Land sales horse may have bolted

The recent media conference for political journalists at the Chinese Embassy inWellington, dubbed the ‘green tea offensive’, has raised the stakes in the sensitive issue of overseas investment inNew Zealand, particularly Chinese investment in land.

 

The remarks by political counsellor, Cheng Lei, although low key, clearly referred to the eagerly anticipated Overseas Investment Office (OIO) decision on the second Chinese bid for the Crafar farms. Unlike the rejection of the May Wang fronted bid by Natural Dairy on the grounds of character, there appears to be no justifiable reason under the Overseas Investment Act for turning down the Pengxin bid, unless the definition of a large investment in farmland – more than 10 times the average dairy farm size – qualifies as a reason for rejection. But it’s a political minefield for the government, especially if the OIO gives its approval before the election.

 

Under the Act overseas investors must apply for consent to acquire sensitive areas of land and business assets worth more than $100 million. Clearly sensitive land covers most applications, since these will inevitably involve areas of scenic beauty, access to waterways and coastal locations. The transaction must be likely to benefitNew Zealandor the acquirer must intend to live in this country. In spite of the Finance Minister’s letter to the OIO late last year which strengthened the tests for consent, there is still considerable potential for embarrassment because of the implications of our trading relationships, in this case the Free Trade Agreement (FTA) withChina.

 

The Asia New Zealand Foundation’s Chairman Philip Burdon notes this country’s sensitivity to the overseas acquisition of land, but says, while the Foundation doesn’t take a political stance, it would be very concerned if an Asian investment were not considered as valid as any other foreign investment. However he says we are right to be nervous about any overseas investors owning too much land, as New Zealanders don’t want to become wage slaves in their own country. This view mirrors the position taken by the Prime Minister earlier in the year.

 

BusinessNew Zealand’s perspective is quite simple. Chief Executive Phil O’Reilly told me all investors should be treated exactly the same and, even if some countries place restrictions on New Zealand investment, we should not retaliate. IfNew Zealand’s policy is too restrictive, this would sub-optimise the achievement of fair value from a sale. He pointed to the new opportunities, skills and technology gained from more than 100 years of overseas investment in assets, while the fact some of these had not been sold well in the 1980s was no reason for condemning overseas investment.

 

With specific reference to land sales O’Reilly believes there shouldn’t be too many restrictions, relying on getting the basic economic settings right to incentivise overseas investors to increase value and productivity in the same way as the domestic investor.

 

Commenting on the Chinese bid for the Crafar farms, CTU economist Bill Rosenberg is concerned at the comparatively perfunctory nature of the OIO’s investment tests. According to him, FTAs tend to weaken the criteria for approving or rejecting overseas bids and this issue should have been resolved before signing the FTA.

 

He says the key issue of farmland ownership is control and the risk forNew Zealandis the potential loss of control of the whole supply chain, thereby foregoing added value which will no longer be available to contribute to jobs in this country. Ironically high commodity prices only tend to confirm our status as a global farm inRosenberg’s opinion, increasingly exporting commodities and importing manufactured goods; in fact we are adding less value than before the economy opened up.

 

None of the parties spoken to believe sales of farmland should be prevented provided there are clear criteria applied without prejudice against any potential investor. However nobody had any concrete suggestions which would guide the OIO in its decision making process. Fonterra has announced further investment in dairy farms inChinawhich Cheng Lei implied means Pengxin’s bid for the Crafar farms should be equally acceptable, although CTU’sRosenbergdidn’t necessarily accept that argument because of restrictions applied byChinato certain types of foreign investment.

 

The dairy industry and Fonterra are the test case – if Fonterra wants to build strength overseas,New Zealandmust be prepared for investment in our dairy industry and this will inevitably mean some loss of control of dairy production.

 

The outcome of Trade Minister Tim Groser’s talks in Beijing last week will be instructive in determining whether the government has come any closer to finding a solution which will satisfy the various interested parties: the Chinese government which expects tangible proof its investments in New Zealand are welcome, Business New Zealand and others which want minimal interference in commercial transactions, those like the CTU which want a tightening of the rules, and those such as the Greens and Campaign Against Foreign Control of Aotearoa who are dead against any sales.

 

If the government believes change is required, it must move quickly to tighten the rules, or else the horse will already have bolted.

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Tags: Asia New Zealand Foundation, Business New Zealand, China, Crafar farms, CTU, Fonterra, land sales, OIO