There are three possible responses to the prospect of an overseas, probably Chinese, investor buying seriously into the New Zealand meat industry: bring it on, not on your life or it’s inevitable.
So far Chinese interests have recently bought a minority stake in Blue Sky Meats and an application to buy Prime Range Meats is with the Overseas Investment Office; ANZCO is just under 75% Japanese owned with New Zealand management and staff holding the balance. ANZCO’s ownership structure has remained like this for over 25 years bringing positive benefits to the company, its suppliers and New Zealand as a whole.
This year rumours have been rife of Chinese interests looking seriously at buying one of the remaining large meat companies. There aren’t too many likely candidates for sale, although Keith Cooper, CEO of the rumoured target, Silver Fern Farms, laughed when I asked him the question and said he had heard the rumours too. However he denied there was any truth in them.
If we apply the old adage ‘where there’s smoke, there’s fire,’ there are at least three compellingly relevant issues here: first whether the farmer shareholders would be willing to sell, second how much a buyer would be prepared to pay for the assets which are substantially funded by bank debt and third the OIO’s criteria at the time.
In light of Shanghai Pengxin’s $70 million deal to buy Lochinver Station, currently subject to OIO approval, and the political uproar it has created, it seems like a good time to assess the merits of selling all or part of a meat processor and exporter to overseas interests. The ownership structure of ANZCO clearly establishes a precedent, but my instincts suggest it could attract a different response today, especially if there is a change of government in September.
I asked Minister of Agriculture, Nathan Guy, for his comments, but his one line reply indicated unwillingness to speculate or comment on a private sale matter. However Damien O’Connor, Labour’s spokesperson, was happy to give me his thoughts on the issue. He agreed any application would almost inevitably meet the OIO’s present criteria for approving an acquisition. However he was very concerned at the potential loss of control of the whole value chain which would condemn New Zealand farmers to taking the price at the farm gate without the potential to benefit from adding value. He would support a change in the Overseas Investment Act, although it isn’t clear what form this would take.
O’Connor’s concern at losing the value chain was echoed by Rick Powdrell, Federated Farmers’ Meat and Fibre Chair, and MIE’s John McCarthy, but as McCarthy said, it will be up to farmers to determine the ownership stake in the industry they desire.
Overseas investment does not necessarily imply total ownership, as ANZCO’s shareholding shows. But the debate about foreign ownership is in danger of becoming polarised; broader, more relevant questions would be about sources of capital, whether local or overseas, the degree of ownership and the structure of any partnership. More important than any of these is the alignment of an investor’s values and objectives with those of the company.
The sale of productive agricultural land seems to be an especially emotive issue. The concern about overseas, specifically Chinese, ownership of farmland is driven by fear of one country becoming too dominant. The fast rise of China to be the biggest buyer of sheepmeat by volume and whole milk powder makes us nervous. However it’s worth remembering the hundreds of thousands of hectares of forest that were sold earlier this century in the central North Island without much objection.
Although overseas ownership of our meat industry is not a new development (remember the Vesteys), it is appropriate to reassess how we should react to the prospect of one of our meat companies being the subject of a takeover offer from a Chinese investor, most particularly what sort of criteria we would expect the OIO to impose on a prospective buyer to retain some control of the value chain.
In the event the target actually happens to be Silver Fern Farms, its status as a modified farmer owned cooperative and the amount of bank debt on its balance sheet are two relevant factors. If any investor tried to buy 100% of the company, it would be a complicated exercise, but more significantly it would risk alienating a large number of suppliers. They might take the money and run, no doubt many of them to the south.
Therefore a wise investor, Chinese or otherwise, would attempt to find an investment structure which preserves the loyalty of the existing shareholder suppliers and delivers value to all parties. An investment also needs to offer a return which has not always been easy to achieve in New Zealand’s meat industry.
One thing is certain. The election has already provided a platform for some political parties to play the foreign ownership card as a means of attracting votes. If there is a change, the motley collection of parties forming the next government will have the challenge of agreeing their position on foreign investment. To see how they honour their various election promises while maintaining New Zealand’s international trade commitments will be interesting to say the least.
Barber's Meaty Issues 