The Chinese bid to buy the 16 Crafar Farms has been approved by the government after spending nine months in front of the Overseas Investment Office, which recommended the sale application be granted last week.
Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman gave their tick of approval to the sale of the farms to Milk New Zealand Limited, a subsidiary of Chinese company Shanghai Pengxin.
The farms' receiver KordaMentha had already accepted Pengxin's bid, conditional on OIO approval. KordaMentha had set a January 31 deadline for Pengxin to go unconditional on the sale, meaning a Ministerial tick of approval was needed before then. Pengxin's bid is thought to be in the range of NZ$210 million.
This is Pengxin's first foray into dairy farming, although it already owns sheep breeding operations in China, and owns a controlling stake in a farming operation in Bolivia producing sorghum, soybeans and corn. It has also been looking at further farming investments in Argentina and Cambodia.
The sale is contingent on Milk New Zealand investing at least NZ$14 million in the properties to make them more economically and environmentally sustainable. The owners must also protect the Nga Herenga and the Te Ruaki pa sites and improve walking access to the Pureora Forest Park and Te Rere falls. An on-farm training facility for dairy farm workers will also be established, Williamson and Coleman said.
The Overseas Investment Office said Pengxin's move to try and get SOE Landcorp to manage the farms, which have a combined area of approximately 7,893 hectares, was a factor in its decision. If Milk New Zealand did not enter into an agreement with Landcorp to manage the farms, the conditions of consent require Milk New Zealand sell the properties. All conditions of consent will be strictly monitored by the OIO, Williamson and Coleman said.
Following the announcement, a New Zealand consortium led by investment banker Michael Fay, which is opposed to the sale and wants to purchase the farms itself, said it would seek a judicial review of the OIO's process for granting the sale.
"The deal between the Crafar receivers and Shanghai Pengxin will effectively make the New Zealand Government a tenant on New Zealand soil to foreign investors," Alan McDonald, a spokesman for the Fay consortium, said in an emailed statement.
Williamson and Coleman said they would not comment on the legal action.
Crafar Farms receiver Brendon Gibson told interest.co.nz that KordaMentha was looking for Pengxin to come to it before its January 31 deadline. The legal action by the Fay consortium would not affect the contract KordaMentha had with Pengxin.
“We just want to get this contract unconditional and settled,” Gibson said.
The Labour, Green and New Zealand First Parties have also spoken out against the sale of the farms to Shanghai Pengxin. Labour Party leader David Shearer issued a statement saying the sale was "a kick in the guts for Kiwi farmers". (See the Greens' and NZ First reactions below.)
Shearer, who supported the Fay consortium's bid, said Labour was not opposed to foreign investment, but any deal must demonstrate added value for New Zealand.
"This one doesn't," he said.
“Approving the sale of these 16 farms and selling our other valuable assets will leave New Zealand poorer. Kiwis understand that; it is why they are so overwhelmingly against it,” Shearer said.
“Pengxin group has no background in farm management. Landcorp, the Kiwi SOE which itself made a bid to buy the farms, will now be paying a Chinese Government-backed company a touted NZ$18 million a year to rent and manage the farms for it," he said.
This latest decision would be a massive kick in the guts for the local group of iwi and farmers who also put in a bid, Shearer said.
“They were very keen to take over the land and make it productive again. That would have provided jobs for Kiwis, not seen profits disappear offshore," he said.
“John Key has tried to distance himself from the decision. He can’t. In 2010 his Government was talking about how their changes to regulation ‘increased ministerial flexibility to consider a wider range of issues when assessing overseas investment in sensitive land’. Ultimately the decision lies with John Key and his Cabinet."
Cedric Allan, a spokesman for Pengxin, said Shearer's comment that Landcorp would be paying the conglomerate NZ$18 million a year to rent the farms was wrong.
Pengxin and Landcorp did not have any agreement about management of the farms, and negotiations on a joint venture between the two were about to resume with the hope of reaching an agreement in the next few days.
Allan noted he expected Landcorp would only enter into an agreement if it benefitied the SOE.
Pengxin was delighted to have been granted the sale, he said.
Pengxin would give the Fay consortium time to seek the judicial review before it signed the final deal with KordaMentha.
