By Bernard Hickey The Crafar Farms debacle is back with a vengeance. It has emerged in the last 48 hours that Chinese-New Zealand citizen May Wang and her Chinese/Hong Kong backers have bought 4 farms from Robert Crafer and are about to buy a further 24 farms from Allan Crafar. (Updated to include details of Companies Act charges against May Wang and possible jail terms or fines; Also, a video interview with Kerry Knight, a lawyer working for May Wang) Wang aims to raise enough money from investors in China to spend NZ$1.5 billion in New Zealand on farms, factories and infrastructure to manufacture baby formula and/or tetrapak milk for the Chinese market. Wang has no experience in dairying, but has spied an opportunity to sell an attractive story (Clean, Green NZ milk for the monster Chinese market) to cashed up Chinese investors and hope to pocket a cut along the way. She has yet to obtain Overseas Investment Office approval for any of these deals. Here's more background at NZFarmersWeekly. May Wang has a colourful past involving failed businesses here, litigious creditors and alleged infringements of the Companies Act. UBS sued her several years ago after she launched a funds management company called UBS NZ. She has since changed the name to UBNZ. Creditors have been on her tail for various monies owed. A spokeswoman for the Ministry of Economic Development's Companies Office has told Interest.co.nz that Wang was charged in the Auckland District Court in March last year with infringements under the Companies Act relating to obligations with liquidated companies. She did not appear because she was overseas and Wang has now applied for an adjournment until after April 27. "There are 3 charges pursuant to the Companies Act 1993, they are sections, 194, 273(1)(a)(ii) and 261(6A)," the spokeswoman said via email. Section 194 refers to the keeping of accurate accounting records. Section 273 prohibits directors leaving the country with intention of avoiding examination of the affairs in any company liquidation. Section 261 (6A) refers to failure to comply with liquidators' requirements. The offences carry fines of up to NZ$50,000 or 2 years imprisonment, the spokeswoman said. Wang has pulled in Auckland law firm Knight Coldicutt, Sir Ralph (Ngatata) Love and former TVNZ Head of News Bill Ralston to help give the whole plan some shape and (more positive) public profile in New Zealand. Here's some of the initial reaction from all and sundry.
The Productive Economy Council said the farming sector was a national asset and must be protected.
The proposed buyout of the Crafar dairy empire by Natural Dairy (NZ) Holdings, a Cayman Islands registered, Hong-Kong based company – previously known by the more illuminating name of the China Jin Hui Mining Corporation – should start alarm bells ringing with the New Zealand public, says the Productive Economy Council. The public has a historical resistance to asset sales, but many might not understand that our agricultural sector is just such an asset, of such importance to the economy that selling large parts of it off to foreign interests is not in the national interest. The reality is that a business exists to make a profit, and that profit is retained by the business owners, not the workers. When the business owners reside in the same country, that profit is re-invested to the benefit of the local economy. When they do not, the greater part of that profit goes off shore and does not benefit the country. “If our tax laws were robust, then at least the country would retain some of that money via the tax system,” says PEC spokesman Selwyn Pellett. “But that’s not the case. Foreign entities have the ability to shift the location of the high value-add activities off shore and leave large debt servicing here, meaning tax can be organised to be near zero. Why wouldn’t a foreign owner do just that? It makes sound business sense.” “As the value-add migrates off shore so do the jobs and the PAYE that was collected from those employees. The result? A bigger tax burden on those that are left.” “Chinese businesses have become very competitive by driving the cost of production down. It’s a strategy that applies to food production too. Quality may not always suffer, but the environment often does and that's a potential risk to New Zealand's already tarnished brand,” says Pellett. “This is not scare mongering,” says Pellett, “we have already seen our hi-tech businesses picked off one by one and slowly migrate off shore. First the manufacturing went, then the research and development and finally the entire company.” “We cannot have a first-world lifestyle without wealth generation. If all our businesses are owned off shore then we have lost our economic sovereignty and we are now just a source of labour – and only then if it’s cheap enough. We’ll be little better off than the Irish were under absentee English landlords in the 19th Century.” “Farming is today a marginal business given the high on-farm debt, but allowing those debt levels to result in the transfer of a significant portion of our farms to foreign ownership would be a mistake that future generations of New Zealanders would come to bitterly regret,” says Pellett. “The government needs a coherent vision and strategy to get through the current debt issues facing many farmers so that the country can retain the wealth generation, both in terms of productivity and tax, those farms represent.”
