Allan Barber says it would not be sensible to privatise Pāmu Farms which provides innovation, employment and stewardship of large swathes of the country without a very clear strategy of how to achieve a better outcome with the proceeds

At present there is a lot of pointless media speculation about state owned asset sales, driven entirely by David Seymour who delights in dropping rocks in the pond to attract attention to ACT’s point of difference. But that’s where it will stop, at least until after the election.

But it’s highly unlikely to go any further, as the two most probable election results will see no change to the status quo. Seymour can stir the pot all he likes, but unless ACT can form a two-party coalition with National he has no hope at all. Winston Peters will always block asset sales till the day he dies or retires, while Labour and the Greens are philosophically opposed to any loss of state control.

The days of Douglas and Prebble have long since passed and, if anything, the sale of large stakes in state-owned assets at the time like Air New Zealand, NZ Rail, BNZ and Telecom gave privatisation a bad name among a high proportion of voters. John Key was able to trade on his popularity to sell off 49% of the three state-owned energy companies, but the chance of that happening today would be slim.

There were several problems with the asset sell down in the late 80s: they may have been sold too cheaply, new owners made large short-term profits, and subsequent events saw some of them having to be bailed out by the government. Not a great advertisement for privatisation!

My personal philosophy is that independent governance is generally preferable to state control, but this has largely been achieved by the establishment of state owned enterprises with separate boards of directors. The weakness of this structure is the ability of the government to interfere with board appointments and influence strategic direction.

A compelling example of the advantage of selling an asset is Port of Tauranga which was operated by the Bay of Plenty Harbour Board before ownership was transferred to the Bay of Plenty and Waikato Regional Councils in 1989. Port of Tauranga Limited was established and is now a highly efficient, publicly listed operation with the country’s largest container port, the MetroHub inland port service and 50% ownership of Northland Port.  

Compare Tauranga’s performance over the last 35 years with that of Ports of Auckland which Auckland Council has persisted in owning outright and the advantage of private ownership is clear.  Ownership of a port is not as sensitive as that of a public utility because the effect on voters’ pockets is difficult to calculate.

The retention of majority ownership, as with Air NZ, Mercury, Meridian and Genesis, with a sizeable minority held by outside investors provides the ideal structure to satisfy government objectives while achieving improved performance. Undoubtedly these partly privatised businesses have returned higher dividends to the state in return for its 51% than would have been the case in full state ownership.

Many members of the voting public appear to assume these commercially run entities are ripping them off – either through unreasonably high power prices or regional airfares. This ignores the fact  a 100% state or council owned company in a market with limited competition will almost certainly be less efficient with an uncompetitive cost structure – the port example is compelling proof.

There are very few public services and utilities that should always remain in state ownership, in the sense that all of them can be contracted out to a third party. But philosophically no government would be willing to abdicate control of key functions like the health system, education, police, immigration and tax.

The national grid is considered an essential government asset, so state controlled Transpower operates this core function, although in theory this could be contracted out. This is highly unlikely ever to happen as the public backlash from the grid failing to transmit power would be horrendous.

This lengthy preamble foreshadows my thoughts about the possibility of selling Landcorp, or Pāmu as it prefers to be known. Seymour questions why the government should own a farming enterprise and believes it could be sold off to raise $2 billion.

As CEO Mark Leslie stated in this week’s Farmers Weekly, many of the farms are subject to Treaty settlements while the pious hope of getting first time farmers into farm ownership does not suggest this process would extract maximum value. Leslie also points out Pāmu's role in innovation and new practices, as well as operating several share-farming agreements and an apprenticeship scheme.

Better informed experts than me can evaluate the value of these innovations and the potential gain or loss to the country from dismantling an operation as complex as Pāmu. It would not be sensible to privatise a business which provides innovation, employment and stewardship of large swathes of the country without a very clear strategy of how to achieve a better outcome with the proceeds.

The whole may well contribute more than the parts. Encouraging agricultural innovation and productivity is preferable to selling productive assets.

Successive governments’ track records don’t give much reassurance the money realised will be spent wisely.