Gareth Morgan says the reasons for the Government owning a farming enterprise have passed and it needs to sell out - and concentrate on being an active, non-conflicted regulator

Gareth Morgan says the reasons for the Government owning a farming enterprise have passed and it needs to sell out - and concentrate on being an active, non-conflicted regulator

By Gareth Morgan

After the downfall of Solid Energy, we have seen increased scrutiny of Landcorp – another State Owned Enterprise (SOE) that has recently taken on more debt.

This debt has been taken on to fund large scale conversions of pine to pasture.

We commented earlier this week on the environmental and treaty implications of these conversions and now other Waikato farmers have joined the calls for the conversions to be halted. In light of the drop in milk prices Landcorp’s plans look increasingly vulnerable, and that may force the SOE to sell some of its land.

But the real question is why does Landcorp exist at all?

Why do we have Landcorp?

Landcorp was set up in the 1980s to manage the commercial interests of the Department of Lands and Survey. In these early days the task was mostly to run the high country leasehold farms that the government owned. One of the original rationale for keeping the land in government hands was that it could be used for Treaty settlements. In the mean time, Landcorp’s job was to use the land productively.

However, over the years the activities of Landcorp have grown and grown into a multi-headed monster.

In addition to this original role it now converts land from pine to pasture, leases land for dairy, sheep, deer and beef farming and develops rural land for ‘higher value uses’.

These are all activities that the private sector is adept at – there is no need for the government to be involved.

According to their website:

Our purpose is clear – to transform New Zealand farming. We understand the privileged nature of what we do and where we farm. Landcorp has long been New Zealand’s largest farmer – but we must also be its best.

We have extraordinary assets in our people, land and resources. We will continue to unlock and develop their potential while demonstrating that improvements in profitability can go hand in hand with sound environmental practices.

Landcorp is highly experienced in large scale farming operations and we’ll continue to utilise our skills and brand to target premium, niche markets around the world.  We’ll stay lean and agile with a clear vision and robust strategies – because we know that what we have here is precious, valued and cannot be replicated.

This is mostly waffle – there is nothing here that the private sector can’t and shouldn’t do. In fact as we pointed out in our earlier blog, by the government owning this business it actually acts against them getting tough on environmental issues because it impacts on their own bottom line.

Where is the market failure?

Usually governments get involved with an industry or business for a precise reason. This is usually based on a ‘failure’ in the market – there is some reason we can’t leave it to private businesses to deliver. Healthcare is a good example – often people don’t make rational decisions about what healthcare they need. As we see in the US private model people tend to underinvest in prevention and pay through the nose for excessive treatments they don’t need, just because a doctor tells them they should.

So how does this idea of market failure apply to Landcorp? Short answer is, it doesn’t.

Farming is one of our most competitive industries, one where we can with a lot of confidence say the ‘market works’. Why then is Landcorp – a government-owned Quango out there buying, selling and leasing farms and doing stuff the market can do? It’s actually worse than that – to the extent Landcorp has an impact in the market for farms it’s crowding out the private sector, crowding out the activity of arguably our most entrepreneurial sector. It just doesn’t make sense – the government needs to get rid of it.

I can remember ten years ago asking senior Landcorp executives what on earth the rationale for their empire was. They told me it was a proven exemplar of best farming practice and provided much valued new knowledge for the farming industry. I thought that was a stretch at the time, and sounded more like someone trying to justify their job. But there can be little doubt that Landcorp’s expansion over the years has done little but stolen opportunity from the private sector and the justification for that is pretty well wafer thin. Now it threatens the Crown’s balance sheet and our ability to legislate on environmental bottom lines into the bargain. 

How can we get out of it?

With the last of the Treaty settlements now being completed, it is time for Government to work out an exit strategy for Landcorp.

As Fran O’Sullivan points out there are several options, such as doing a partial privatization deal with iwi or the NZ Super Fund. The Government could also transition its exit via the mixed ownership model that it uses on the electricity companies and Air New Zealand.

But whatever the route it needs to stop unnecessary interference in the market.

We have enough instances of market dysfunction to justify government regulatory or ownership interference without doing it for no more than legacy reasons.

That a National government is asleep to economically inefficient nationalisation like this seems particularly lazy – especially when it has conducted some quite questionable part privatisations of businesses where it looks like the market isn’t working properly (such as the electricity generators). What is it with this farming monolith for National? Smacks of some pretty weird double standards.

--------------

This article was first published on his blog, Gareth's World. It is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

18 Comments

Comment Filter

Highlight new comments in the last hr(s).

More the playing the civil contractor role in development, and/or be the share milker for passive investors.

An issue is that Landcorp seems investment rated, so is maybe the only entity that some passive (super funds) investors can use, while keeping their ag ventures investment grade. For others it a part of the puzzle that enables substantial private bond borrowings..