Federated Farmers said the reports of the deal showed the gate on the New Zealand-China Free Trade Agreementswung both ways.
"If these reports are indeed true, NZ$1.5 billion will represent the largest attempt at direct foreign investment into New Zealand since the Canada Pension Plan Investment Board's abortive attempt to buy Auckland International Airport Limited," said Lachlan McKenzie, Federated Farmers Dairy chairperson. "We all know that ended in tears when the last Labour Government scuttled the deal, after defining the airport as a ‘strategic asset'. We hear much of ‘reputation' and ‘brand risk' associated with agriculture and wonder what the Government will make of this. While the ball's in the Government's court, assuming this all comes to pass, Federated Farmers wishes to meet with Natural Dairy (NZ) Holdings Limited sooner rather than later, to understand its strategic direction." "Whatever happens, New Zealand will remain an attractive investment destination so maybe time has come for us to look at a Ministry of Food Production. It may also help put a floor under farm prices given that in the three months ending February, just 205 farms were sold. That was down from 276 farm sales in the same three month period in 2009 and 713 for the same quarter in 2008."
Greens co-leader Russel Norman said the government needed to rethink its loosening of foreign ownership rules to stop New Zealand's dairy industry falling into the hands of overseas investors.
“If large sectors of our export industry are allowed to be owned by large trans-national corporations or overseas governments, then our current account deficit will get worse as the profits from these companies are sent back to their overseas owners. “At present trans-national food giants and governments such as the Chinese have been buying up large tracts of productive land in Africa. These governments have been driven by a concern with food security which is leading them to buy land and send the food back home. “This has often led to disaster for the local population,” said Dr Norman. “We need to tighten our foreign ownership rules but the Key Government seems intent on loosening them even further than Labour did.”
My view This is the inevitable consequence of over-leveraging in the pursuit of capital gains. Now the banks are dumping the worst offenders and it has encouraged an opportunistic bunch of middlemen (and woman) to funnel easy, cheap foreign cash (in China and the Middle East) through into these farms. It is an easy sell for May Wang because she can say to Chinese investors who are now cashed up from the lending-driven real estate boom in China over the last year that New Zealand produces clean, green milk (from the Crafar farms no less...) that Chinese consumers will buy. The irony is the kerfuffle around San Lu's melamine poisoning scandal in china is that Fonterra and New Zealand came out smelling of strawberries and cream because they (via Helen Clark) blew the whistle on the poisoners. We are effectively seeing a credit-fueled real estate boom in China spilling over onto our shores at a time when our Australian-0wned banks are rightly losing patience with recidivist defaulters such as Allan Crafar and Bob McVitty. The danger here is that Wang pockets plenty of fees on the way though, the end investors get very grumpy and the actual investment in new processing plant implodes. There is also little expertise to actually improve the management and production on these farms. The intention is to install or retain sharemilkers or farm managers. Will they be any better than the Crafars? Or will they be the Crafars themselves as managers rather than owners? That itself may be a bad thing for our 'clean, green' image. This all comes back to the issue of sovereignty. Who do we want owning and profiting from these farms? Where will the final decisions be taken about the long term future of the industry? Does foreign ownership actually improve incomes here? The fear with these particular buyers is that opportunism and easy credit-fueled cash could cause more trouble than it's worth. Now it's time for the OIO, and ultimately the Government, to examine the legitimacy of the buyers. Now it's also time for New Zealanders to face the deep and long term truth: we exchanged future sovereignty for short term capital gains through a credit-fueled frenzy. Now this deal with the devil is coming home to roost. We have no one to blame but ourselves. Your view? I welcome your comments and insights below. Earlier this morning I appeared on TVNZ's Breakfast programme to talk with Pippa Wetzell about this story. Here's the clip.