Crafar Farms deal ticks the boxes – but where does it end?

The Crafar farms sale is a canny deal with undoubted benefits for New Zealand. So why the fuss? Because each sale of productive land offshore raises questions about our future economically and as Kiwis

Anyone at all surprised by the sale of the 16 Crafar Farms to Shanghai Pengxin? Thought not. It was utterly predictable for two reasons – 1) that company offered far and away the most money and 2) the company offers export opportunities into China at a juncture in history New Zealand when we stand or fall on our ability to sell protein to that country.

Confirmation of the controversial sale was announced today by the Overseas Investment Office and approving government ministers, with associate finance minister Jonathan Coleman saying, "We are satisfied that [The Shanghai Pengxin or SPGL subsidiary] Milk New Zealand's application for consent meets the criteria set out in the [Overseas Investment] Act."

Looking at the OIO decision, it's interesting to note that the deal literally ticks nearly all the boxes; the only fail is its ability to bring new skills and technology to New Zealand. That's hardly surprising, given our farmers are as good as any in the world.

What we lack is capital and contacts, and while business interests had to be satisfied with the cash on offer, it was these that will have made the difference when the nitty-gritty of the politics was hammered out.

There will be much huffing and puffing about Chinese expansionism, xenophobia, national interests and the like, and the some dog whistle racism, but the government's approval is undoubtedly based on good business, legal and diplomatic reasons. They're made pretty clear in the OIO decision, even if they are somewhat buried in the text.

If you'll excuse the size of this extract from the decision, I think it neatly sums up the main considerations going through the minds of government ministers:

"The Chinese Government recently confirmed that it saw New Zealand as an attractive place for investment and was encouraging Chinese companies to invest in strategic assets such as dairy farms. If this Application is refused without convincing reasoning linked to non-compliance with the Act or the Regulations (which we submit is not the case), that decision will be widely reported both domestically and internationally and will be likely to send a negative message about New Zealand's attitude towards Chinese investment and about whether the commitments made in the New Zealand-China FTA are being honoured.

This would seem specifically relevant given the recent consents given, on similar grounds, to the acquisition of dairy farms in Southland by Swiss and German interests. Given the recent approvals of similar investments by majority owned Swiss and German consortiums, refusal could be interpreted as a tacit anti-Chinese bias. It is noted also that Fonterra is actively increasing its existing investment in dairy farming operations in China.

SPGL is a credible and well respected business in China with strong business acumen and ability. The Chinese Government is viewing the Applicant’s proposed acquisition of the farms with interest and the acquisition presents an interesting opportunity for Chinese business to develop a model farming skill set in New Zealand with a view to taking such knowledge and applying expertise and farming practices in a China-wide context. SPGL is also planning to export safe and high quality New Zealand dairy consumer products to China to satisfy the huge demand. This activity is entirely consistent with agriculture policies between the two countries."

In brief, that means:

  1. we want to stay on-side with China (and its bankers) and send the signal to investors that we're open for business;
  2. our biggest company, Fonterra, is ok with this deal (given the special clause stopping SPGL from setting up its own processing plants in competition with Fonterra);
  3. and SPGL can open doors in China to millions of consumers and their growing wallets.

Case closed.

To ram home the foreign affairs element of this deal, the OIO adds quite openly:

"The transaction will also confirm New Zealand’s compliance with the New Zealand-China FTA and therefore enhance New Zealand’s strategic interests."

In other words, business with China is the be-all and end-all, especially until the US gives us an FTA. So the government's insistence that the China FTA didn't influence the decision is stark nonsense.

The OIO writes it's also excited by the fact SPGL has "very strong contacts with the supermarket industry" in China, will create two new NZ brands (Nature Pure and Pure 100) and is promising to spend $100m over the next five years promoting New Zealand dairy in Asia.

If the commitments are honoured, it all has to "benefit New Zealand" economically.

What of the OIO's point about "tacit anti-Chinese bias", you ask? This sale deserves to be a major news story because of the large amount of land lost to offshore ownership in one go. But let's be honest, the fact the sale is going to China has ratcheted up the concern and public debate.

Some of that concern is reasonable – we can't buy land there, China is in the process of buying vast natural resources around the world, and such purchases are made in its national interests, which aren't necessarily ours. But some of the concern is out-and-out racism.

Last year a German firm got approval to buy 3300 hectares in Southland. Remember the public debate about that deal? No, me neither.

Did anyone complain when Harvard bought our biggest forest? Or when Britons bought up 22,000 hectares of farmland over the past two years?

Let's not forget that 14.7 million hectares of New Zealand is farmed, so the Crafar's 8000 hectares represent a tiny proportion.

Then comes the clincher – while the farms are owned by SPGL, the management company will be 50% owned by the New Zealand government via Landcorp. It is state capitalism of a sort, with the government a partner in running the farms alongside a private foreign investor. Landcorp, for its efforts, will get a partner for its exports into China.

Labour leader David Shearer in opposing the sale said this week:

"If there is going to be foreign ownership then we have to make sure New Zealanders have a real interest in it and get real value from it. Now I don't think that this sale here gives us any return."

The details of this deal make that a hard argument to sustain; there are clearly significant returns to New Zealand. It's hard to imagine how, under current law, New Zealand could have done better out of this deal. The original New Zealand bidders couldn't have offered the strategic links into Asia and, I'm sorry, I simply refuse to take seriously a Michael Fay-led anything as a champion of retaining New Zealand assets in local ownership. Fay cheated and betrayed his homeland for massive personal profit in the 1980s, selling key strategic assets offshore for knockdown prices. The deals he did weren't nearly as good for New Zealand as this one, so he has simply no credibility on the subject.

Having said all that, why am I still uneasy about this sale? Because ownership matters. The owner is boss, keeps the profits, controls the asset. One sale on its own isn't the end of the world, but added together we've sold 170,000ha of farm land in the six years from July 2005 to May 2011, according to this very good piece in Farmers Weekly.

That rises to two percent of our farmland in the past decade, according to RNZ.

If we keep that up over the next century, that's 20 percent gone.

As John Key famously said, "Looking four, five, 10 years into the future, I'd hate to see New Zealanders as tenants in their own country, and that is a risk, I think, if we sell out our entire productive base, so that's something the Government will have to consider."

So what's been considered? Nothing as far as we know. And we don't know much. We don't even know how much farmland is in foreign hands already; records weren't kept before 2002 and no-one's made the effort to do an historical inventory. How about it Maurice Williamson? Perhaps its worth someone at Land Information spending a few weeks on that task? Or is it a job for the OIO?

And then we can get on with the proper debate, in which we ask 'what about the long-term, what's in our national interests generations hence? Where do we draw the line? And what laws should we pass to ensure we remain owners rather than tenants?

Is increased access to Asia in our interests if we don't control the profits? Is this the right kind of joint venture? And more fundamentally, who are we as New Zealanders if not owners of these few islands?

Politicians need to be answering those questions if they want to earn respect on this issue.