareth, it was just a link and not related to the thread. I didnt write any of it.
This on the other hand...
The system is designed to do one thing...Inflate to maximum potential and implode.
It doesn't matter who tries to prove that wrong...
That is all it does...You are all ignorant of this fact until you are forced by it to accept it.
You can manipulate the Universe however you want as long as you don't attempt to break LAW or get caught breaking a rule.
As long as there is a way to take more power from you than you are given...They will be rich in power and you will be poor.
Then those rich in power will make and break the rules of the game all those poor in power are playing.
That is what 1000's of years of absolute capitalist history shows.
Hypertiger
In the late 1800s there was a potato famine in Ireland. Many people died from starvation. I often wondered why they only grew potatoes. Apparently the English owned the land and exported all they grew. The police protected the English landowners' horse and drays so they could take their produce to the ports while the Irish were starving on the sides of the Roads. Using Mike Smith's argument, the land didn't go anywhere but the people starved.
Ive tried to understand it but its complicted two differnt cultures colliding, Primgeniture by the Brits kept their estates intact. The Catholics, more egalaitarian and with larger familes ended up with small plots and potatoes are one of the only ways to feed a family from a small plot.
We know what you're thinking....
You're thinking you need to embrace foreign ownership of your land and send the profits offshore...
You're thinking it will improve the quality of life for every New Zealander to not be burdened by ownership.
You're thinking ANZ's expansion into Asia has some reliance on getting these deals done.
You're thinking ANZ's confidence in and benevolence toward rual New Zealand deserves to be rewarded
Right...?
We're the ANZ...we intrude, impose, imbitter, impoverish, in your world.
Do you know what I'm thinking...? well do ya punk...?
The banks told cattleman Peter Camm to get big or get out. “I realised there is a time to walk and a time to run. I got out of there as fast as I could. Now I sit back on the verandah saluting the sunset.”
Camm is one of the very few to have made the beef game profitable and, although most in the industry say it was just luck, he reckons it was smart timing.
When he sold his cattle stations Welltree and La Belle in 2008, it was at the very top of the market and the now struggling RM Williams Agricultural paid him $72 million.
Camm did not believe the hype over world food shortages, world food security, and the proximity of a growing middle class in Asia. That big picture did not match up with a business with incredibly slender margins and loads of debt.
So he got out at the perfect time to watch the rest of his industry succumb to the global financial crisis. It’s been a long, slow, ongoing crash.
Queensland’s cattle industry groans under more than $9 billion in debt – a 17 per cent jump since 2009. In the Northern Territory about 15 major stations have been on the market for more than a year and the banks are watching the loan-to-value ratios and debt serviceability like hawks.
Widely predicted world food shortages and growing Asian middles class market have not delivered the dream
http://afr.com/p/national/cattlemen_beef_with_banks_irqQ0fOi39xLWH845S7…
We think MS a top bloke, esp what happened in South America. But here we think he is reading from someone elses script.
Re dairy, corporate struggle to match the productiivty of family farms, and by using sharemilkers they drop off all the fiancial returns...
The context is here (below) so it different messages for different groups.:
Big debtThe main culprit is debt.
Big debt combined with the minuscule returns that are now squeezed out of cattle operations have culminated in property values crashing from their sky-high prices.
Condon warns that the run of favourable seasons had “perhaps provided some breathing space, but appears to have only delayed the inevitable descent for some into financial crisis”.
After running up the debt, the cattle industry fell into a political furore over live export and the restrictions badly hurt the trade. Little wonder ANZ Banking Group chief Mike Smith recently criticised this as a “glaring example” of a failure by the federal government to reach out to the Asian export markets.
He would know. ANZ has been a supporter of the trade but recently had to place into administration the famous Maryfield and Mountain Valley stations in the Northern Territory, privately run by the Tapp family.
Hypertiger
Posted Today, 06:52 AM
The longer the take more than you give system operates the weaker it gets.of course during the inflationary phase to the top where the logical conclusion is reached and the deflationary phase begins.
Eventually you all will live in so much fear that will be enough to take it all down.
