Shanghai Pengxin, the Chinese company trying to purchase the 16 Crafar farms, has hit out against a rival bid from a local group of investors led by merchant banker Michael Fay, saying no-one would be able to hold the Fay group to account over its promised investment in the farms, while investments promised by Pengxin would be monitored by the Overseas Investment Office.
Pengxin also provided an updated assesment of what it thought it would spend upgrading the farms, saying it would invest NZ$18.7 million for production and environmental upgrades, as well as allowing for public access to a forest park and preservation of Maori pa sites. NZ$15.5 million would be spent over the first three years, it said. The Overseas Investment Office had required Pengxin to spend at least NZ$14 million on upgrades.
A joint venture management contract with State-owned farming company Landcorp for running the farms was likely to net the SOE NZ$3-4 million annually for its management of the properties, Pengxin said in a media release on Tuesday afternoon.
Meanwhile, Pengxin said other Chinese companies wanting to invest in various sectors of the New Zealand economy were waiting for the outcome of its bid to buy the farms, and that those companies would be disappointed to see the level of anti-Chinese sentiment expressed in New Zealand in recent months. The lengthy, expensive and uncertain foreign investment approval process would be discouraging to these companies, Pengxin said.
Despite that, Pengxin said it had been approached by businesses, milk processors, iwi and individuals offering co-operation and further investment opportunities, and wanting help exporting products to China.
This is the first time Pengxin has gone on the attack throughout the Crafar farms saga, having previously been content to not stir the pot as it waited nine months for Overseas Investment Office approval to buy the farms after the farms' receiver agreed to sell them to Pengxin.
The Overseas Investment Office and government Ministers ruled in late January that Pengxin's application be approved, which triggered an application from the Fay-led consortium for a judicial review of the OIO's approval process. Justice Forest Miller of the High Court reviewed the process, and ordered the OIO set aside its original decision and apply a different test of what economic benefits the foreign purchaser would bring with its investment.
The OIO is currently reconsidering its decsion by comparing investments promised by Pengxin to those of what a hypothetical New Zealand investor might be expected to make. Any economic benefits stemming from Pengxin's promised investments must be "identifiable and substantial," according to the ruling. The ruling was considered by many, including Prime Minister John Key, to represent a tightening of overseas investment rules.
Following the ruling, the Fay consortium, called the Crafar Farms Independent Purchaser Group (CFIPG), made a submission to the Overseas Investment Office detailing what it would spend on the farms. It is not known whether the OIO is taking the submission into consideration as it determines the aspects of its hypothetical local bidder.
The Fay consortium said it would invest NZ$18 million upgrading the farms over three years, while the Overseas Investment Office had required Pengxin to invest at least NZ$14 million in upgrading the farms.
That would lead to a 25-30% increase in producticity and performance across the 16 farms, and a 15% increase in permanent staff and contractor levels, CFIPG said. That amounted to an extra 13 or 14 workers, it said in the submission. There would also be a significant level in short-term employment due to the initial capital spend, it said.
CFIPG said it would likely continue with sharemilking arrangements on the farms, rather than employ farm managers. It also committed to environmentally responsible and sustainable farming practices, and to the protection and enhancement of historic heritage in relation to the Nga Herenga and Te Ruaki pa sites on the land, a similar promise to the one made by Pengxin.
A New Zealand purchaser would also provide on-farm training for junior employees, CFIPG said in response to Pengxin's proposal to set up an on-farm training facility.
Who would hold them to account?
Having reviewed the CFIPG submission, Pengxin released a media statement on Tuesday afternoon attacking the "phantom" bid put forward by the Fay-led consortium, noting the farms' receiver had rejected CFIPG's NZ$171.5 million bid for the properties as being too low. Pengxin is believed to be offering about NZ$210 million for the farms.
“They can promise whatever they like, even though they have not done due diligence on the properties, because no-one could hold them to their promises, even if they ever succeed in having an offer for the properties accepted," Pengxin spokesman Cedric Allan said.