Met the criteria
"It is clear that all criteria under sections 16 and 18 of the Overseas Investment Act 2005 have been met, therefore we accept the recommendation of the OIO to grant consent," Williamson said.
"We are satisfied that Milk New Zealand's application for consent meets the criteria set out in the Act," Coleman said.
"Milk New Zealand’s acquisition will further support the supply of high quality dairy products into the Chinese market and help set the foundations for further economic and export opportunities with China," they 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.
An initial Chinese-backed bid by Natural Dairy for the farms was rejected by the government in late 2010, which was denied on 'good character' grounds. Three of Natural Dairy's executives are now facing fraud charges.
Pengxin announced in April 2011 after launching its bid for the farms that 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.
A copy of the OIO's recommendation is available at:
A copy of the OIO’s Decision summary is available at:
OIO background information is available at:
After a comprehensive review and consideration of the OIO’s recommendation, Ministers were satisfied that Milk New Zealand met all of the relevant criteria in the Overseas Investment Act 2005, and therefore accepted the OIO’s recommendation to grant consent, Williamson and Coleman said.
The "substantial and identifiable benefit to New Zealand" criteria were satisfied by particular reference to the following factors:
· Creation/Retention of jobs - section 17(2)(a)(i)
· Increased export receipts - section 17(2)(a)(iii)
· Added market competition/productivity - section 17(2)(a)(iv)
· Additional investment for development purposes - section 17(2)(a)(v)
· Increased processing of primary products - section 17(2)(a)(vi)
· Indigenous Vegetation/Fauna - section 17(2)(b)
· Trout, salmon, wildlife and game - section 17(2)(c)
· Historic Heritage - section 17(2)(d)
· Walking Access - section 17(2)(e)
· Offer to gift riverbed to the Crown - section 17(2)(f)
· Consequential Benefits - regulation 28(a)
· Advance significant government policy or strategy - regulation 28(f)
· Economic Interests - regulation 28(i)
Benefits considered by Ministers included the intention of Milk New Zealand to invest more than NZ$14m in the properties to make them more economically and environmentally sustainable.
Milk New Zealand would also ensure protection of two important pa sites (the Nga Herenga pa and the Te Ruaki pa), and provide improved public walking access to the Pureora Forest Park and Te Rere falls. It would also establish an on-farm training facility for dairy farm workers.
Milk New Zealand intends to engage Landcorp Farming Limited (Landcorp) to manage the farms. The Overseas Investment Office considers that the involvement of Landcorp makes it more likely that the expected benefits will occur, Williamson and Coleman said.
"In addition, Ministers have imposed comprehensive conditions of consent on the company to ensure that the benefits proposed by Milk New Zealand are delivered," they said.
Conditions of consent imposed by Ministers include the following:
· The individuals with control of Milk New Zealand must continue to be of good character
· Milk New Zealand must invest a minimum of NZD $14m in the properties
· Milk New Zealand and their associates must not acquire an ownership or control interest in milk processing facilities in New Zealand unless a 50% or more ownership or control interest in those facilities is held by non-overseas persons
· Milk New Zealand must establish an on-farm training facility for dairy farm workers and must meet the capital cost of establishing this facility
· Milk New Zealand must give two scholarships of not less than NZD $5,000 each year to students of the on-farm training facility with the first two scholarships to be awarded by 31 December 2013
· Milk New Zealand must use reasonable endeavours to assist Landcorp to extend its business to, and market its products, in China
· Milk New Zealand must provide public walking access over Benneydale Farm and Taharua Station, in consultation with the Department of Conservation and the New Zealand Walking Access Commission
· Milk New Zealand must take reasonable steps to protect and enhance existing areas of significant indigenous vegetation and significant habitats of indigenous fauna and flora on the properties
· Milk New Zealand must register a heritage covenant in respect of the Te Ruaki pa site on Tiwhaiti Farm
· If required by the Office of Treaty Settlements, the Applicant must transfer the Nga Herenga pa site (approximately 1.6ha located on Benneydale Farm) to the Crown for nil consideration.
Milk New Zealand agreed to all conditions of consent imposed by Ministers, Williamson and Coleman said.
