By Bernard Hickey
The creation this week of the 'Save our Farms' campaign to block foreign ownership of New Zealand farm land has fired up a debate that needs to be had.
Unfortunately, the campaign's proposal to immediately block the sale of Crafar Farms to foreign interests and urgently review the Overseas Investment Act is myopic and xenophobic.
However, that doesn't mean we should try to shut down the debate. This intervention by a bunch of Auckland property developers, lawyers and accountants should be congratulated for bringing out into the open a discussion that has consisted so far of mutterings and asides behind a veil of caution.
Let's be open about why so many are concerned about a 'Chinese invasion' of 'our farmland' and what could and should be done about it.
John Key hinted at these concerns when he said he was worried about New Zealanders becoming 'tenants in their own land' and ordered for a review of the foreign investment rules.
He knows better than anyone the forces at work in the global economy and the inevitable results of completely open borders for both trade and capital.
This is the Chinese century and there is now US$1.4 trillion worth of wealth hidden in the nooks and crannies of the world's second largest economy. Much of it is of questionable parentage and the controllers of much of it are trying to squirrel it out to buy hard assets anywhere but China.
In a nation where the banking system is distrusted and even government owned companies are looking to buy commodity producing assets in other countries, it is inevitable that some of that wealth will come looking to buy food-producing assets in politically stable countries like New Zealand.
But why is this a bad thing? And why is it worse than say the Australian banks owning 91% of our financial system or an Australian retailer owning one of our two grocery chains, Progressive, or Australian media companies owning our three biggest media companies, APN, Fairfax and Mediaworks ?
Why is rural land so special?
Why is rural land more precious than say the intellectual capital of our iconic manufacturer. Fisher and Paykel Appliances, which is now controlled by China's bigggest appliance company, Haier, and only yesterday announced a new deal to license more New Zealand technology to this Chinese company.
A Chinese company, Agria, recently bought a big stake in our biggest rural services company, PGG Wrightson, and NEXT Window, a touch screen technology company, has just been bought by a Canadian company SMART Technologies.
Why is rural land so much more vulnerable and worthy of protection?
After all, unlike these other more portable assets, land cannot be dug up and shipped offshore. It will always still be taxed here and legislated for here. Foreign owners are still subject to the same tax laws, the same Resource Management Act and the same employment laws as everyone else.
Sell high, buy low
Also, land can be bought back. That's what happened in America in the 1970s and the 1980s. Cashed-up Arab investors bought American land at inflated prices in the 1970s, only to sell it back to the locals in later years at lower prices. The same thing happened in the 1980s when Japanese investors bought American and Australian land. They eventually sold it back to locals too, often at lower prices.
This is one way to make money: selling high and buying low.
And are farmers and voters really ready for the inevitable drop in land prices if foreigners are banned from buying land here?
However, there are issues that need to be debated.
Let's be consistent and address the real issues.
New Zealanders do not earn enough and save enough to pay for the consumption and investment we seem to want to do. So we borrow the difference or sell our assets to foreigners to make up the gap.
There's a couple of ways to deal with this.
Either we leave the borders open and save more while also spending and investing less. That requires different tax laws and a reorientation of our economy away from consumption and housing to production and exporting. This may require things like a capital gains tax or tax breaks on term deposits or a higher GST.
Or we can physically close the borders to these capital flows.
That would mean blocking sales of residential land, rural land and local business assets. It would also mean blocking New Zealanders from buying assets overseas.
Is that what we really want?
This is the inevitable conclusion of going down this path proposed by 'Save the farms'
It is not necessarily the wrong path. Even the International Monetary Fund is musing about the legitimacy of capital controls for developing economies.
There may well be a case to slow and control the pace the globalisation of both trade and capital flows.
But let's debate that in a consistent way, rather than treating Chinese investment in rural land as somehow different.
Your view? I welcome your thoughts below.
