Milk plant plan for Hart land

A syndicate of New Zealand and overseas businesspeople interested in buying a cluster of Graeme Hart-owned dairy farms on converted forestry land in South Waikato is understood to be planning a new milk processing plant as part of their purchase strategy.

It is understood the group, which includes experienced New Zealand dairy industry players with no known existing milk processing interests in this country, would build the plant at or near Tokoroa in South Waikato.

Mr Hart, New Zealand's richest man, has 29 dairy farms on the market for $224.5 million through his Rank Group-owned Carter Holt Harvey (CHH) company. Bayleys, which has joint marketing rights with PGG Wrightson, began its marketing campaign yesterday but the farms have been on the market for several months.

The farms, being marketed as the biggest single offering of farming land seen in New Zealand, are for sale separately, though they have yet to obtain titles. Rank Group converted 30 farms which have been operational for 18 months or less. One has been sold.

It is understood that the Chinese syndicate that did due diligence on the farms owned by the Crafar family, now in receivership, made an offer this week for the CHH farms but it was rejected.

The group behind the proposed processing plant is understood to be trying to raise more overseas capital.

The farms, 24 of which are on the southeast borders of Tokoroa with the remainder scattered west of the town and on the southern boundary of the Rotorua-Taupo district, are being marketed domestically before an overseas sale campaign, satisfying Overseas Investment Office rules.

Mr Hart had always intended to sell the farms. Though he was doing so in a depressed rural real estate market, a source said he would make a profit – even though his company did the conversions at the peak of the 2007 dairy land rush when contractors were asking top dollar.

Rank Group bought pulp and paper giant CHH, then New Zealand's biggest forest owner, in 2006 for NZ$3.4 billion. The 200,000-hectare forest estate, for which Mr Hart paid about $600 million, was sold soon after to US-based Hancock Timber Resources for nearly $1.5 billion.

The cost of the conversions was understood to be close to $70 million. This did not include the cost of the land, Fonterra supply shares, cows and cowsheds.

A total of 11,600 hectares was converted, with 8600 hectares becoming effective dairy area, PGG Wrightson real estate general manager Stuart Cooper said.

The farms, all operated by sharemilkers, were carved out of the forest in a rush to beat Kyoto protocol rules which took effect in 2008.

Well managed and given soil maturation time, the farms should be able to yield earnings before interest and tax of $2500 per hectare on a $5.50 per kilogram of milksolids payout, an expert said. Top quality Waikato farms produced ebit of $3500-4000 per hectare, he said.

The farms will not be an attractive proposition for potential buyers financing the purchase on debt. It could be four years before the pasture reaches potential. However, to Chinese investments funds keen to access the New Zealand dairy industry, the price tag on the farms would be "chicken feed".

Chinese company Bright Foods, recently reported to be interested in buying CSR's sugar business, was said to be among Chinese companies and funds looking at land for dairy production and processing.