"By contrast, our bid has been accepted by the Receiver, and the Overseas Investment Office will make sure we keep our promises if they give their approval following the current review," Allan said.
“It seems the promised benefits to New Zealand from the ‘phantom bid ‘ for the farms start and stop with farm improvement aspects. If there is a hidden game plan to do anything more, they have not revealed it. By contrast, our whole game plan was announced back in April and the benefits to New Zealand are clear and wide ranging including:-
- The injection of more than NZ$200 million of foreign exchange into the New Zealand economy.
- The NZ$18.7 million upgrading of the farms with enhanced environmental protection, public access and preservation of sites important to iwi, NZ$15.5 million to be spent in the first three years.
- A significant increase in milk production over the first three years as a result of upgrading the farms, herds and pasture and better management techniques, with the farms operated in a more efficient, environmentally friendly and safe way under Landcorp management.
- Formation of a joint venture management company with the taxpayer-owned Landcorp, estimated to earn Landcorp some $3 – 4 million annually on a profit-sharing basis and making more efficient use of equipment, technology and labour available on nearby Landcorp properties.
- Establishing a Dairy Farming training school on one of the properties for the benefit and participation of the whole industry, plus scholarships to help young kiwi farmers to have exposure to primary industries in China."
'We'll add value'
Meanwhile, Pengxin said that, unlike CFIPG, which was looking to have the farms keep supplying raw milk to Fonterra, it would enter into a joint venture processing operation in partership with New Zealand interests to process the milk produced on the farms into cheese, ice cream, infant formula, UHT milk and yoghurt.
Those products would be marketed in China under the "Nature Pure" and "Pure 100" brands, it said.
"Pengxin will invest at least NZ$100 million in marketing these product s in China in the first five years, building up market demand which will benefit other New Zealand exporters. New Zealand still exports more than half its milk in the form of milk powder, which others use as the raw material to create high value consumer products. We need to move up the value chain and compete with them,” Pengxin's Cedric Allan said.
"Pengxin will give Landcorp the opportunity of being involved in the management of Pengxin’s sheep breeding operations in China, also helping Landcorp win other consultancy and management assignments in China and assisting them in marketing produce direct from Landcorp’s farm properties in New Zealand," Allan said.
'We're already farmers'
In response to criticism from CFIPG that Pengxin had no experience in dairy farming, the Chinese company responded by saying it owned a controlling interest in a Bolivian cropping farm, and had been involved in cropping and sheep farming in China for a number of years.
Pengxin also said that while the Crafar farms represented an iconic part of New Zealand's farmland, the properties were of varying quality and "are estimated to make up about .006% of New Zealand’s farm land".
It said Fonterra owned farms in China which it leased the land for, and that New Zealand investors were treated the same as other international owners of ventures in China. Even Pengxin could not buy freehold farmland in China, Allan said.
A proportion of New Zealand farmland had always been owned offshore, while New Zealand farmers owned tracts of land overseas themselves.
'Other Chinese investors are watching'
“New Zealand lives by international trading, and trade and investment go hand in hand. However China has very few investments in New Zealand, even although China is predicted to be our biggest trading partner within five years," Allan said.
"Other Chinese companies interested in investing in various sectors of the New Zealand economy are closely watching our bid to become involved in the dairy industry in New Zealand and will be encouraged if approval is given. But like Shanghai Pengxin they will also be disappointed to see the level of anti-Chinese sentiment expressed in the recent months and the lengthy, expensive and uncertain approval process will be discouraging," he said.
“By contrast, ever since we first announced our plans, we have had many New Zealand businesses and organisations, processors, iwi and individuals approaching us with offers of help and co-operation, offering other investment opportunities and wanting help in exporting to China. Pengxin very much wants to become part of the New Zealand dairy scene, joining industry bodies, working harmoniously with neighbouring farmers, and contributing to Chinese/New Zealand trading relationships wherever it can."