Crafar saga will keep Govt busy for 2012

The Overseas Investment Office’s habit of rubber stamping applications to buy New Zealand land finally met a brick wall with the recent High Court decision regarding the Crafar farms.

The Crafar Farms went bust a few years ago and are now being sold by receivers Korda Mentha on behalf of Australian banks and finance companies owed around two hundred million dollars.

New Zealand investors are keen to buy some of the farms but Korda Mentha has decided to sell the whole package as a going concern.

A Chinese Company Shanghai Pengxin has been keen to acquire the farms but their argument that Chinese ownership of New Zealand dairy farms would somehow benefit New Zealand was entirely negated by the High Court saying that the Overseas Investment Office applied the wrong test.

Justice Forrie Miller’s decision noted the Overseas Investment Act was intended to allow overseas investment in farmland only where that investment was likely to benefit New Zealand.

In his decision he said the benefits of Shanghai Pengxin’s ownership of the land were likely to accrue no matter who owned it.

An overseas purchaser must show that they are bringing significant economic benefit to New Zealand.  The fact that Shanghai Pengxin may pay the creditors – who happen to be Australian owned banks – more than a New Zealand bidder is not counted as an economic benefit.

In the High Court it was successfully pointed out that Shanghai Pengxin’s argument that they would bring the farms up to working order was simply not good enough.  By that test any New Zealand business that had gone bankrupt could be purchased by an overseas investor arguing they would get the business back into profit.

One of the best things to come out of the High Court decision is that the Overseas Investment Office and its decision making processes are finally getting some much needed scrutiny.  In the wake of the High Court’s decision  it emerged that the Overseas Investment Office – which is happy to support all manner of dubious arguments regarding the benefits of overseas investment to New Zealand – never bothers to check if there is a downside.

RNZ interviewer Simon Mercep : When you look at the benefits, to what extent do you take into account any disadvantage coming from the sale of foreign land going overseas that affects the New Zealand current account deficit and its international liabilities ? Do you look at that?

OIO manager Annalies McClure: No… the benefit to New Zealand test is framed in very positive terms. So we don’t take detriments into account.

Mercep: Shouldn’t you have an overall view that takes into account [the] detriments?

McClure: We have looked at this question previously, and interpreting the Act that’s certainly the view that our legal advisers have taken.

This is the same Office that considered they would be able to get a new application for the Crafar farms sorted in days.  It now turns out that this will be a few weeks away at least.  The Ministers who signed off on the Overseas Investment Office’s advice and the Prime Minister have suffered a big setback in their plans to get this important issue out of the way quickly in this part of the political cycle.

The issue of New Zealand’s economic sovereignty and ability to prevent losing control of our productive farmland is now shaping as one of the big issues of 2012.

12 thoughts on “Crafar saga will keep Govt busy for 2012

  1. Why did they have to borrow so much to begin with? Are we faced with the reality that dairy farming is actually not such a great all-in-one economic backbone for New Zealand? I think re-purposing the land to various types of horticultural use would have been a lower cost and more environmentally sustainable alternative. When will the NZ public realize that dairy farming can not be done to the scale it has been in NZ without significant damage to rivers, soil and economic security. It seems many people with fingers in these pies have no imagination.

  2. What I don’t like is that people are making this into a racial thing. I don’t want the land sales, I think NZ land should only be leased to foreigners (maybe industrial zoned land can be bought). I don’t care weather they are Chinese, Irish or from Uzbekistan and I suspect most people are the same.

    Why we can’t only lease land to foreigners is beyond me. In many parts of Asia, thats the way it works (including China where NOBODY can buy land, the government owns it all and leases it out to everyone for a fixed number of years, and they never have problems with overseas investment…). Yet we give away land to the highest bidder, foreigner or not, in perpetuity. Do we know what the world will be like in 100 years? I think not.

    China have got it right, lease land to everyone. We could never go that far but at least lets restrict land sales to kiwis and give lease terms to foreigners. We did it smart with Shania Twain, lets make smart the rule.

  3. Russel, to really get ahead here, I would suggest getting support for a law that enables foreigners to only lease land outside industrial zones. The mood of the nation indicates to me that this would seem to satisfy most parties (still allowing foreign investment yet giving the government the say on most land use long term) and would have broad support in almost all electorates. Our land laws need to change and they need to change in a way that isn’t going to be overturned at the next election.

    Therefore, don’t write any “green policy” land use into the policy, that would be part of a separate policy piece and would stop you getting cross party support.

    By taking the lead on this, Greens could come out of “one of the major issues of 2012″ shining.

