English says farmers should invest capital if they want to keep Silver Farn Farms out of Chinese hands; says Govt looking at speeding up Overseas Investment Office processes

English says farmers should invest capital if they want to keep Silver Farn Farms out of Chinese hands; says Govt looking at speeding up Overseas Investment Office processes
Finance Minister Bill English speaking to reporters in Parliament on August 25, 2015. Photo by Lynn Grieveson for Hive News.

By Lynn Grieveson

Finance Minister Bill English has firmly placed responsibility for the potential sale of a major stake in New Zealand's largest meat processor back onto its farmer shareholders.

English said the Government had not been asked to intervene and would leave any decision up to the Overseas Investment Office.

Silver Fern Farms, which is New Zealand's second biggest exporter after Fonterra with over NZ$2 billion a year in revenues, is expected to announce the sale of up to 50% of the company to a Chinese firm as early as this week as it seeks to reduce more than NZ$100 million of debt. Attempts by the farmer-owned cooperative to raise fresh equity from its farmer shareholders have flopped in recent years. NBR has reported that Bright Dairy and Food, which has also bought into the Synlait dairy operation in the South Island, is the preferred buyer.

Speaking to reporters on the way into National’s caucus meeting on Tuesday morning, English also suggested that the government was looking at ways to speed up the process of applying for overseas investment office approval in response to “pressure” from disgruntled overseas investors.

English agreed that opponents of such a deal felt it represented the loss of a strategic asset that should stay in New Zealand ownership.

“That's right, including some of its current owners think that,” he said.

“But in order for that to happen they have to provide the capital that's needed to sustain the company. So the real test is not whether people have an opinion, it's whether they're willing to put the money up. And it's not as if these are new or unexpected issues - financing the meat industry's been quite a big issue for the past three or four years.”

A former Silver Fern shareholder himself, English told reporters there were “quite a number” of farmers opposed to the possible deal from his own electorate, including one from his home town of Dipton.

“This is an issue where there has been strong opinions among farmers and fairly divided opinions which no doubt has been frustrating for the company itself,” he said.

“The farmers have had a number of opportunities, and they may have more opportunities, to work through whether they want to support it by investing in the company.”

“The owners of it, the New Zealand farmers who are the shareholders, have total control over that business now. It's in their power to keep control of it. We can't really force them to keep a business when they don't want to own it, ” English said.

“Our message to them would be that if the New Zealand shareholders want to maintain 100% ownership of that company then they have to put up the money to secure that ownership.”

English said there had been no requests for government assistance from Silver Fern Farms, and no direct discussions with the government about its financial situation.

“Not from the company itself,” he said.

“There's been various proposals from the MIE (Meat Industry Excellence) farmer's group over the years, discussions about whether the government should contribute to the rationalisation of the industry and it's certainly helped government understand the commercial pressures in the meat industry, but nothing's actually come from the discussions.”

Asked if the case was indicative of a broader problem with capital markets in New Zealand, English said the meat industry was one which struggled to raise capital.

“It's just a market where some sorts of businesses seem to find it hard to raise the capital they need, particularly at scale. This meat company's very big business - billion dollar plus business - and it is seen as a reasonably risky business. But you would need to talk to the company themselves about how they have got on with trying to raise capital. But it does appear they are not able to get their own shareholders to provide the capital they need.”

“There's been a commercial process going on. It's only got to this point because the existing owners, for whatever reason, haven't put money into the company so the company's finding someone else that will.”

Overseas investment process may be sped up

English was also asked if the government was considering tightening up the Overseas Investment Act. He responded that, rather than making it harder for foreign investors to apply for approval to buy land and assets, the government was considering speeding up the process after hearing complaints from applicants.

“There's a bit of pressure over speeding up the process,” English said.

“When you get around, the professional services and applicants you come across, they often complain about it.”

“People who are applying want to go through it faster. The government has yet to decide whether it agrees with that.”

“We get feedback from people who use it that it takes a bit long, that the hurdles are pretty high. Now some of that is intentional - the Overseas Investment Act is there to test the propositions for people coming in buying, particularly land. There's something like 23 tests that have to be met legally. Recent court decisions over Crafar Farms have raised the bar. So we are not going to reduce those hurdles but there are some issues about whether the processes take too long.”