67 Comments
Not only much needed capital flows into the country , from foreigners buying in , but also the possibility of innovation . Who knows what intellectual and productivity value the new munny people will bring . We should be well pleased that we're seen as a desirable investment option .
We have only 200 years of European settlement here . That does not give us the right to develop a siege mentality towards future arrivals and/or their munny .
I see land and other tangible assets are different from Intellectual Property for at least three reasons. 1) You cannot manufacture land out of nothing, and therefore it has real tangible value when things get tough 2) the land and the ability to grow food on it, to grow trees for housing and to keep warm from burning wood is a comforting thought. 3) selling off our tangible assets is not sustainable; there is only so much land (it's finite) and selling it off to temporarily fund our current standard of living seems like madness to me. Hardly fair on future generations either.
When you say: "That would mean blocking sales of residential land, rural land and local business assets. It would also mean blocking New Zealanders from buying assets overseas."
I don't see why that would stop New Zealanders from being able to buy overseas, if those countries let us. There are certainly countries at the moment where we are not allowed to buy their land, yet they can buy ours.
I have no problem with leasing the land out, but selling, no.
Respect to you Leon ....there is always a need for those who put up...
While B.H. may not score high on your report... he likewise puts it out there and receives a good canning for his efforts from time to time.
While many refer to him as an economist ,I read his articles as if he were a journalist observing...hopefully probing....and creating debate.
For my part I have grave concerns about setting a precedent for future foreign investment in land that may be exploited to it's fullest.
The difference is based in ideology and in particular the Foreign Nationals concept of what reasonable exploitation of a resource is..............................stupid Kiwi....uh stupid.
From their viewpoint I guess every journey begins with the first step ... so this is a crucial must win game for them ... and that suggests looking for precedent ... followed by exploitation of that precedent.
I repeat I have family there and their overview of us as a society is as if you were selling your clapped out Holden to a hillbilly and telling him it's way better than his hoss.
Ripe for the picking does not translate well but ... you get the drift.
BH is of course correct - as long as we spend more than we make (both as a nation and as individuals) then one way or another the Chinese among others will own more and more assets in New Zealand. So the real debate is whether it's better for them to own our companies/IP, or our land.
BH's perspective is an interesting one - indeed it is easier to have a degree of control over land, which is immovable, than over foreign owned companies which can prove quite transient. Certainly it invites debate - though you're not likely to get any, as New Zealanders are nothing short of zealous about land ownership.
And that's what you really need to look at here Bob.... that is a demonstration of the difference in ideology............
We like our bribery to be secretive and tasteful...spy like if you wish
They have no time for such carry on.......it's in your face...... it's how things get done.....you are an Ant be grateful for the crumbs........ and no wrong is seen in corrupting foreign interests with incentive based thinking........................" The baubles of Power "
Selling one farm to someone immigrating to NZ is OK in my mind.
Selling 16 farms to foreign owners is quite a different matter. Food supply is of high importance to the Chinese and they are happy to pay a premium for our farm land to achieve this.
But what is the environmental record of China in their own country? Appalling!
Are they going to be any different here? Probably not.
Do they care? Definitely not!
Will this create new jobs? No!
What if they build a new milk factory? They can do that anyway without needing to own the land.
Overall, selling large chunks of rural land to foreign owners - no matter where they are from - does not make sense especially when argriculture is one of your largest export earners. It will just lead to another growing balance of payments problem in the future similar to the one caused by the last large scale sell off of NZ assets.
Was Telecom a better company under foreign ownership? The Amercian/Fay Richwhite consortium ripped huge amounts of cash out of NZ Rail before selling it off. Does Contact perform better than the State owned power companies?
Bernard you are making the horrendous mistake of assuming the next 30 years is going to be similar to the last 30 years.
Nothing could be further from the truth. The last 3 decades were about globalisation, the transient triumph of free-market economic liberalization, the unfettered growth in human populations and the dubious benefits of the information technology 'revolution'.
