Rural

Opinion: Allan Barber looks at the sale of the Crafar farms to Pengxin/Landcorp from a rural point-of-view

Allan Barber — Tue, 07 Feb 2012 03:51:03 +0000

By Allan Barber

New Zealanders get very nervous when tracts of our farmland come up for sale, which is slightly difficult to explain for several reasons: New Zealand is becoming increasingly urban with an ever smaller percentage of the population living in the country, let alone owning land; overseas buyers have been allowed to buy large areas of farmland under the Overseas Investment Office review arrangements, recently tightened by the National Government, without serious objection or adverse impact; the farm output must be processed here before it can be exported; and the overseas funds generated help our balance of payments.

But it seems every politician desperate for a bandwagon or soapbox – Winston Peters followed closely by David Shearer and the Greens - to stimulate public anger at this loss of our birthright only has to make outlandish claims about the damage the sale will do to our economy and the role of the inevitably overseas owned banks.

Yet we want to be able to continue to enjoy a reputation as a stable place to do business, specifically so we can attract foreign investors to put money into New Zealand, not to mention our standard of living.

There’s a strong chance Peters’ strident claims about the Crafar deal are because it’s the only issue he can try to make his own, as he realises he has got back into parliament without actually being able to wield any influence. The irony is that he is now lined up on the same side of the argument as Sir Michael Fay, possibly the most unlikely pair of joint protagonists ever imaginable.

However there are some serious aspects to this debate, most notably the potential damage to New Zealand’s reputation as an investment friendly country, if the debate continues to gain more traction and eventually results in a major change in policy under a change of government.

Labour has nailed its colours to the populist mast, but it will find it more of an anchor when it has to decide how to change the rules of the OIO – does the intended ban only apply to land sales, will there be a minimum size or value threshold, will it apply to business sales, private homes on large land holdings and what impact will it have on our trade agreements.

It also appears to be a case of racial prejudice, inasmuch as it’s OK if the buyers are European, American or Australian, but not if they are Chinese.

The major issue conveniently ignored by those against the sale of land, specifically the Crafar farms, is the massive gap between the price offered by Shanghai Pengxin and the Iwi/Fay consortium, at least $30 million or 15%.

Whether or not the final price is economically justified, it sets a higher benchmark for land values which will benefit dairy farmers; whereas any kneejerk restriction based on the nationality of the buyers will inevitably cause prices to fall because a particular group has been excluded.

The debate also conveniently ignores the provisions imposed by the OIO on Shanghai Pengxin, including the requirement to ensure any investment in a dairy processing plant has a minimum 50% New Zealand component, as well as the stipulation that consent will be withdrawn if the management contract with Landcorp does not eventuate.

Pengxin must also invest $14 million to upgrade the farms which have become somewhat run down as well as certain other provisions including using “reasonable endeavours” to help Landcorp extend and develop its Chinese market and establishing a dairy training facility at its expense.

The arguments against deals such as the Pengxin deal to buy the Crafar farms conveniently ignore several basic truths about such transactions: first, New Zealand wants to be able to do exactly the same in overseas markets, for example NZ Farming Systems Uruguay which involved buying and converting, admittedly at too high a cost, large tracts of pastoral land in Uruguay; second, there were no local buyers prepared to pay the price for what are only average farms for the most part and are not exactly strategic; third, successive governments have identified a Free Trade Agreement with China as a key plank of our future economic development and it would have been damaging to this strategy if the government had revoked an OIO decision.

We expect jingoistic nationalism from Winston Peters, but heaven help us if one of the two major parties is about to change its whole attitude to trade and investment on the basis of an ill informed, prejudiced public reaction to overseas investment which has been a crucial contributor to the New Zealand economy for over 150 years.

BusinessDesk: LIC lifts 1H net profit 12.3% as dairy farmers test more

BusinessDesk — Thu, 09 Feb 2012 03:07:09 +0000

Livestock Improvement Corporation (LIC), the listed dairy farmer cooperative, said first-half net profit rose 12.3 percent on growing use by farmers of its herd testing products.

Net profit rose to $28 million in the six months ended Nov. 31, compared with $24.9 million in the same six months a year earlier. Revenue rose 7 percent to $120 million in the six months from $112.1 million in the year-earlier period.

“The result reflects farmer demand for our genetics, our world renowned artificial breeding service and herd improvement products,” chairman Stuart Bay said in a statement.

LIC's business, particularly artificial breeding, is highly seasonal with first-half results incorporating the majority of annual revenues but not a similar proportion of total costs so the first-half results aren't indicative of the second-half or full-year results, the company said.

