Shanghai Pengxin finally able to get on with its dairy investment

After one of the most drawn out sagas of recent times, the Court of Appeal’s ruling at last looks as if Shanghai Pengxin can complete its takeover of the Crafar farms.

 

The Fay/Maori Purchase Group has announced it will not make any further appeal, but, in Sir Michael Fay’s case, it will go back to business as usual and, in the case of the two Maori trusts, continue to negotiate the acquisition of two farms. However the iwi are still considering an appeal against the latest decision, while negotiations continue.

 

This sale process has caused much debate and involved very costly court cases which in the end have merely served to review and confirm the original decision and it’s hard to see on what basis a further appeal could expect to succeed.

 

The most interesting aspect of the Court of Appeal’s decision is that part covering the issue of the buyer’s experience and business acumen in relation to the purchase, because this was the entire basis of the appeal. The Court found that the Ministers had been justified in relying on Shanghai Pengxin’s genericbusiness experience, as distinct from specific experience in dairying. The partnership with Landcorp which will operate the farms under a share milking arrangement will provide an acceptable form of specific experience.

 

There will be a sense of relief among many people that the saga finally appears to be over, although equally there will be disappointment, even anger, at the sale of what is seen as a significant holding of prime farming land to an overseas investor. Therefore it is relevant to attempt to analyse whether the final outcome is the right one or not. I don’t expect those who have already made up their minds, one way or the other, to have any patience with my analysis, but it may be helpful for people like me who aren’t sure.

 

My understanding of the key provisions of the Overseas Investment Act is that:

 

1. the purchase by an overseas person of farmland over 5 hectares, considered to be sensitive land, is subject to OIO consent;
2. the acquisition by an overseas person of business assets worth more than $100 million is subject to OIO consent;
3. and the overseas person must be of good character, must have the required financial resources and, in the case of business assets worth more than $100 million, must have appropriate business acumen and experience.

 

However the original arguments around the Crafar farms deal appeared to ignore all these provisions There was a distinct impression that a proportion of objectors were against selling the properties to Chinese, as though this was somehow worse than selling to Americans or Europeans. A greater proportion agreed with Fay that the land should stay in New Zealand hands, while Allan Crafar fought a rearguard action to find sufficient funds to buy his properties back from the receivers.

 

Fay played the jingoistic card for all it was worth, suggesting the receivers had an obligation to sell to a New Zealand buyer for nearly $40 million less than the offer from Shanghai Pengxin. His consortium then introduced the Maori farming groups which claimed that two of the farms near Benneydale had been wrongly taken from them in the 19^th century and they should therefore have the right either to buy two or three of the farms, if they couldn’t buy the whole lot.

 

When the responsible Ministers approved the OIO recommendation that the sale met the requirements of the Act, the Fay Maori Purchase Group appealed on the basis of the Shanghai Pengxin’s lack of specific business expertise

 

Terms of the current negotiations between iwi and Shanghai Pengxin are under wraps, although Hardie Peni, Chairman of Tiroa E and Te Hape B Trusts, has said that he bets the purchase price is “a pittance” compared with the asking price of $66 million for the three farms they had originally tried to buy. Peni’s gripe is that it seems all you need to have “the privilege of buying New Zealand farm land is deeper pockets and some knowledge of business.” But surely this has always been the case.

 

If New Zealanders want a change to the present terms of overseas investment, they will have to convince a future government that this is a matter of priority for legislative change. There are many fish-hooks to be considered before a new investment act could be brought into law, not least being the impact on farm values or overseas investment in non-farming businesses, as well as the wish to differentiate between overseas buyers of different nationalities to allow for reciprocal trade agreement provisions.

 

Until or unless this happens, we will have to accept the continuing purchase of prime land to overseas investors, although it is not a new phenomenon. It has been happening for the last 170 years. What I believe a review of the Act should examine are the criteria for allowing in particular the sale of land.

 

For example it should introduce a provision relating to the amount of value an overseas buyer should be required to add in New Zealand and, in certain cases, a requisite level of domestic employment. This would ensure that the OIO is in a position to make more demands before an application is lodged, whereas in the case of Shanghai Pengxin negotiated additions to the contract were retrospective.

 

Hopefully this case, which doesn’t involve a vast amount of land or even particularly good land in the overall scheme of things, will come to be seen as motivation for improving the overseas investment climate, instead of the sale of our birthright as it has been portrayed.

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Tags: Crafar farms, dairy industry, Maori trusts, Michael Fay, overseas investment, Shangahi Pengxin