The next 30 years are going to be all about the dealing with the consequences of resource depletion, population over-shoot and environmental degradation, together with the replacement of globalization by the systems that were in place 50 years or more ago.
In that context preserving 'lifeboat New Zealand' for those fortunate to be its present inhabitants becomes of prime importance. Our land, our water, our seas, and all the other resources we seemingly now take for granted will be our life support system. Many covetous (and eventually aggressive) eyes will no doubt be cast in our direction. We should be aware of this NOW.
The Chinese government and its various quasi-governmental entities have embarked on a highly aggressive resource acquisition spree all over the world - just take a look at the situation in Africa (the Sudan for example). As such it is hardly surprising that their motives are distrusted.
While you may be right economically speaking Anon..population growth is just another more digestible term for......... infestation.
I know on this site that is tantamount to heresy .... but depopulation is what the ground beneath you is screaming for...............does not make for Boom economics...... but that is a sliding scale.
As a fundamental principle, land (in general) should only be available for ownership by the citizens of that country. Land afterall is what defines a country. If you don't have land, you have nothing.
Wars have been fought over land, which is why I find it so abhorent that some are so ready to start selling it off a hectare at a time in exchange for worthless paper (aka fiat money)? It is pure foolishness to take such a short-sighted view, and those that do need to start thinking about future generations and not themselves. Everyone who calls themselves a New Zealander should be fighting for this one.
At the end of the day, economic issues can be easily fixed. Regaining valuable land in the future sold foolishly to foreigners will be much more of a challenge if not impossible.
So what you are saying MattS is we need to prevent land being bought by...by whom?...and how?
Land which if we are honest was in many cases stolen from "British Maori" who had been promised the full protection of British Law, by thieving British pollys with the support of corrupt courts and which we today are trying to make amends for any which way we can.
Wally, would be as simple as rewriting property ownership laws to restrict ownership to NZ citizens .. take your point about history, something to learn from so we don't repeat the mistakes in the future. Oh, and we need to elect politicians who place principle above popularity... oh what the hell, we're stuffed..
Matt once again the difference in ideology appears ....
We see no wrong in...... not........ exploiting the ground beneath us to its maximum.
They perceive that as a waste of resource earning potential.
Suck it dry Suck it Dry Suck it dry.
Globalisation.......The Silos are infested.
No, leasing isn't the answer, see paragraph above starting, "What I will say is having worked and lived in Asia ...."
The answer is for NZ to recognise our context and that we have similar economic vulnerability to that of a developing nation and behave, legislate and develop our economy accordingly. In the latter case that means broadening the export mix, so that while dairy, ag. plays a strong part, it doesn't have the criticality it has had to shoulder.
As for the personal property rights argument, is it smart for the body to allow the backbone* to sell off it's vertebrae one by one? (Think context, think whole system, think about that paragraph I referred in Selwyn's comment above.)
Recent NZ gubmints seem to have no spine, but should we be content with them hollowing out the spine of the nation - the real economy?
Think context and (nevemind myopia) forget the BLINDNESS associated with the dogmatic, unthinking, lazy faith in the orthordoxies, of left, or right.
Forget cricket, no one else is playing that game.
Cheers, Les.
* noting that dairy ag. is the backbone of our fair land ....
Selwyn
Many thanks for the thoughts. Interesting idea on leasing.
I'm actually open to the idea of such controls on foreign ownership of New Zealand assets.
I'm just saying we should be consistent and include other assets besides land in any review.
Thinking aloud, I'm having my own doubts about the unfettered and violent movements of capital across borders in the wake of the Global Financial Crisis, which I think has hammered the idea that global multi-national capitalism works all the time for everyone.
cheers
Bernard
Yep sorry bernard i think your position here is a bit idealistic. re china, until we can buy land over there, until they respect international IP rules, and until they stop exporting P to the gangs here i would rather err on the side of isolationist poverty .
let's not forget that the near-slave wages they permit and the lack of environmental regulation has done real harm to our manufacturing base too.
