Guy Trafford wonders if the election result puts SOE Pāmu Farms into play to be sold off. The pressure from ACT may move a hesitant National. But all eyes will be on how if happens and to whom the farms are sold

With the lift in the dairy milk forecast, the election result, and the All Blacks hard fought win over Ireland, for many on the land the week has gone pretty well.

With such highlights it has been difficult to dig up many juicy bits to delve into so one was forced to go back and look at what National and ACT in particular said prior to the last couple of elections which may have relevance to farming today. One area of interest is attitudes towards Pāmu, or LandCorp as it is still likely better known. This SOE is the last of the crown jewels that was not sold off post 1984 elections and subsequent sell offs and yet it has a high capital worth, somewhere around $2 bln but provides a very low rate of return (often a loss) and provides very little in the way of ‘public good’ to society in general.

When one looks at the speed the Auckland Council has downgraded its ownership of Auckland airport to help balance the books, I have always found it odd that now past government did not see fit to examine both the benefits and the funds that could be provided by a sell down of the LandCorp assets. Let’s face it, New Zealand has come through some pretty tough times recently and if any time could justify cashing in some of the jewels then now would be a good time.

ACT in particular has been vocal in the past about its belief that LandCorp. As far back as 2016 the then Primary Industries spokesman Mark Cameron was calling for its sale. “State-owned enterprises shouldn’t be competing with Kiwi businesses, and there’s no greater example of this than LandCorp”. This view was reinforced by Leader David Seymour both then and more recently (September) when talking about SOE’s Seymour said “but one state agency, the farming group LandCorp, or Pāmu, would be sold off entirely.”

So quite unequivocal about selling it off.

While the dust is still to settle on who takes up what portfolio’s in the new cabinet there is a reasonable chance, especially if the new government wishes to curry (more) favour with the farming sector that ex Feds leader and ACT MP Andrew Hoggard will have a role. While Federated Farmers appear to be agnostic over LandCorp Andrew Hoggard has accused LandCorp of “throwing other farmers under the bus”. Federated Farmers rejects these new tax proposals, Hoggard says. This was when LandCorp was suggesting to the then government in 2018 that they supported the idea of some “environmental taxes” (Hoggard is ranked fifth out of 11 MPs ACT has in the new Parliament). So, ACT maybe likely to be pushing for Land Corp’s sale especially if it means it can be seen to balance the books. Currently Simon Court (Te Atatu) is their agricultural spokesperson and is also likely to make it into parliament as he is currently on at eighth on their list.

National, based on their past comments should be receptive to the idea. Firstly the cashed-up assets will be attractive and secondly the principle of selling off an SOE should not be too unsettling (I could never understand why the left governments were averse to it). Their current agricultural spokesperson Todd McClay back in 2015 as Minister for SOE had considered the idea of LandCorp selling off some of its farms to “contain rising debt”. Closer to the present in 2017 then National primary industries spokesperson Nathan Guy said the government owned a large number of commercial farms through LandCorp, but there was no clear public good coming from Crown ownership and little financial return to taxpayers.

Closer to this election, National seem to have got cold feet about selling off saying “Improving LandCorp performance, productivity and financial return would be a focus for National if it becomes the government after the election". National’s agriculture spokesperson Todd McClay said "improved returns from LandCorp would provide another source of funding for the government to invest in New Zealand infrastructure”. While LandCorp has shown an improved 50% to $33 mln Net Operating Profit this year to June 2023 after tax it is a -$9 mln loss. Even Treasury are questioning the wisdom of keeping the SOE on the government books. In one section of a review (2021) they say:

• LandCorp has made fifteen Group EBITDAR forecasts across the last five years FY2016 to FY2020 (three years forecast in each), of which just five have been within 10% of actual EBITDAR. Historically, there appears to be a strong contextual bias from the year in which the forecast is made.

• The hypotheses that most of the forecast variance is attributable to volatility in the farming divisions is false. LandCorp has had several significant windfall gains over the period especially with $8.1m of carbon credit allocations in FY2016, and $7 million in FY2020 mainly from the sale of Westland shares. LandCorp has also suffered significant losses against forecast EBITDAR through its investment in off-farm activities with Pāmu Foods, Spring Sheep and FarmIQ all performing below forecast. Our analysis of those enterprises (see later sections) shows a general theme of over-estimating revenue growth and underestimating the risks involved.

One of the concerns some politicians appear to have with the selling option is the ‘risk’ of overseas ownership taking up the majority of the sales. How the land is divided up could depend upon the philosophical purpose behind the sales.

If getting out of (another SOE) and assisting young farmers into farming is a goal then leasing could be an option, the country retains ownership and returns must be more favourable than the current model given the overheads and pretty average performance being currently achieved.

If a complete sale is the preferred option and utilise the capital for more urgent social needs etc. then I’m sure over time with a trickle out process most farms (112) could be disposed of profitably, especially if government puts in some strict OIO clauses around them.

However, I’m not holding my breath to see anything happen. Politicians are long on rhetoric but make surprisingly few actions (in my view), but ACT may bring some fresh activity to this this topic. As usual time will tell.