If you don't stock up in the summer...like you get scared and miss a day...and that lost day was enough of a loss of sustanence that when winter arrived...you didn't make it and died a few calories short of salvation.
That is the nature.
The fiscal cliff was imposed to warn you all to prepare because the downward fall is inevitable at some point.
The take more than you give system is good at taking...It doesn't operate in reverse very good at all.
we are still in the positive phase.
But it's getting weaker.
It's being controlled...back in 2008...if what was done...wasn't...the global system would have accelerated to the downside and you would not be reading this or positing on the Internet.
You wouldn't even be who you currently are.
It will eventually transition and is unfolding slower.
The shock of existing within what we are headed into is going to transform alot of people into zombies.
Shells of their former selves pathetically struggling to survive. http://wallstreetexaminer.com/forums/index.php?showtopic=1048660
New Zealand has one of the most indebted agricultural sectors in the world and falling commodity prices are making banks take a sterner line when farmers seek to refinance, the Reserve Bank is warning.
http://www.stuff.co.nz/business/farming/8024961/Gates-close-on-farming-…
But one mechanism that could deliver at least a partial solution to this national threat has been rejected, despite being advocated by Government MP Ian McKelvie
Not unlike the Rural Bank back in 1987/88/89.
This is nuts
There is a ton of capital in New Zealand .. in excess of $100 billion in TD's alone, then more in the National Super Scheme, then more in Kiwi Saver, and much of it is going offshore or invested offshore. And nobody wants to invest in New Zealand's future? Its very existence. That's OK because exactly the same is occurring in Australia where the Compulsory Superannuation Scheme is worth $1.3 trillion and half of it is invested overseas, yet the constant cry is for more and more foreign capital, and nobody but nobody wants to invest in the backbone of the country - yep agriculture. But, hang about .. who is it that manages 80% of that $1.3 trillion .. you're right ... those 4 pesky banks
Yet the inscrutables see great value ...
Farmers keen to sell to China - 1 December 2012
Farmers in the Wheatbelt are jumping at the chance to sell their land to Chinese conglomerate Beidahuang, the WA Grains Group claims
http://au.news.yahoo.com/thewest/a/-/wa/15527861/farmers-keen-to-sell-to-china/
Chinese buy seized Farms 7 November 2012
National Australia Bank and receiver McGrathNicol
http://au.news.yahoo.com/thewest/a/-/newshome/15315058/chinese-buy-seized-farms/
Chinese snap up prime farm land in WA - News AAP 30 November 2012
http://www.news.com.au/business/companies/chinese-snap-up-prime-farm-land-in-wa/story-fnda1bsz-1226527490680
There is a ton of capital in New Zealand .. in excess of $100 billion in TD's alone
My TD is someone's mortgage.
In a post above Patricia aptly refers to the Irish Famine where the local peasants got squeezed out, eventually left and migrated en-masse to North America and the Antipodes.
Equally analagous is the parable of the "Pied Piper of Hamlin" who entered a pact with the Town Burghers. When they backslid on the deal he extracted a heavy price from the townspeople.
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/2538986/were-interest-rate-swaps-deliberately-mis-sold-to-farmers.asx Jeannette Walker. A shocking telling of the swaps story. Shame on you Mike Smith, the ANZ, National, Westpac, ASB. This will not be forgotten. Look at all the likes... I have never seen so many comments backed by the readers here. This might be a watershed moment. The banks have pooped in their own nest. Then they tore those nests apart and biffed them to the wind.
Maybe the horse has bolted aka the closing of the National brand has woken a few up to how unimportant individual account holders are to the 'managers'. Perhaps there is a squeze on (and growing) as more take their business away from ANZ and the small drops are adding up to a few buckets! Dont sweat the small stuff Mikey!!
Any out there with a small mortgage on valuable property must be important to the Banks in the Covered Bond markets. I recently went to pay my balance out and was told that I should maintain my mortgage to make it easier to borrow money at a later date!! So now being debt free is not a good position to be in? Wow Alice must be somewhere close!
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