"Fair play is a strange western practice.".....oh very strange indeed AJ...especially for the British in Noddy a hundred years ago when an Englishman caught sight of a Chinaman in Wellington and blew the Chinaman's brains out with a shot from a pistol...punnishment...not even a telling off! Read your history AJ.
Your right about the history lesson Wally..... but the man that comes to you now is not looking for a new home and a better life....... a different class of individual (if you like) had his head shot off.
We are all capable of brutal indifference regardless of race........ it often comes with money and power.
Money and power....quite right....so start with the Mandarin lessons because Noddyland is turning toward Asia for the next 100 years. Expect to see a visit to wgtn by the Chinese naval forces within the next decade. By 2020 many farmers will be bashing through the bush in Great Wall 4wds...the flood of tourists from Beijing alone will swamp all other groups. And we have people screaming out "don't sell don't sell"...what a bleeding joke.
I appreciate your reply Wally.......... my Mandarin is good enough to get by on........ I am not screaming and reserve bold type for the visually impaired.
My concern is one of being marginalised by Other money interests that.... quite simply put.... have the power to change the rules once having entered the game ....as stands as a matter of history in our own case.
I find ambiguity in your reply's thus far.......is it resignation...?
I meant what I said ...we are all capable of brutal indifference but more often than not as a result of money and power.
I'll be comfortable with being wrong.........I been wrong before.......... and survived it.
No argument there Anonimers..... but we have still failed to correct the history books in the most obvious ways.
Capt'n Cook discovered Australia in....................the f#%k he did
Capt'n Cook discovered New Zealand in.....................the f*%k he did
Brutality..confiscation....assimilation were all as a result of Money Power Control Greed.
No race holds the monopoly on those...........it's a human condition.
"..The objection is to having this strategically important asset owned by faceless, off-shore investors with NO vested interest in New Zealand as a country. That's not racism."..
- Why are farms strategically important Mozart?
- Your 'Cullen fund' future pension is dependent on the very same ownership of property in other countries.
- What is not strategically important Mozart?
agreed.. a more constitutional or principles based discussion would have been a better approach on this,.
From their website...
Nationality of the buyers:
United States 60
Mixture of countries 61
United Kingdom 36
Australia 24
Asian countries 9
Others 45
Approved for sale:
Gross land area (ha) 198,444
I think it unfortunate Bernard that you played the race card so prominently in this piece.... it does not make a good bed for reasoned debate.
Why not include a detailed report of the Chinese Governments ideology and objectives where Foreign business interests are concerned.
The moment anyone here proffers a negative to the sale someone is pulling the race card.
I have a number of N.Z. Chinese friends and associates and their not bloody happy either so what does that make them .....?
Uncle Tom's.....?
Micks,
your have to register at the police your whereabouts (living address) in Europe as well. At least in Germany and Austria it is so. I am sure in switzerland as well. This is for administrative purpose. (Taxes, benefits, car registration, voting right etc). I could not believe when I came to New Zealand, that people here move about and change homes and nobody can find them if they owe money to somebody (the landlord quite frequently), or have had an accident and committed flight from the scene etc. As I understand it here in NZ people try to find out the whereabouts of a person by checking the phone register, but if somebody wants to escape, he does not register his name with the phone company.
Mozart Your hypothesis is nonsense. Billion. Why not say a trillion? Or zero. When doing "what if" scenarios the results only have relevance if the "what" has even a remote possibility of occurring. However, I do enjoy some of your much earlier compositions, you would do well to stick with music.
I am so glad you like my music Vera. I am interested to hear that you don't consider that there is even a "remote" chance of food shortages occurring globally however?
Do you not watch the world-wide news? Food shortages are occurring everywhere. Natural disasters are occurring at an unprecedented rate. Global warming and ridiculous levels of pollution are a reality. Booming populations in developing countries are well documented.