“The market's always telling us that we should. We are just making it clear that we are not going to reduce the hurdles that they have to get over, but we are listening to the complaints about the processes taking too long.”

Asked if there was a risk applications could come under less scrutiny, English said that was “a fair question” but added “so far we are just speculating here.”

“The only way you can do it is more staff, more money. We are not talking about a major review of the process, but we can guarantee that the legislation won't be watered down.” “All I am saying is we are getting complaints and we are listening to those.”

Little calls for more follow up after OIO approvals

Labour Leader Andrew Little said he hoped any proposal to sell Silver Fern Farms to foreign investors would be looked at very closely by the Overseas Investment Office.

“Unfortunately their track record is not a good one,” Little said.

“They have a track record of approving deals and, in spite of promises made about jobs created and wealth created, the OIO never does any monitoring and follow-up to see whether that's actually happened.”

Little called for either the OIO or the Ministry of Business and Employment to be charged with following up applications to check that conditions placed on the deal are being met. “There has been a swag of applications made, “ he said.

“Every application that has been made has been approved and there has been no record, at least in response to Official Information Act requests, no information confirming there has been follow-up to see whether the promises made in applications and the conditions attached to applications have actually been met.”

“That is the failure of the OIO process to date.”

Peters wants Govt to intervene

New Zealand First Leader Winston Peters has called on the Government to intervene to prevent the sale, possibly by lending to the co-operative.

"It speaks volumes that this government will spend tens of millions on a Saudi farm they don’t own, but will not spend a cent to save our second largest meat co-op. National’s agenda doesn’t really care what they sell and to who," Peters said.

“National has also betrayed the thousands of farmers who backed Meat Industry Excellence. This is a betrayal of farmers, farming and our export economy," he said.

“The timing could not be worse with lambing under way so farmer attention is elsewhere. New Zealand First will not be quiet on calling National, the banks or the Silver Fern Farms’ board on what is nothing short of economic treason."

(Updates with comments from Winston Peters)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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True capitalism at work.

Bravo!!!

18
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So English and co are prepared to listen to foreigners wanting to buy land but not to the NZ public who call for tighter restrictions on sales of land to foreigners, then.
How about some checking the things that foreigners given approval to buy are actually done while he's at it, seems he's shaping up for giving those at the OIO a bit of spare time, that might be a good use to put it to.
Other than that, it looks to me like this government have absolutely no intention of preventing NZers from becoming tenants in our own land and are happy for the government of another country and a communist one at that, owning parts of this country and strategic ones at that.
Tenants in our own land, might as well roll over, play dead and accept that this is pretty much a fait accompli now

Makes sense though. If you don't want to be a tenant in your own land then buy it yourself. If you don't think that foreigners should be allowed to buy in NZ then don't sell anything you own to foreigners. If Kiwis want to sell, then why should you who refuse to buy anyway, have a say in who we get to sell to?

15
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Makes absolutely no sense whatsoever, as the Chinese know, tried buying any land there lately? Of course, governments should look after their people, all of them. Your sort of attitude is exactly what will see the people of this country become tenants in thier own land as you endorse policies that do not protect us from far more financially powerful countries, who indeed know the value of keeping their land in their hands!!!!!

Somethings are a strategic asset some are not. Silver ferns I do not see as a strategic asset and if NZers dont want it sold to foreigners they should buy a stake in it. Its debt looks almost overwelming to me better to keep clear of that one.

a banker with a dodgy loan book is a dangerous beast

http://www.farmingshow.com/on-demand/audio/pgg-women-in-agriculture-fran...

and
http://www.farmingshow.com/on-demand/audio/alan-richardson-west-otago-fa...
with the point that SFF is repaying debt...

17
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So this a pointer to the future. I suspect that this how they will front foot any issue involving the loss of national sovereignty. They will sell us down the river without so much as a sideways glance. Whose government are they? Who elects them? Who are they supposed to serve?

