Allan Barber reviews the Crafar dairy farm sale and suggests some improvements to the OIA criteria. Your view?

Allan Barber reviews the Crafar dairy farm sale and suggests some improvements to the OIA criteria. Your view?

By Allan Barber

After one of the most drawn out sagas of recent times, the Court of Appeal’s ruling at last looks as if Shanghai Pengxin can complete its takeover of the Crafar farms.

The Fay/Maori Purchase Group has announced it will not make any further appeal, but, in Sir Michael Fay’s case, it will go back to business as usual and, in the case of the two Maori trusts, continue to negotiate the acquisition of two farms.

However the iwi are still considering an appeal against the latest decision, while negotiations continue.

This sale process has caused much debate and involved very costly court cases which in the end have merely served to review and confirm the original decision and it’s hard to see on what basis a further appeal could expect to succeed.

The most interesting aspect of the Court of Appeal’s decision is that part covering the issue of the buyer’s experience and business acumen in relation to the purchase, because this was the entire basis of the appeal.

The Court found that the Ministers had been justified in relying on Shanghai Pengxin’s generic business experience, as distinct from specific experience in dairying.

The partnership with Landcorp which will operate the farms under a share milking arrangement will provide an acceptable form of specific experience.

There will be a sense of relief among many people that the saga finally appears to be over, although equally there will be disappointment, even anger, at the sale of what is seen as a significant holding of prime farming land to an overseas investor.

Therefore it is relevant to attempt to analyse whether the final outcome is the right one or not.

I don’t expect those who have already made up their minds, one way or the other, to have any patience with my analysis, but it may be helpful for people like me who aren’t sure.

My understanding of the key provisions of the Overseas Investment Act is that:

1. the purchase by an overseas person of farmland over 5 hectares, considered to be sensitive land, is subject to OIO consent;

2. the acquisition by an overseas person of business assets worth more than $100 million is subject to OIO consent;

3. and the overseas person must be of good character, must have the required financial resources and, in the case of business assets worth more than $100 million, must have appropriate business acumen and experience.

However the original arguments around the Crafar farms deal appeared to ignore all these provisions There was a distinct impression that a proportion of objectors were against selling the properties to Chinese, as though this was somehow worse than selling to Americans or Europeans. A greater proportion agreed with Fay that the land should stay in New Zealand hands, while Allan Crafar fought a rearguard action to find sufficient funds to buy his properties back from the receivers.

Fay played the jingoistic card for all it was worth, suggesting the receivers had an obligation to sell to a New Zealand buyer for nearly $40 million less than the offer from Shanghai Pengxin.

His consortium then introduced the Maori farming groups which claimed that two of the farms near Benneydale had been wrongly taken from them in the 19th century and they should therefore have the right either to buy two or three of the farms, if they couldn’t buy the whole lot.

When the responsible Ministers approved the OIO recommendation that the sale met the requirements of the Act, the Fay Maori Purchase Group appealed on the basis of the Shanghai Pengxin’s lack of specific business expertise

Terms of the current negotiations between iwi and Shanghai Pengxin are under wraps, although Hardie Peni, Chairman of Tiroa E and Te Hape B Trusts, has said that he bets the purchase price is “a pittance” compared with the asking price of $66 million for the three farms they had originally tried to buy.

Peni’s gripe is that it seems all you need to have “the privilege of buying New Zealand farm land is deeper pockets and some knowledge of business.” But surely this has always been the case.

If New Zealanders want a change to the present terms of overseas investment, they will have to convince a future government that this is a matter of priority for legislative change.

There are many fish-hooks to be considered before a new investment act could be brought into law, not least being the impact on farm values or overseas investment in non-farming businesses, as well as the wish to differentiate between overseas buyers of different nationalities to allow for reciprocal trade agreement provisions.

Until or unless this happens, we will have to accept the continuing purchase of prime land to overseas investors, although it is not a new phenomenon. It has been happening for the last 170 years.

What I believe a review of the Act should examine are the criteria for allowing in particular the sale of land.

For example it should introduce a provision relating to the amount of value an overseas buyer should be required to add in New Zealand and, in certain cases, a requisite level of domestic employment. This would ensure that the OIO is in a position to make more demands before an application is lodged, whereas in the case of Shanghai Pengxin negotiated additions to the contract were retrospective.

Hopefully this case, which doesn’t involve a vast amount of land or even particularly good land in the overall scheme of things, will come to be seen as motivation for improving the overseas investment climate, instead of the sale of our birthright as it has been portrayed.

--------------------------------------------

Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here »

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If and when Shanghai Pengxin coughs up the money, no they wont be NZ dairy farmers. They will be property investors, who own dairy land. The dairy farmers will be the overworked underpaid peasants that litter the rural landscape of NZ now. 

Well at least one of the best unseen benefits is now All NZ dairy farmers are on notice...LIFT YOUR GAME!!!....Improve your environmental preformance, improve your animal welfare performance and start treating your staff with dignity and respect or this Chinamen will be your landlord!!!...

NeilD , seems the Chinese are already landlords in Auckland especially...take a look at who owns a large chunk of the rental markets now.

Globalisation has it's winners and losers. Alan Barber represents the winners.

Poor quality legislation from poor quality politicians is not good enough and therefore I would have to assert that those Politicians should be held accountable for the consequences. Those that passed the legislation in the first place and those who have failed to address the problem should all be held accountable.
 
It is the words "Appropriate Business Acumen and Experience" that I have the problem with.  Given the OIC has to deal with a variety of applications across many different business platforms - wouldn't those words be applicable to the type of business under consideration. Instead they have loosely been applied that agriculture can encompass all areas of the industry.  This is BS. 
 