I would say that my comments were more an extrapolation of current events and trends, rather than some sort of blind hypothesis.
Thank you, thank you. I've registered now, and I'll be here all week.
Globalisation...........gee it's been great...! everything's Dandy.....pretty soon you'll be getting your number..... Rat-23698456356789901 and you will no longer have to concern yourself with all this s*$t.
In some ways I be cheering at the end.........thank..(insert your belief).... at last some perspective.
Perhaps some examples of the benefits of selling off your prime land and number one export industry to foreign based entities would be in order. All those countries that have done this must be in the box seat now, right?
Come off it, going down this road would be an indication of total national failure that would play on our collective psyche for generations. I would rather starve than see my children become slaves in their own country.
The only issue left to debate is the physical ownership of NZ rural land. Asian ownership of NZ primary production and corporates, including rural supply companies, NZ consumer debt etc is an established reality and apparently acceptable. As is NZrs owning dairy farmland in Uruguy , USA etc. So no objection per see to farmland being acquired by 'foreigners', apparently.
American Julian Robertsons, English artistocrats, Canadian forestry companies etc can all buy rural land here without too much hullabaloo so this is, distilled to its essence, all about Chinese interests physically owning NZ land.
What differences would we notice if Crafars is bought by the Chinese?. Probably none. Laws and operational rules enforced by relevant authorities would be just as applicable. Some downstream production might be offshored but most would stay here due to the nature of dairy and all inputs including labour would continue to be local.
Suggest it is more about a fundamental distrust of the Chinese regime - not entirely without reason given their aggressive behaviour elsewhere, especially once they achieve critical investment mass. But NZ is not some corrupt uncontrolled African state and we are talking about a relatively small chunk of NZs dairy land. Are we not losing perspective?. Why not let them invest in selected blocks and watch them for a few years to see how they act. Rather than in a knee jerk reaction stamping our puny little feet on the toes of this superpower.
I agree with Don, a failure by the banks to achieve a sale price to cover the full amount of the mortgage would show in their profits. That won't affect their ability to lend unless they where completely overwhelmed with bad debt. There is no pile of money sitting in the vault waiting to be lent out, the only thing constraining bank lending (i.e. money creation) is the borrowers propensity to get into debt.
The banks and their shareholders deserve any loss IMHO, be a good thing if all the debt was defaulted on actually. Start again.
You are right Horace re other overseas buyers. But perhaps what is scaring people here in this debate is that it has been implied that the Chinese govt is either backing or behind this purchase. When governments back something they are usually thinking strategically for their nation. When an EU individual buys NZ farmland their motives do not usually consider their govts strategys.
The biggest mistake Natural Dairy made was getting May Wang to front the deal.
As a farmer, I have no problem with farm values falling and neither will any genuine farmer in it for the long haul. We are not in the game for capital gain, but for the farm to provide an income for us in our retirement. So we won't be looking to sell to fund our retirement. We fully expect there to be no universal super for us so are making provisions for this. There are many farmers like us out there, but you don't hear a lot from us as we aren't 'newsworthy'. The darstardly deeds of the big (but minority) corporates make for much better news.
In NZ agriculture innovation has come from New Zealanders, not corporates, or foreign owners. Some of the biggest changes in farming in recent years relate to technology, not grass species etc. And it is NZ designed technology, not foreign designed technology. So the argument that foreign ownership would bring innovation doesn't stack up. 43% of all dairy farms in NZ are 250cows or less.
Recently we were cold called by a RE to sell our farm. They are especially looking for farms in the 400-600cow range. They can't get enough of them to meet the inquiry. RE agent said the farms over this size were difficult if not impossible to sell, and some owners were resorting to putting two sheds on these larger farms in an attempt to sell them as two smaller units.