Net profit in the year ended May last year rose to $17.1 million from $9.1 million the previous year.

Significant solutions provided “for some jobs that can be more frustrating” included working with farmers to improve calving rates, the second year of testing EZ Heat, a product which identifies when a cow is on heat, introducing a cheap bulk test for the bovine disease BVD in the milk vat to replace other expensive and time-consuming testing and DNA testing to identify which cows calves come from.

“Farmers are telling us they're delighted with new ways to make old practices less time-hungry and more reliable and this support is evident in these financial results,” Bay said.

“It is also clear that farmers are focusing on improving productivity on farm and see the value LIC products deliver.”

Sales were up for genetics, herd testing, ear tags and disease results.

Bay said it is “gratifying to see the resurgence of confidence to the dairy industry. Recent favourable climatic conditions throughout New Zealand give confidence that the second-half trading conditions for LIC will remain positive.”

LIC shares last traded yesterday at $5.05, just below its recently reached record $5.10 and well above $3.25 a year ago.

(BusinessDesk)

New daily currency rate comparisons and news now available - sign up here

David Chaston — Tue, 07 Feb 2012 21:47:48 +0000

We have added a new daily email service that will be particularly useful if you need to buy or sell foreign currencies.

Getting a good rate will always be a key objective.

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In addition, this email links to key stories and relevant currency news. The daily email service is designed to be useful for both individual investors as well as corporate treasurers who make frequent transactions. Our daily rate sheet is comparative and relevant. It is also free.

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You can unsubscribe at any time using the link at the botton of each email.

BusinessDesk: Harvard’s NZ dairy farm unit, DF1, posts FY profit after buying Big Sky

BusinessDesk — Wed, 08 Feb 2012 01:12:25 +0000

DF1, the New Zealand dairy farmer owned by Harvard University’s endowment fund, posted a profit of $4.87 million last year, having bought the Big Sky Dairy Farm properties in central Otago from their receivers.

Harvard paid about $32 million for the Ainwick, Tercio and Saran farms on the Maniototo Plain, having gained Overseas Investment Office approval for the purchases in September 2010. Big Sky was the biggest dairy farm operator in Central Otago when it defaulted on payments in 2007 and was placed in liquidation in 2009.

DF1’s accounts for the year ended June 30, 2011, show Harvard picked up assets worth almost $34 million in the deal. The company notes Big Sky was in receivership, “hence the resultant discount on acquisition.”

Revenue surged to $11.2 million in 2011 from about $1.6 million a year earlier, when it recorded a $1.2 million loss, DF1’s accounts show. The Big Sky farms are being managed alongside DF1’s existing dairy property, Helenslea.

Harvard’s interests in New Zealand include a majority stake in the Kaingaroa forests.

The US$32 billion endowment fund made an 18.8 percent return on its natural resource portfolio in the year ended June 30, which included the cutting rights to Kaingaroa forests. The overall portfolio returned 21.4 percent for the period.

Harvard’s fund holds about 10 percent of its assets in natural resources which it says is mostly timberland, and agricultural and other resource-bearing properties on five continents.

The natural resources portfolio has been built up during the last decade by Andy Wiltshire, a New Zealander who started his career with the New Zealand Forest Service, the developer of the Kaingaroa plantation forest in the central North Island. Wiltshire is head of external management for Harvard Management, the fund’s manager.

Harvard beat out China's Citic to buy the Kaingaroa cutting rights from receivership in 2004. The price was not disclosed but it was believed to be near US$650 million. The same forest was sold by the Crown in 1996 for $2.2 billion.

Since then the New Zealand Superannuation Fund has acquired a minority interest in the Kaingaroa forest estate for approximately $NZ300 million.

(BusinessDesk)

Existing NZ shareholders Colin and Dale Armer, Alan Pye and Jagewi Ltd move to full ownership of Dairy Holdings as SCF, Americans exit

Gareth Vaughan — Thu, 02 Feb 2012 21:52:37 +0000

Dairy Holdings' existing New Zealand shareholders - excluding South Canterbury Finance (SCF) - have bought their fellow shareholders' combined 58.59% stake, ending an acrimonious sales process born out of the SCF receivership.

SCF receiver McGrathNicol says the deal values Fonterra's biggest supplier at more than NZ$535 million, including debt, and it'll receive ~~NZ$54.6 million~~ NZ$56.4 million from the sale of SCF's 33.6% interest. That implies an equity valuation on Dairy Holdings of about NZ$169 million. The about NZ$366 million balance of Dairy Holdings' enterprise value includes debt and the value of closing derivative contracts.