I am extremely concerned at Bill English doing this, you are right

If you are so worried about it why don't you buy it? Get a group of like minded individuals together and make silver fern an offer that is greater than or equal to the overseas one and I'm sure they will accept it if only because you'd remove the expense involved with getting anything through the OIO.

17
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Funny. He did not have any qualms using the tax payers money to subsidise Rio Tinto, Hollywood ...... If you are a foreign company we can dish out the tax payers money. We are not asking for that. Just keep the assets in the country.

How pray and why should the Govn bailout every company in difficulty? Why do we need to block all overseas purchases of companies? Why is silver ferns so special it needs such protection?

17
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Why did the NZ government stand up ramrod straight, salute, then bend-over and bail out South Canterbury Finance and AMI Insurance? They weren't salt of the earth exporters.
Where is Dipton by the way?

Have heard a few rumours that the odd Labour and National politician and associates stood to lose a few shekels if SCF did not get a Govt guarantee, and they stood to make quite a bit if it did get the nod

Maybe if you looked at it on its own, you could argue that, but really, I think you have to look at the big picture here and examine Chinese inroads into all of our agriculture, and you need to be aware of where the Chinese government (the Chinese Communist party in other words) fit in, in all of this. They own Bright Foods which is looking to buy into Silver Fern Farms, have you thought why they might be. Even if it is a dog of a company at the moment, the Chinese government have the ability to turn it into something that could wipe out all local competition, Alliance etc, then what have you got, you have our meat industry controlled by the Chinese Communist Party. What do you think about that?

Add in the fact NZ govt has been pouring 10s of millions into SFF with PGP R &D funding and it gets worse. We are actually subsidising the Chinese govt to colonise us. The real tragedy is SFF actually don't require any capital at all. They have turned a $400m debt into a $150m debt in just two years and their prospects were looking really good especially with the benefit of the high dairy cow cull. As I posted earlier they are the victims of a wider issue with banks exiting NZ agri. Hopefully the shareholders will step up and defy this madness.

Why don't you ask yourself what exactly do you know about the Chinese when you put on these comments? You think of the Chinese government or the communist party as a single-body monster whose sole focus is on NZ. They are made of just a bunch of thugs way more occupied with undercutting each other and advancing their personal interests, than coming over to conquer NZ. NZ is not even a blip on their radar.
These purchases are just a way for powerful individuals to move public/private assets overseas where there is little oversight from the Chinese govt (read their competitors) and ownership is protected. Funny a lot of Chinese view their govt as controlled by foreign interests, and these overseas purchases are merely embezzlement, while you lot feel the same toward your govt.
They are just gonna give Kiwi shareholders a bunch of cash. They can't take the land to China, can they. Would you be a tenant on your own land and pay rent, or the owner of your own land and pay mortgage interest to (foreign) banks? What a bunch of fools.

"They can't take the land to China"
Here we go again.

but they can control what happens with the land, who they employ to work the land, who the produce is sold or sent to. where the profits from the land go i.e reinvest in the land or funnel back to the home company.
the difference between our government and the chinese government is one has a sort term veiw 3 years to get elected again, the other has a long term veiw

Exactly, which means they might just as well pack it up and take it home to China

My worry is that this is all part of nationals secret deal with china, and what's that going to entail for nz farming. We have foreign companies here which are good partners with NZ farming, have no interest in buying farms and aren't trying to take over the whole industry. As soon as a meat company buys farms they will lose all their NZ suppliers. My feeling is that China could do more harm than good with more and more product going to China at the expense of our diversified markets creating price volatility, as they have done with our dairy industry.

28
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Great work. Create the conditions for failure, and speed another New Zealand asset on its way into foreign hands.

Together, government indifference and myopia, management incompetence, commodity product strategies, and a property-focused investment climate are driving this country into a ditch of economic and social dereliction.

The generations that built our national assets wouldn't believe the casual incompetence with which they're disposed of. Bankrupt policies bankrupt nations.

15
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Not quite.
Incentives in NZ are perverse.
NZ'ers are quite happy to outbid each other bidding up land prices for houses (a most unproductive use of capital except for possibly burning the money) but don't want to invest in sharemarkets, private equity etc.
NZ needs a comprehensive capital tax to remove the investment distortions.