Ah, Heathcliffe, I have been retired for 10years, just fall way short of the age for collecting the super. :-)
It is not the question of foreign ownership per se that I have reservations about with the Crafar deal - it is the intention of vertical integration proposals that Natural Dairy have, that as a Fonterra supplier I have reservations about. If it goes ahead it will legitimise foreign companies coming here and setting up vertical integration dairy companies in opposition to a NZ based and owned company (Fonterra) on a very much unlevel playing field. If foreign companies are allowed to come and buy farms and set up processing plants for their own milk, then Fonterra should not have to supply them with milk, and the DIRA should be thrown out. One of the excuses given out for the DIRA is competition to benefit consumers. I am not sure whose consumers this competition is supposed to benefit as most of the overseas owned dairy processors are not involved in the NZ consumer market so there is no benefit to the NZ consumer. There are however disadvantages to the Fonterra supplier in having to supply milk to these processors. If a company has its own supply base or has been in operation for two years, Fonterra should not have to supply it with milk. As for farmers we can choose to supply Fonterra or not, we don't need the DIRA to continue for that option to now be a reality.
To: kin, The real Ray,m valuer, Steve-o, Nicholas Lee, Actual Professional Economist, enon e mouse, Leon Dale, Accountant, steven-orig, Don m, Confused, Neil, Amy-Sue, Mozart, Selwyn Pellett, Selwyn Pellett, Selwyn Pellett, Winston Churchill, Heathcliff, Trim Chai Latte, rk, Neil, aarron, am, Kiwi Dutchman, Anonimers, Don m, John W, Jeff M, Horace the Grump, Darce, Fungus, Benny, SImon
Much appreciate the comments
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cheers
Bernard
I am an immigrant ,(non European) migrated here in 1995 and consider this country as my home.
The issue of racism is a complex ,it is a human condition,just like greed,it is intertwined with power and capability of a race and is not unique or limited to any particular race. The might is right is at the bottom of race conflicts.The "might " may be physical or mental. History illustrate this point well. I am not endorsing this as the Right thing but merely as an observation.
In my opinion land sale(commercial/agricultural)should be only sold to NZ citizens and houses to NZ Citizens/residents. No matter where we come from we have a common future as a nation and our actions should be for the greater good of our country/adopted country. In this context we should not favour any particular nation.
Plenty of sorry cases Anon, the Telecom, NZ Rail and BNZ sales where complete rorts on the NZ public, a price we are paying to this day.
While the interest rates on govt debt were greater than 5% at the time; the US buyers of Telecom, after taking an axe to their Kiwi staff where able to walk away a couple of years later with a sale at $9/share against a purchase price of $1.81.
It goes on and on but you might like to read Brian Gaynor's "
Getting it wrong over foreign sales" http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=3584218
Brian Gaynor is always a good read.
We do need to consider foreign capital controls - and not just on sensitive land, but on other strategic (infrastructure) assets. Time to batten down the hatches - time to spend what we legitimately earn, as opposed to what we can either borrow from or sell to foreign interests.
" This will not be achieved if foreign investment is discounted or compromised at any level."...and that's the highest quality bullshit to be posted so far this year.!
What say you John Key...or are you behind this act of stupidity...afterall the Harcourt circus in Beijing is being looked after at a govt funded show.........what a bloody dumb act by you if you said it was OK.
As I said some time ago...not once has this govt said that it is concerned that property remains seriously unaffordable for Kiwi families....they don't give a bloody Rat's arse.
Read your own rubbish anon...note the bit "at any level"...that's where you are saying it is ok if residential property and farmland prices are driven to the heights of madness on the back of a flood of hot money from overseas. I don't give a dam where overseas, OK....you need to go into a corner and have a good think.
There is little that is propping up the real estate market. One of the few things was the homebuyer tax credit the government offered. As a bonus for doing one's part in stimulating the economy, the government would give fast money around tax season for qualifying home buyers. I read this here: Some homebuyers tax credits were low interest loans. That said, the government pulled a fast one on those credits, as the credits were actually low interest financial loans, not refunds or deductions from taxes.
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