Does it not state that the overseas person must possess - appropriate business acumen and experience. If they have to get Landcorp to manage the farms then obviously they don't have necessities required under the Overseas Investment Act..
 
The Overseas Investment Act uses the word "person'.  A person is not a Company.  A Company is an entity.  A Company cannot vote in a general election, cannot obtain a passport, cannot get a drivers license, or any other thing a PERSON can get, it is a piece of paper with a number on it.  Yet the Overseas Investment Act refers to the "person".
 
If you are the Govenment of NZ you can write the legislation, and any other rules, establish any Agency or group you wish, fund it via a tax system that you also control, pretend there is democracy by allowing 1 vote per person every 3 years.  Biker gangs have more morals than the Politicians.
 
 
 
 

I the US they have worked very hard to prove that a corporation is a person. - they really have.
 

Plan B - yeah I know they have but should NZ be following suit and is this what NZ'ers want.  The Universal Declaration of Human Rights talks about individuals - Human Beings - it makes no mention of Corporations. Members of Corporations would be able to act collectively in their own names at any given time.
I think this is where the US Constitution has been hijacked. The court cases appeared to apply a standard that existed at the time of the court-case rather than apply the standard that existed at the writing of the Consititution.  The effects are that it changes things through a backdoor entry that sets a precedent and then the real issue of the intentions don't get to be debated at a wider public level.
 
 
 
 

The Overseas Investment Act uses the word "person'.  A person is not a Company.  A Company is an entity.  A Company cannot vote in a general election, cannot obtain a passport, cannot get a drivers license, or any other thing a PERSON can get, it is a piece of paper with a number on it.  Yet the Overseas Investment Act refers to the "person".
 
They (companies) enjoy the double privilege of writing all costs off against income and the right to bankruptcy protection. Not bad - certainly makes a corporation damn close if not more privileged than a person in the sphere of commerce.

Steven Hulme - While I was referring to the OIC and Courts interpretation on the matters, in regards to the Overseas Investment Act.  I will respond to the issues you have raised as I am quite passionate about People's Rights.
 
Firstly, Directors and Shareholders in NZ do have certain responsibilities in regards to the financial obligations and status of a Company.  There are far too many issues in regards to structures and how they are used to adequately reply here.
 
Secondly, In regards to the "privilege of writing all costs off against income: yes most costs of production are written off against income. While an employee cannot get these same benefits, and I would only be assuming this is where you are coming from, an employee can change their status from employee to being self employed thereby sharing in the benefits and risks.
 
The employee in changing their status to one of self employed could contract the work to be done. Of course the employee would need to do the appropriate analysis before embarking on such an undertaking.  Being self-employed requires completely different skills and mindset and some people do not transition well to all the responsibilites.
Personally I would love a nation where everyone is self-employed. This would provide understanding of the many systemic failures that exist. Practical experience and knowledge of running any private business model provide far broader insights than what most employees can obtain in specialising in the narrow range of skills required of an individual job and equal sharing by all individuals in regards to the high burdon costs of compliance.
 
 
 
 
 
 
 
 
 
 
 

Fay played the jingoistic card for all it was worth, suggesting the receivers had an obligation to sell to a New Zealand buyer for nearly $40 million less than the offer from Shanghai Pengxin.
..............
for each loose borrower there is a loose lender and the decision rescues the lender (Australian banks).
 
this is the basis of jingoism; it is nostalgia for government that puts New Zealanders first, rather than policies which put the rich elites of the Omaha Golf Club and Success Way first:
 

Liberal Land Policy for Closer Settlement, 1891–1911
The demand from the land hungry for the breaking up of the big estates was given impetus by the larger population, by increasing unemployment, and by refrigeration which made small farming an economic proposition through opening export markets for meat and dairy products. At the 1890 general election, the Liberal Party was elected with a policy which included promotion of closer settlement by disposal of Crown land only to genuine farmers, extension of State leasehold rather than freehold, repurchase of large estates for subdivision by the Crown, introduction of land tax to force subdivision, and cheap finance for development of new farms.
Inspiration of the programme of land reform was John (afterwards Sir John) McKenzie, Minister of Lands from 1891 to 1900. Initially McKenzie proposed to give settlers the option of taking land for cash, deferred payments, or on perpetual lease with periodic revaluations, but his Bill did not pass the House in 1891. In the following year he reintroduced it, substituting for deferred payments a 25-year lease with right to purchase. At the Committee stages, a compromise between the advocates of the freehold and those of the Liberal ideal of a State leasehold resulted in the replacement of the perpetual lease by a lease in perpetuity for 999 years with no right to freehold. This gave the State control over aggregation and initial residence and gave the lessee secure occupation at a low rent. Over 2 million acres were settled under this tenure before 1907 when the provision for it was repealed.
The Land Act 1892 placed restrictions on the acquisition of Crown land by those already holding sufficient land, and limited the area which any settler could obtain from the Crown. Small grazing run rents were fixed by valuation instead of auction, although the auctioning of pastoral runs was continued to the detriment of the high country in the South Island.
http://www.teara.govt.nz/en/1966/land-settlement/6

Sorry JH
I thought I was trying to present a balanced view based on the facts, rather than representing the winners.
Allan

Michael Fay seems to be trying to reinvent himself as the white knight these days. I guess he deserves a fifth chance and after spending 8 years in Swiss purgatory. Bringing in the Maori group was a nice touch though and the TV interview in the shed. Salt of the earth and a true patriot. The demise of Tranz Rail I'm sure has weighed heavily on him
 
Not in favour of absentee overseas ownership of any property, residential, commercial or rural but not all NZ landowners have benign intentions or a good financial or environmental track record. Is mass accumulation of land by anybody, foreign or domestic a good thing? For Alan Crafar to get in on the act too after all the stuff that went down was a tad ironic.