The shareholders increasing their stakes are husband and wife Colin and Dale Armer, who Companies Office records show now hold 30.37% each up from 8.33% each, Alan Pye with 25% up from 20.83%, and Jagewi Ltd up to 14.26% from 3.91%.

Jagewi was formerly owned by Christchurch businessman Humphrey Rolleston. It's now owned by Hybrid Dairies Ltd whose directors are the Wellington domiciled Paul Benjamin and Te Awamutu based Harold Snell. Hybrid in turn is owned by Penrith Holdings and I.D. and R.D. Wallace Ltd . Penrith's shareholders are listed as Peter Croft plus Paul and Maureen Benjamin, whilst I.D. and R.D. Wallace Ltd has a series of nine New Zealand domiciled shareholders, with the Wallaces an old, established Waikato farming family. Pye, meanwhile, has extensive land holdings in New Zealand and Australia, in both crop and dairy farming.

Aside from SCF, US investors NZ Cow Company, Pals Plus and Little Cow Company who were previously each listed as 8.33% shareholders but McGrathNicol said today had a combined 25%, have sold out.

Colin Armer 'very happy' with NZ solution with legal stoush settled

The deal is a victory for Colin Armer, who alongside Pye is one of Dairy Holdings' four directors. Armer, who is also a Fonterra director, filed a High Court claim against all his fellow shareholders last year alleging, among other things, that their efforts to sell their combined 83.3% in Dairy Holdings breached a shareholders' agreement that gave Armer, as a fellow shareholder, preemptive rights to buy any stake on the block. British private equity group Terra Firma and the Harvard University endowment fund were among potential overseas buyers.

Colin Armer told interest.co.nz the legal dispute had now been settled and terminated.

"We're very pleased that we've got a New Zealand solution and that the land that was previously owned by the Americans is now owned by New Zealand farming families," Armer said. "We're pretty happy about that."

Dairy Holdings is New Zealand's biggest corporate owner of dairy farms. It owns 58 dairy farms and owns and leases a further 15 grazing blocks, all in the South Island, covering a total land area of 18,000 hectares. In the 2010/11 season, the company produced 14.1 million kg of milk solids from approximately 43,400 milking cows.

Dairy Holdings' board, aside from Armer and Pye, includes chairman Bill Baylis and John Parker. Armer said there wouldn't be any changes in the short-term.

Asked how he and his wife were funding the increase of their Dairy Holdings stake from just under 17% to over 60% Armer said they had a substantial, profitable North Island dairy farming business.

"We milk a few cows in the North Island," he said.

'Good result for the taxpayer'

McGrathNicol managing partner Kerryn Downey said it had been a "lengthy and robust sale process" running since December 2010.

"We have worked closely with other shareholders and our sale advisors (First NZ Capital) and are delighted that the sale has been to New Zealand buyers and will not require Overseas Investment Office approval," said Downey.

"This is a good result for SCF, the Crown and the Trustee (Trustees Executors).”

SCF collapsed into receivership on August 31, 2010 triggering a NZ$1.58 billion taxpayer funded payout to 35,000 of the company’s investors under the Crown retail deposit guarantee scheme. McGrathNicol has now recovered NZ$451.4 million from the SCF receivership on behalf of taxpayers with the government expecting to get about another NZ$228.6 million back, for a total return of about NZ$680 million, or 43% of the taxpayers' outlay, leaving a loss of about NZ$900 million.

Reserve Bank revelations

Reserve Bank correspondence released in November 2010, after SCF was placed in receivership, showed the central bank believed the NZ$75.7 million price SCF paid for its Dairy Holdings stake from its majority owner Allan Hubbard in 2009 was almost twice as much as it was worth, and should have actually been just NZ$42 million. This was based on a Reserve Bank valuation of Dairy Holdings of NZ$125 million as opposed to the NZ$225 million the Hubbard-SCF deal valued the business at.

The email also noted Dairy Holdings had NZ$340 million of bank debt from "three majors" and Rabobank, and referred to a NZ$100 million standby facility provided by BNZ and (ASB's parent) Commonwealth Bank of Australia that had already "effectively been withdrawn" after a technical breach of the covenants.

Asked about the bank debt earlier this week, Dairy Holdings Baylis said the company's financial position was now "very soundly based." And Armer described Dairy Holdings as "rock solid and sound."

"We've been chipping away at the debt as time's ticked away because it's a good business. It's profitable and we're reducing debt as we're trucking along," Armer said.

(Update corrects price received by McGrathNicol for the SCF stake after the receiver corrected its press release, adds comments from Colin Armer, background & clarifies Jagewi's ownership).