12
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If the Chinese invest in Silver fern will they become a company that only supplies Chinese markets? If bill english want to speed up the oio process maybe we should also bring forward the next election date.

No. They'll just send all the meat there for free, as conquerors and fools do.

25
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When will much maligned shareholders like me actually get a say? This is a hatchet job by banks divesting nz agribusiness. It's just the start, wake up NZ!

13
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Many of us woke up years ago, unfortunately we do not have a government that can see past tomorrow.

Dairy farmers in NZ have been too busy borrowing money to buy their neighbours land as they all wanted to chase more and more white gold. Now they are facing a few years of white gold being worth less than it used to be they are struggling to pay back the banks principal and interest. They should have been less greedy and kept their balance sheets in order so they could take advantage of opportunities like the above. They only have themselves to blame.

Dairy farmers gordon? I thought the majority of SFF shareholders were non dairy farmers???

I am a dairy farmer and doing OK ,thank you. When the milk price gets to $4.00 we will be paying tax again . I also own 45000 shares in sff. I have never been asked to put extra capital into sff. I'm a bit pissed that my 45000 shares are worth about 40 % of their issue price.'and currently are frozen.I will give any proposal the directors come up with due consideration ,but in my opinion any proposal that doesn't give majority control to current shareholders in totally unacceptable.

I am a dairy farmer and doing OK ,thank you. When the milk price gets to $4.00 we will be paying tax again . I also own 45000 shares in sff. I have never been asked to put extra capital into sff. I'm a bit pissed that my 45000 shares are worth about 40 % of their issue price.'and currently are frozen.I will give any proposal the directors come up with due consideration ,but in my opinion any proposal that doesn't give majority control to current shareholders in totally unacceptable.

Puzzlement

I'm influenced by what happens here in Oz where there is little opposition to Chinese companies buying local businesses so long as they are private. The line is drawn at overseas governments buying strategic assets. There would be considerable opposition by the FIRB if SFF was an OZ business that was also the second largest exporter because Bright Food is government owned. So effectively the Chinese Govt is seeking to acquire SFF. It would probably be declined by the FIRB

Government-owned food conglomerate Bright Food owns a majority stake in Bright Dairy and Food. In 2010 Bright Dairy bought a stake in its first foreign dairy company, New Zealand's Synlait Ltd

The Private companies are still under the watchful eye and receive govt assistance when favoured.

"Their bosses are not political appointees, and they are rewarded for commercial success rather than meeting political goals. But they are still subject to frequent meddling. If they are favoured, state-controlled banks will provide them with cheap loans and bureaucrats will nobble their foreign competitors. Such meddling is common in areas such as energy and the internet." The Economist

from the other day - give that man a meddle..

http://dimsums.blogspot.com.au/2015/08/chinese-dairy-industry-chosen-20....

The unspoken theme of the Beijing dairy summit was voiced by the commentary. The government's vision is to drive small, unreliable companies out of business while creating 3-to-5 big Chinese companies. Foreign-invested companies will be forced to "obey China's monopoly law." Breaking the "monopoly" of foreign milk suppliers is a chief objective. Chinese companies hope to "overcome foreign companies like Mead Johnson, Abbott Labs, and Dumex that have dominated the market for so long."

so are we talking a goose gander situation.

"Government-owned food conglomerate Bright Food owns a majority stake in Bright Dairy and Food. In 2010 Bright Dairy bought a stake in its first foreign dairy company, New Zealand's Synlait Ltd"
I don't think many people actually understand this

Also:
Parent Bright Food Group started the process to buy Tnuva in May last year from private equity firm Apax and Partners . It completed the deal earlier this year and now holds around 76.7 percent of Tnuva, Israel's largest food company.
Israel's Mivtach Shamir Holdings, another major shareholder in Tnuva, said last year that the deal valued all of the dairy company at about $2.5 billion, up from $1 billion when Apax and Mivtach took control in 2008.

http://www.reuters.com/article/2015/06/09/bright-dairy-china-idUSL3N0YV0...