Satisfied business experience and acumen requirement
The Overseas Investment Act 2005 requires the individuals with control of the relevant overseas person to collectively have business experience and acumen relevant to that overseas investment. The level of business experience and acumen required to satisfy this condition may vary according to the nature of the investment. In this case, the overseas investment is the acquisition of a large corporate farming business. The Ministers considered that the individuals with control have sufficient business experience and acumen to operate a large business of this nature, Williamson and Coleman said.
"Milk New Zealand is a subsidiary of Shanghai Pengxin Group Co. Limited, a fast growing international agribusiness which includes investment in sheep breeding, wheat, soy and maize production in China and South America. Shanghai Pengxin has obtained advice from leading New Zealand consultancies such as Perrin Ag, Landcorp and PwC. Shanghai Pengxin will also employ two New Zealand directors and an independent chairman to the board of Milk New Zealand," they said.
Was the Ministers’ decision influenced by New Zealand’s Free Trade Agreement with China?
The decision was not influence by New Zealand's free trade agreement with China.
"Ministers were satisfied that Milk New Zealand met all of the relevant criteria under the Overseas Investment Act 2005. Ministers can only have regard to the criteria and factors outlined in the Overseas Investment Act 2005. Every application is decided on its individual merits and the outcome would be the same even if New Zealand did not have a Free Trade Agreement with China," they said.
Foreign land ownership
In the last two years, consent was granted for overseas persons to acquire 357,056 hectares of agricultural land.
Consents granted involving agricultural land by country of majority ownership, are:
· United States to acquire 25,306 hectares of farm land
· Germany to acquire 6,834 hectares of farm land
· Switzerland 9,727 hectares of farm land
· Australia 3,861 hectares of farm land
· United Kingdom 22,600 hectares of farm land
· Hong Kong to acquire 759 hectares of farm land.
Excluding Hong Kong, there were no other consents granted to Chinese investors to purchase land for agriculture during the last two years, the Overseas Investment Office said.
Long time coming
Milk New Zealand’s application was extremely complex due to the number of properties involved, with each having its own unique issues that the OIO needed to consider, Williamson and Coleman said.
"For applications like Milk New Zealand Holdings Limited, the OIO aims to make decisions within 70 working days, excluding the time it takes for an applicant to provide information requested by the OIO and for Ministers to reach a decision. The OIO took a total of 54 working days to assess the application and Milk New Zealand took 123 working days in total to provide information requested by the OIO," they said.
Alan McDonald from the Fay-led consortium
Ministers Set Up Open Season on New Zealand Farmland
The decision by two Government ministers to sell the Crafar Farms to the Shanghai Pengxin Group is wrong in law and, if not overturned by Judicial Review, sets up open season for any foreign buyers wanting New Zealand land, the Crafar Farms Purchase Group said today.
The Group is the highest New Zealand bidder ($171.5 million), offering $21.5 million more than the Government’s farming SOE, Landcorp.
Following today’s ministerial announcement approving the sale to Shanghai Pengxin, the Group confirmed it would proceed with a Judicial Review launched earlier this week to try to stop the land from being sold offshore. The deal between the Crafar receivers and Shanghai Pengxin will effectively make the New Zealand Government a tenant on New Zealand soil to foreign investors.
The Group also confirmed that, if it is successful and becomes the owner of the farms, it will divide them amongst its members, which consist of local Central North Island farmers, iwi groups and Auckland businessman, Sir Michael Fay.
No member of the group would own more than two farms and all are happy for legal restrictions to be placed on the farms’ title preventing, in perpetuity, their subsequent sale to foreigners.
A member of the purchase group, Hardie Peni of Tiroa E and Te Hape B Trusts, said his people were “dismayed but not deterred” by today’s ministerial decision.
“All public opinion polls have been overwhelmingly against the Shanghai Pengxin bid, with more than 80% of New Zealanders against the sale of large parcels of productive farm land to overseas buyers,” he said.
“This is one issue where all Kiwis, Maori and Pakeha, urban and rural, stand together. Kiwis are right to be mightily concerned that this National/Maori Party Government has stood by and waved foreign buyers through our farm gates.
“Last November, during the election campaign, Prime Minister John Key was only concerned about public opinion – but he now says public opinion does not count in this decision. The result is that all New Zealanders, and in particular Kiwi farmers, have been shafted.”
