By Allan Barber
New Zealanders get very nervous when tracts of our farmland come up for sale, which is slightly difficult to explain for several reasons: New Zealand is becoming increasingly urban with an ever smaller percentage of the population living in the country, let alone owning land; overseas buyers have been allowed to buy large areas of farmland under the Overseas Investment Office review arrangements, recently tightened by the National Government, without serious objection or adverse impact; the farm output must be processed here before it can be exported; and the overseas funds generated help our balance of payments.
But it seems every politician desperate for a bandwagon or soapbox – Winston Peters followed closely by David Shearer and the Greens - to stimulate public anger at this loss of our birthright only has to make outlandish claims about the damage the sale will do to our economy and the role of the inevitably overseas owned banks.
Yet we want to be able to continue to enjoy a reputation as a stable place to do business, specifically so we can attract foreign investors to put money into New Zealand, not to mention our standard of living.
There’s a strong chance Peters’ strident claims about the Crafar deal are because it’s the only issue he can try to make his own, as he realises he has got back into parliament without actually being able to wield any influence. The irony is that he is now lined up on the same side of the argument as Sir Michael Fay, possibly the most unlikely pair of joint protagonists ever imaginable.
However there are some serious aspects to this debate, most notably the potential damage to New Zealand’s reputation as an investment friendly country, if the debate continues to gain more traction and eventually results in a major change in policy under a change of government.
Labour has nailed its colours to the populist mast, but it will find it more of an anchor when it has to decide how to change the rules of the OIO – does the intended ban only apply to land sales, will there be a minimum size or value threshold, will it apply to business sales, private homes on large land holdings and what impact will it have on our trade agreements.
It also appears to be a case of racial prejudice, inasmuch as it’s OK if the buyers are European, American or Australian, but not if they are Chinese.
The major issue conveniently ignored by those against the sale of land, specifically the Crafar farms, is the massive gap between the price offered by Shanghai Pengxin and the Iwi/Fay consortium, at least $30 million or 15%.
Whether or not the final price is economically justified, it sets a higher benchmark for land values which will benefit dairy farmers; whereas any kneejerk restriction based on the nationality of the buyers will inevitably cause prices to fall because a particular group has been excluded.
The debate also conveniently ignores the provisions imposed by the OIO on Shanghai Pengxin, including the requirement to ensure any investment in a dairy processing plant has a minimum 50% New Zealand component, as well as the stipulation that consent will be withdrawn if the management contract with Landcorp does not eventuate.
Pengxin must also invest $14 million to upgrade the farms which have become somewhat run down as well as certain other provisions including using “reasonable endeavours” to help Landcorp extend and develop its Chinese market and establishing a dairy training facility at its expense.
The arguments against deals such as the Pengxin deal to buy the Crafar farms conveniently ignore several basic truths about such transactions: first, New Zealand wants to be able to do exactly the same in overseas markets, for example NZ Farming Systems Uruguay which involved buying and converting, admittedly at too high a cost, large tracts of pastoral land in Uruguay; second, there were no local buyers prepared to pay the price for what are only average farms for the most part and are not exactly strategic; third, successive governments have identified a Free Trade Agreement with China as a key plank of our future economic development and it would have been damaging to this strategy if the government had revoked an OIO decision.
We expect jingoistic nationalism from Winston Peters, but heaven help us if one of the two major parties is about to change its whole attitude to trade and investment on the basis of an ill informed, prejudiced public reaction to overseas investment which has been a crucial contributor to the New Zealand economy for over 150 years.
Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he run a boutique B&B with his wife. You can contact him by email at email@example.com or through his blog at http://allan.barber.wordpress.com.