PM Key says govt would consider further tightening of foreign investment rules if it expected a wholesale buy-up of NZ farms

The government would consider further tightening of overseas investment rules if it suspected a wholesale foreign buy-up of New Zealand farms was brewing, but sales figures suggest this is not currently happening, Prime Minister John Key says.

Overseas investment rules are again in the spotlight with the possible sale of the 16 Crafar central North Island dairy farms to Chinese conglomerate Shanghai Pengxin. That sale is conditional now on Ministerial approval, assuming the Overseas Investment Office has approved the bid, with a decision expected most likely tomorrow.

The sale is being considered under new overseas investment rules, which the government changed in late 2010 following public outcry over a bid by another Chinese-backed company, Natural Dairy, for the Crafar Farms. The Natural dairy bid was denied on 'good character' grounds, and three of its executives are now facing fraud charges.

In September 2010, the government toughened up rules by giving responsible ministers - the Land Information Minister and an Associate Finance Minister - more power to decline Overseas Investment Office recommendations on foreign bids to purchase New Zealand assets.

A new “economic interests” factor allowed ministers to consider whether New Zealand’s economic interests were adequately safeguarded and promoted, and a new “mitigating” factor enabled ministers to consider whether an overseas investment provided opportunities for New Zealand oversight or involvement – for example, by appointing New Zealand directors or establishing a head office in this country.

All applications to the Overseas Investment Office since January 1, 2011, including the Shanghai Pengxin bid for the Crafar farms, were considered under the new rules.

Landcorp's role

If Shanghai Pengxin is successful in its bid, it will lease the farms to state owned enterprise Landcorp, meaning there would be New Zealand oversight and involvement in the process.

Pengxin issued a statement in April 2011 when it made the bid for the farms, saying it planned to increase milk production from the Crafar farms by 10% and wanted to capture a bigger share of the Chinese market with branded, dairy-based consumer products. It said it planned to spend more than NZ$200 million to buy and upgrade the farms. It then planned to invest a further NZ$100 million on marketing cheeses, ice creams and baby formula for the Chinese market.

The company would invest money to upgrade the farms, employing New Zealanders to do so, Pengxin said. It has said it is not looking at vertical integration - where it would own all facets of the supply chain - but would rather use New Zealand dairy plants to create and manufacture products such as baby food, cheeses and ice creams.

Pengxin established a subsidiary, Milk New Zealand Holdings, for its planned New Zealand dairy industry involvement. The sole director of that company was to be Jiang Zhaobai, the chairman of the Shanghai Pengxin Group.

Crafar sale not a wholesale buy-up

Prime Minister John Key told media in Auckland this afternoon that although the Pengxin bid was large in terms of the amount of farms being sold in one sale, it did not constitute a wholesale buy-up of New Zealand farmland.

"I don't think wholesale purchases of New Zealand farmland by foreigners, if that was to be a huge condition, is in New Zealand's best interest. The reason for that is I think this is our long-term resource," Key said.

"If you look at the foreign ownership of farms on the best information that we have, it's less than 1%. So if we saw a significant buy-up of New Zealand farms, then the government's response would likely be to further toughen the regulations or the Overseas Investment Act. But at this point we're not really seeing that," he said.

There had been 72 farms sold to foreigners under National's reign, while there had been 6.6 times more sales during the previous Labour government's nine years, Key said.

The Crafar farm sale was a significant transaction in terms of a one-off sale.

"But in terms of the overall 10,000 dairy farmers in New Zealand, and the huge amount of productive land, no it's not [a large transaction]," Key said.

The Crafar farms group was put into receivership in October 2009 owing about NZ$216 million to its lenders Westpac, Rabobank and PGG Wrightson Finance after interest.co.nz revealed animal welfare issues at the farms.