Mr Peni said Shanghai Pengxin has no background in farming.
“Shanghai Pengxin is just an agent for the Chinese Government and if it can get approval to buy Kiwi land then any foreign company or government has a free hand to buy whatever farmland they want in New Zealand. No Kiwi farmer could compete against this sort of international money and diplomatic pressure and stay in business.”
Another group member, Sir Michael Fay, who will own two of the 16 Crafar Farms if the purchase group’s proposal is successful, said the group had no choice but to seek a judicial review of the ministers’ decision.
“Back in September 2009, Finance Minister Bill English was justifiably boasting about law changes he had achieved to allow ministers to veto OIO recommendations for large-scale foreign buyouts of New Zealand farmland.
“That two ministers have failed to apply Mr English’s laws properly makes a mockery of his boasts.”
The purchase group also argues that the ministers’ decision would have been wrong in law even before Mr English’s amendments.
Group spokesman Alan McDonald said Shanghai Pengxin did not meet the criteria for overseas investment in New Zealand.
“By its own admission, Shanghai Pengxin Group does not have experience in dairying which is why they are trying to use the New Zealand Government’s own SOE, Landcorp, to put the veneer of a Kiwi face on this deal. The fact that Shanghai Pengxin does not have this dairy farming experience makes them nothing more than a passive investor and on this basis we believe the application should have been rejected.” he said.
The Crafar Farms Purchase Group Judicial Review claim was filed last Tuesday and is expected to proceed next week in front of Justice Miller in the Wellington High Court.
Crafar decision short-sighted
The Government’s decision to allow foreign ownership of the Crafar farms is not in New Zealand’s interest,” said the Green Party today.
“As food prices rise globally, selling off our productive land − such as the Crafar farms − to overseas bidders is economic folly,” said Green Party Agriculture spokesperson Steffan Browning.
Mr Browning was responding to the Government’s decision today to allow the sale of the 16 Crafar farms to a subsidiary of the Chinese company Shanghai Pengxin.
“Foreign ownership of the Crafar farms means that the profits will flow overseas, adding further to our current account deficit. In the 12 months to September 2011, $15.2 billion flowed out of NZ to overseas owners of NZ companies and debt,” said Mr Browning.
“The sale of the Crafar farms to Shanghai Pengxin contributes to the foreign land grab New Zealand is experiencing.
“One of the dreams of sharemilkers is to save enough money to buy some land and become a dairy farmer. But that dream is fast disappearing as the price of land is driven up, in part, by overseas corporations buying up land.”
The Green Party has a policy to ensure that New Zealand land remains in New Zealand ownership. Green Party Co-leader Russel Norman introduced a Member’s Bill in 2010 which rules out overseas ownership of farmland over 5 hectares.
“This simple measure would take some of the pressure off rural land prices, making it easier for New Zealand families to buy a farm, and will also help our current account deficit, as more profits will stay in New Zealand,” said Mr Browning.
“The decision to allow foreign ownership of the Crafar farms is short-sighted. When it comes to our productive farmland, we must keep it kiwi.”
New Zealand First
New Zealand First has described the sale of the Crafar farms to the China state owned company Shanghai Pengxin as economic treason.
Rt Hon Winston Peters says the sale announcement was delayed until after the election because John Key did not have the guts to tell New Zealanders he was selling their country out beneath their feet.
“New Zealanders have every reason to feel outraged and betrayed. Our country is being run for the benefit of foreign companies and the international money industry.
“We call on every concerned citizen to flood the Prime Minister and every National MP with messages of disgust at their lack of loyalty to the country they live in.”
Mr Peters says even the way the farms were sold stinks because every dairy farmer in New Zealand knows the best way to get a good price for land is to offer it to the neighbours.
“The farms are spread over a wide area yet they were offered as a single block. This makes absolutely no sense and there is outrage in the rural sector about the way this deal is being handled.”
Mr Peters also says New Zealanders have the right to be told all the details and the politics of the sale of the Crafar farms so they can get a true picture of the way the country is being run to suit vested interests.
“This is a bitterly sad day for New Zealand and there is more to come with our profitable power companies next on the block.”
(Updates with reactions)