Large corporates, foreign farm owners often realise they have to 'live it and love it' to make any money, Finance Minister English says; Thinks owner-operator still the way

By Alex Tarrant

Finance Minister, and Southland farm owner, Bill English reckons the owner-operator model for farming is still the future for the industry in New Zealand.

Large-scale local and foreign corporate farm owners soon realised they had to 'live it and love it' in order to make any money out of farming in New Zealand, English told the Victoria University-Peking University Conference on Contemporary China in Wellington.

English said he would not be surprised if the high-profile Crafar Farms reverted to New Zealand ownership sometime in the future.

However, the farms' new owner, Shanghai Pengxin, had bought them with good will and stuck it out through two testing years to get their operation - first buying the farms then setting up a dairy exporting business to China - up and running.

English's speech focussed mainly on the benefits of foreign direct investment into New Zealand. It was a source of capital to supplement New Zealand’s domestic savings glut; was a driver of growth in wages, employment and output; brought technology, skills and know-how to New Zealand; and helped improve connections to valuable international markets, he said.

Live it and love it

Foreign investment was often not just a one-shot deal, where assets sold to foreigners remained in foreign ownership, English told the conference.

“Businesses built up under foreign ownership can move or return to New Zealand ownership. For example, Shell petrol stations were recently acquired by New Zealand-owned Z Energy," English said.

“Often farms that are purchased by foreigners end up reverting to local ownership, as the owners realise you have to live it and love it to make any money out of it," he said.

“I think in the aftermath of the Crafar Farms discussion it’s pretty important that we keep that in perspective."

Speaking to media after his speech, English said New Zealand had experienced waves of anxiety about foreign ownership of Kiwi farms.

"They come and go. At one stage the Japanese were going to buy all our farms, then the Indonesians were going to buy all our farms, and both overseas and local corporate owners have never really succeeded in making very large farm operations viable," English said.

“So while the Crafar farms have been high profile, if you look back over thirty or forty years, large scale farm ownership often fixes itself because the owners find that they can’t do as well as the owner-operator model," he said.

"I think the owner-operator [model] is how New Zealanders see their agricultural industry based."

English said that in the long-run he would not be surprised if the Crafar farms ended up back in New Zealand ownership.

“But they’ve clearly made an investment with goodwill. They’ve stuck in through a fairly testing period of a couple of years to get going," he said.

Higher threshold

Meanwhile, the court process brought by a group of New Zealanders opposing the Crafar Farms sale to Pengxin had led to a higher threshold for foreign purchases of farmland than before due to the High Court’s interpretation of the Overseas Investment Act.

“So investors will have to make a stronger case to the Overseas Investment Office, if they want to buy farmland, because the court has clarified the threshold, and it is higher," English said.

“But that’s for farmland. The rest of the overseas investment regulations and rules remain as they were. That means there are opportunities for foreign investors where they’re going to contribute more jobs and higher incomes," he said.

“[Farmland is] not the only sort of foreign investment that’s going on in New Zealand, or the only Chinese investment. Historically we have relied on, at times, foreign investment to develop some of our industries, and if it’s beneficial, we need to be clear to foreign investors that there are still opportunities in New Zealand despite controversy over one of them.”

Trade flows point to more investments

There was anecdotal evidence that the Crafar Farm court cases had created uncertainty among other potential investors, who were now aware of the hurdles for buying farmland in New Zealand “were fairly high.”

“The level of Chinese investment in New Zealand is remarkably low compared to how much trade we do with them, and New Zealand’s investment in China is pretty low compared to how much trade we do with them," English said.

“If it follows an historical pattern, then there’s likely to be more Chinese investment in New Zealand, and there’s likely to be more New Zealand investment in China," he said

“It’s part of what usually happens when you have extensive trade with another country. And yes, we think there are some real benefits from foreign investment, particularly the linkage to markets.Often you get, New Zealand has the expertise in producing a product efficiently – often the most efficiently in the world. But we don’t know how to distribute that product in markets in a different language and a different culture.

“So the opportunity to bring those two together would be good for the economy," English said.