Few international funds find other than a rated entity acceptable as contractor or farm manager.

As for situations where the development contractor needs fund capex (basis full recourse) of the venture - is most unusual. Ask FH, Downer etc would willing take on such.

Lets hope lc have minimised situations where they've contracted to pay/provide at fixed price, fixed volume etc...

At last Gareth is applying his energy and talents to a real issue! He has not made much sense to me since his anti-cat programme (there's just something a bit odd about cat people). I was wondering how Landcorp came to be.

As Fran O’Sullivan points out there are several options, such as doing a partial privatization deal with iwi or the NZ Super Fund. The Government could also transition its exit via the mixed ownership model that it uses on the electricity companies and Air New Zealand.

Er, come on Gareth, what about just selling the farms individually at auction over a ten year period. Kill the monster, don't feed it.

How many farms in NZ trace back to land ballots of Crown land by egalitarian governments?

http://www.rootsweb.ancestry.com/~nzlscant/run.htm

http://www.teara.govt.nz/en/1966/land-settlement/page-6

The 1891 -1912 Liberal government was flawed from our 2015 viewpoint -they believed Pakeha could more productively use land than Maori would. There was an implicit racial superiority belief system.

They were also probably sexist in a complicated way. The Liberals gave women the vote, which was the first in the world. No doubt this continued a liberalising trend but it was also because they wanted to support family farming as part of their agrarianism political and economic belief system. They believed small, competitive, anti-monopolistic, egalitarian family farms would be the basis for a successful democracy and economy. https://en.wikipedia.org/wiki/New_Zealand_Liberal_Party#Agrarianism

I suspect Mackenzie/Liberals thought women who were wives of male farmers would vote for the family farms self interest -which of course would be for the Liberal party.

The Liberals won 7 consecutive elections, they are the longest serving government administration in New Zealand’s history. They had a huge impact on NZ society, our belief system, our economy, even to this day.

The Liberals failed because they became a staid conservative party. Aspects of the Liberal party are now split between National and Labour.

finally agree with G morgan, it either needs to be rolled into the super fund or sold off.
it is NOT a strategic asset so does not need to be held
if sold by the government it must only be to kiwis if they on sell so be it at least their hands are clean

who would buy their mid north island project of converting trees to dairy?

we have dairy farmers in our area who are going to milk their cows for 3 months to feed the calves then dry them off! Why milk for nothing? Things are pretty bad.

Tim - are those ones likely to be ones with no debt to service?

that's true grant, it also may help the price in the long run if a few of them who can afford to, do this. Are farmers servicing debt at these prices? What it shows though is that farmers see no hope of significant price improvement this season.

What size farms are those Tim? If they employ staff are they going to cut them loose at Christmas? After debt servicing, which these folks don't sound to have, and fertiliser, which you can forgo for a year, staff is often the next biggest expense. If they are owner operators they have more choices.

Yes CO they are owner operators. I have also heard from works buyers that they are flat out killing dairy cows.( probably culling anything older now rather than next autumn?) What will be interesting this year is what are the dairy support guys are going to do? I 've heard a local contractor who does cropping say they don't have the work coming up. Some support businesses have really been taken by surprise by this.

"I can remember ten years ago asking senior Landcorp executives what on earth the rationale for their empire was. They told me it was a proven exemplar of best farming practice and provided much valued new knowledge for the farming industry. I thought that was a stretch at the time, and sounded more like someone trying to justify their job. But there can be little doubt that Landcorp’s expansion over the years has done little but stolen opportunity from the private sector and the justification for that is pretty well wafer thin"

Right on target Gareth.

the true answer of course is : We're government sponsored and we can do whatever we like and don't even have to have fundamentals covered by our excuses.

and when Landcorp cozied up to Pengxin to push the Crafar deal through, there should have been OIO initiated red flags and checks for corruption, just as Landcorp supporting OCD in a faux non-monopoly attempt. Such quangos are in appropriate in the technological age (ie post colonisation)

Landcorp is a complete waste of space that achieves absolutely nothing. Sell it down but I would like it broken up and sold to "working" farmers. I am sick of these corporate farms that "employ" real farmers as their workers.

The family owned farm business has been the major prop for New Zealand wealth and social progress for 100 years. I stopped in Palmerston today and on the sign explaining the McKenzie monument was this interesting fact. McKenzie converted 89 huge holdings into more than 1600 family owned farms with the land act of 1892. 1600 !!!!! We could do it again.
http://www.teara.govt.nz/en/biographies/2m17/mckenzie-john

Thank you Gareth for stating the obvious

I thought Rod Oram made a few good point in his article this weekend.
Different point of view from Gareth's though

http://www.stuff.co.nz/business/71305115/rod-oram-strength-and-strategy-...