11
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The large Monolithic meat works have probably had their day.In fact they had their day a few decades back. They have tried to add value by boning meat and going for high value vacuum packed product.
The problem is wages and the costs associated with said employment ie, Acc, health and safety, waste disposal, compliance etc have made the wage structure out of balance with the value of the finished product.
The Chinese can come in, close the value added parts, process in China where the wages are $2000 a year as against a cost here of probably over $2k a week. There will be huge job losses in provincial NZ.
The meat industry carries a lot of debt in finds hard to fund. The world is changing the Chinese will have a right to protect their investments around the world, just like the USA and UK do, it will be Gunboat diplomacy, and we won't have a leg to stand on.
So who are you going to vote for next election?

Will there be elections AJ, or will Xi Jinping just appoint himself?

Absolutely, free and open, you will get a letter on Thursday telling you who to vote for on Friday.
Told you it was going to be sold to the man from China. Better get on and learn the lingo.

and from the end of July:

http://english.agri.gov.cn/news/dqnf/201507/t20150722_26121.htm
and
http://english.agri.gov.cn/news/dqnf/201507/t20150723_26127.htm

Chinese Premier Li Keqiang met visiting Governor-General of New Zealand Jerry Mateparae on Wednesday, reassuring him that China is able to handle all kinds of risks and maintain medium-high growth.

In the meeting at the Great Hall of the People in downtown Beijing, Li stressed that China's 7-percent growth rate in the first half of this year was hard-won as the world economic recovery is weak. He said China maintained fast growth in the service industry and emerging industry by encouraging people to start businesses and innovate.

http://english.agri.gov.cn/

Yes you were bang on AJ.I will be voting against selling the coop, turning down the 30 pieces of silver.

10
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Don't look here. Look over there......a flag to vote for and the boozers will be open for the RWC....

100 million, or 30 pieces of silver ... in return for 50% of the company and not the 49.9% which Chinese law imposes on foreign investors in China. Sounds like a John Key kind of deal for the people he REALLY is accountable to, yup. I mean what is 100 million? 100 shabby houses in Auckland for the second largest exporter in NZ. John does not have that money?

But he has 20 million for an infantile flag campaign nobody asked him for and he is going to give easily 10 million per annum for his 1000 Syrians "refugees" who will likely end up as a permanent drag on society much like the Lebanese "refugee" community in Aussie has.

Peters is wrong. This is not economic treason but outright high treason. Key and English should be impeached.

It is the free market in action.

It is nothing of the sort when one of the parties is the government of another country, it is actually more akin to war

Another free market solution would be for the NZ government to buy a stake instead of the Chinese government. Relative to John Key's flag or Syrian refugee projects this investment could even make some sense.

High treason as in:
"attempting to kill or overthrow the sovereign or government"

Your comment sounds more like high treason than anything our prime minister has ever done! Can the government technically even commit high treason?

OMG, the sovereign, that is the people of New Zealand. John Key has to serve our interests and not those of his business buddies or the Communist Party of China.

Of course politicians do commit treason when they present a clear and present danger to the best interest of their people. A. Merkel in Germany who has obviously gone insane is another case.

Cockies either stump up the cash or let it go to the wall. That will save the overcapacity issue. There is no place for taxpayers to prop up a dog.

Taxpayers who happen to fund bank lending with their deposits unwittingly support many unproductive dogs

Then those depositors should stop being "unwitting" even careless with their money and do due diligence for their capital. Of course their expectation is other taxpayers and innocents will bail them out for their incompetence.

I have - just making it my duty to warn others of the perils of poor bank lending practices.

It won't solve the overcapacity issue it will make it worse.SFF will then be in position to kick can down road. The real loser is Alliance Group ,the last remaining co op, they will have the life squeezed out of them by a cashed up SFF. Enevitably they will go the same way and it will be game over and complete servitude for the next generation of farmers.

It's not about farmers, that's for sure.

So why would the Chinese Communist Party in the form of Bright Foods be interested in it then, if the govt of our OWN country is not. It would be better for it to go to the wall than have it taken over by another country

11
up

That's easy to answer, don'tgetmegoing. The Chinese government is determined to maintain internal stability and this includes breaking the price-setting ability of all of its commodity suppliers. Why, they say, should people earning very little pay prices fixed by people earning much more?