  4. Why did they have to borrow so much to begin with?

    Yes, when we say “The Crafar Farms” the farms in no way belong to the Crafers, they belong to a bank.

    On some TV7 programme discussing farming, they said that it is apparently the norm that a prospective farmer borrows the money to buy a farm, and then pays only interest to the bank, and then when the farm is sold the bank get their principal back. You can see why the banks get jittery when the farm market falls, and turf perfectly good farmers out on their ear simply because they no longer have confidence in retreiving their investment, despite the farm doing well and payments never having been missed.

    Are we faced with the reality that dairy farming is actually not such a great all-in-one economic backbone for New Zealand?

    I hate to say it, but dairy farming rocks, and is the New Zealand economy. It’s highly productive. It would be great if we could have many times what we have, but it’s clear that can’t happen or we really will have no country left.

    I think re-purposing the land to various types of horticultural use would have been a lower cost and more environmentally sustainable alternative.

    Yep, lower cost, lower environmental impact, dramatically lower productivity, New Zealand economy goes even further down the toilet.

    When will the NZ public realize that dairy farming can not be done to the scale it has been in NZ without significant damage to rivers, soil and economic security. It seems many people with fingers in these pies have no imagination.

    Yep, right up until someone explains the numbers to them, and what’ll happen if we kill the golden goose.

    I’m forever arguing that we should have more of the “better” highly productive businesses like Tait Radio and F&P healthcare, more marketing and use of our film industry, but I don’t have the ear of anyone who could make that a reality.

    Dumping dairy is a “be careful what you wish for” scenario.

  5. If bankers lend without expecting the farmer to pay back principal until the property is sold (often allowing farmers to borrow against the rising value of the land), then the land is not valued according to its productive value – but to other factors, such as a lack of CGT – a lack of valid taxation regime is distorting land values. Another factor contributing to land over-valuation is tolerance for environment pollution.

    The price of land over-valuation is in many new farmers being unable to contribute to joint ventures in R and D. This prevents growth in income beyond world prices – thus the government’s push for farming companies to be allowed to buy up Fonterra shares off other farmers (this allows foreign corporates a way to buy into Fonterra’s shareholding) – this will ensure they bid up land value even higher. Is this government push based on the negotiating position of the USA on Fonterra in trade talks?

  6. …then the land is not valued according to its productive value – but to other factors…

    Indeed. But it is simpler than you suggest.

    As all property (farming, commercial, residential) purchases are founded by loans from the banks, property is valued by the banking industries willingness to lend money.

    So back in the day when banks would lend an absolute maximum of 3.5 times salary for a house purchase loan, there was no point in the average house being priced at $380K or whatever it is these days, as average salary x 3.5 had to equal the average house price. Otherwise it was no sale.

    For a while now banks have been willing to finance increasingly large amounts for essentially the same size of asset, and so prices have gone up to match the bank’s willingness.

    It’s not for no reason at all that New Zealand has massive consumer debt.

  7. Surprisng to see the Green Party going in to bat for Michael Faye so he can get the farms at $50 million under what they are worth, then flog them off.

    And if he sells them off one at a time the Oveseas Investment Office won’t even have a say in it – they can be sold to anyone including Shanghai Pengxin. The only difference is that Fayes group will have clipped the ticket by $50 million on the way through.

  8. I am sure you know that

    1. Michael Fay is only buying one or two of the farms and that would be owner farmers and iwi will buy up the rest.
    2. They are only worth that much to one bidder when sold in a block to a corporate, that’s not typical farmland value.
    3. Fay has owned a farm for over 20 years – he has never sold a farm he has bought. I doubt iwi, or those who want to farm their own land will be selling up.
    4. So you hold to conspiracy theories about those who who buy up assets to clip the ticket while we have no CGT. Does this apply to National running through asset sales over public opposition, or just the Fay consortium keeping local land in local ownership?
    5. Have you been hired as an agent of Oz banks, or Shanghai Pengxin or the National Party?

  9. There is at least one way to get the banksters grubby hands off our land. This problem I have been harping on for over a year now, of just what it is we use for money, is FUNDAMENTAL to almost every problem area that Greens want to change.

    It affects money transfers in and out of the country, it affects availability of credit, it affects the requirement for growth, it affects the value of energy and the value of renewable energy, it affects housing affordability (by removing the banksters incentive to keep pushing prices higher)…

    … but it does not prevent foreign ownership. For that we need a law that an awful lot of other countries take the trouble to get, which is a law that says you have to be a citizen or resident to “own” any part of the country. Why we think this lack is a good idea is beyond me.

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