Shanghai Pengxin finally gets clearance to take over Crafar farms

After a drawn out campaign to buy the Crafar farms, the Supreme Court has removed Shanghai Pengxin’s last obstacle by rejecting the challenge of the Maori trusts which want to buy two farms near Benneydale in the King Country. The farms went into receivership three years ago and legal challenges have used up half of that period.

 

Tiroa E and Te Hape B Trusts are still hopeful they might be able to negotiate to buy the two farms from Shanghai Pengxin. However given that their last enquiry was met by a price tag that was too high for them, it’s hard to see why the new owners would be prepared to sell them more cheaply now, especially since they have finally established their legal title.

 

Whether people agree with the outcome or not, it must be a good thing for these dairy farms finally to be managed properly for their future productivity. Shanghai Pengxin has a month to conclude the purchase from the receivers Korda Mentha, at which point Landcorp will assume responsibility for managing and operating the farms.

 

Initially at least the milk will be collected and processed by Fonterra, although longer term the purchaser intends to carry out high value processing in its own right for export to China. Landcorp and Pengxin will establish a 50/50 joint venture, NZ Farm Management Limited, which will be responsible for managing the farms, while Landcorp will advise Pengxin on its future dairy investments in New Zealand.

 

The Overseas Investment Office’s approval is conditional, among other things, on the company spending $16 million on farm repairs and maintenance over the next three years. This money will all be spent in the local communities on fencing and other materials aimed at improving farm productivity.

 

Pengxin is already talking to Fonterra and other potential partners about building its added value plant in the Bay of Plenty, having also indicated that it could spend $100 million on upgrading its farms. Whether this includes the $16 million to be spent on the Crafar farms or on a whole new raft of farm investments is not clear.

 

I suspect it would be sensible for the company to develop its further processing plans before attempting to buy any more dairy farms. That way it can demonstrate its strategic intent goes further than just buying land in New Zealand without any intention of adding value and employment.

 

It still seems that Allan Crafar has illusions of being able to buy back his previous farms, even after the Supreme Court decision. His only problems appear to be lack of capital and a watertight contract between receivers and purchaser. As recently as last week Crafar was talking up his chances, but I think his last chance has now disappeared. His misfortune was to go into receivership in the first place and, without any suggestion of support from the receivers, he was always going to be on a hiding to nothing.

 

New Zealand has the chance to gain good returns from the investment by the new Chinese owner by ensuring good partner relationships with Pengxin. This may well enable Fonterra to build its China business without having to use exclusively its own capital which is after all the thrust of Trading Among Farmers.

 

It’s time to look for the positives of Chinese ownership in this saga.

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One Response to “Shanghai Pengxin finally gets clearance to take over Crafar farms”

  1. Horace the Grump Says:

    Finally… the saga ends…

    Not sure about your view that SP should build a processing plant before acquiring further farms as there is the small problem of economic viability of the processing plant – 16 farms doesn’t really get you there in terms of milk flow.

    However, assuming it will take a couple of years to get a plant built SP could line a few more farms up and then settle the farms about the time its announces construction of its processing facility.

    Have to wait and see I guess.

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