The answer isn't a government rescue of SFF. Even if anyone believed the government was capable of running a business, this affair is too far down the road for that.

On a larger question, as to whether SFF is strictly a viable operation, you could run the same slide-rule over most of our agricultural industry and it would come out on the wrong side of the ledger. This, again, is because people have been encouraged to think of farming for capital gain. It's all about property, and property - thus agriculture - in NZ is all about debt,.

The real question is one of formulating policies as to national well-being. (Which is, as almost everyone with a brain understands, not the same as having rising house prices.)

The plain fact is this government is incapable of balancing short-term issues with long-term advantage. This is what policy is about. We don't have policies, we have deals.

We don't have policies, we have deals.

And debts - External Debt in New Zealand increased to 247182 NZD Million in the first quarter of 2015 from 243036 NZD Million in the fourth quarter of 2014 - Read more

And how, Stephen, is the country going to be able to service its debt when its largest customer has control of its prices?

This is one of the strategies that China is engaged in. They are no longer willing to see the country writing largish cheques to Fonterra, SFF or any other NZ outfit than to companies such as BHP Billiton, Rio Tinto or Glencore. Remember, we offer them commodities. Why would anyone pay over the odds for these when you're capable of crashing the prices?

It's where New Zealand is currently sliding inexorably, via a mix of debt and commodity products, and an abject failure of political leadership, into an economic cul-de-sac.

It's not just New Zealand suffering .

Outsiders in the UK bear many costs to enrich the entitled.

Agricultural land has proved an even better punt for City money: with the help of capital gains, inheritance and income tax exemptions, as well as farm subsidies, its price has quadrupled in 12 years. Read more

Well said.

Spot on.
As an Uncle with a forest once said to me; it's not so much about farming trees, it's about farming inflation. And that applies to all long term debt driven investments. It is also why the inflation portion of interest paid on an investment should not be tax deductible and correspondingly the inflation portion of interest earned should be tax deductible.

Probably because chinese consumers are willing to pay a premium for NZ goods (or so someone thinks). Why is it better to allow to go to the wall? It is just another business that is in a competitive commodity environment with an over-priced product carrying too much debt.

See my comment above

The important thing to realise here is that SFF has had a strong financial turnaround under its own steam. All the while it has been investing in value add strategies that have been fast gaining traction. They have been doing more than any other to break out of the commodity trap. This strategy has been directly subsidised by the NZ taxpayer via 10s of millions in PGP funding. Now they have had the rug pulled out from them at the last minute by the banks. For the govt to then blame the shareholders is a bit rich. I am hopeful that we will collectively stump up but after years of poor profitability many will undoubtably see the short term gain as too hard to turn down. Why cant there be a bond issue, even if the govt somehow provided a short term underwrite? If you believe Roger Kerr there is a wall of money sitting out there looking for yield.

One government sell everything, another government buy everything back...

i don't see that the Chinese government are the right people to be buying SFF. Look how they treat their own people, no elections , no uncensored internet. Will we be allowed uncensored internet after they buy up all our strategic assets and have all the political influence, is anyone allowed to criticise our govt. on tv anymore? Do you notice the new flag Key favours is the one with the red in the corner, what is the significance of that? Does that represent the NZ China alliance? replacing the union jack with the red from the chinese flag.

As AJ has pointed out the flow on effect of this the return of the carcase trade as the Chinese govt will want to do the further processing in China. Robotics will cut up carcases to primal cuts , there wil be no need for meat workers except a few supervisors. This will gut many small towns. The alternative was the value add strategy SFF had embarked on looking to target high end consumers with branded, further processed cuts. This is a much bigger issue for NZ inc than first meets the eye. How are we going to make a living in the world if we don't own the value chain?

Divide and Conquer - a little bit at a time

The danger here is the fact New Zealand has assiduously avoided having a debate about profit shifting and tax avoidance by the multi-nationals. Had that debate been conducted in all its glory in the financial press there would now be a far greater appreciation of the point you are making. While the big issue is swept under the carpet this small pocket-fluff issue will float by without ever getting traction. Yet it is the very same issue.