Buyer of Crafar farms has poor start
The new Chinese owner of the big Crafar farms estate has had a tough introduction to farming in New Zealand, with its costs much higher, and revenue much lower, than budgeted for this dairy season.
Landcorp chief executive Chris Kelly, whose state-owned company is preparing to take over fulltime management of the 16 central North Island Crafar farms on June 1, said drought meant Shanghai Pengxin had experienced "significantly higher costs and significantly lower revenues" than expected.
Pengxin took over the in-receivership farms with government consent late last year after nearly a year of legal challenges and intense public debate.
A condition of the Overseas Investment Office consent was that Landcorp manage the farms, which total about 8000 hectares, and that Pengxin spend $15.7 million over the following three years upgrading the properties which had been in receivership for three years.
Kelly said four "head office" staff were in place managing the farms but the SOE would not fully take over as 50:50 sharemilker until the start of the 2013-14 dairy season on June 1.
This meant Pengxin was getting the full milk payout cheque for the farms and that current sharemilkers had been "pretty disadvantaged" this dairy season.
Landcorp this month posted a $2.5m net operating profit for the half year ended December. But directors have repeated an earlier warning that because of the drought neither a full-year profit or dividend are likely.
Some upgrade work on Landcorp's own farms, including in the South Island, might be delayed a couple of months because of the drought's impact on the bottom line, Kelly said.
But upgrade work on the Crafar farms was not constrained because the funds came from Pengxin's pocket. About 70 staff work on the Crafar farms.
Landcorp, which employs 600 staff, is recruiting 70 staff for the new season on the Crafar farms, and had offered jobs to all those working there.
But as sharemilkers typically aspire to farm ownership, some would not want to work for a corporate such as Landcorp, Kelly said. At this stage it looked as if about a third would join the Landcorp team in June.
Three teams of builders were upgrading houses on the farms and Landcorp was in final negotiations for a new 60-bail rotary milking shed, which would cost about $1m, Kelly said.
From June 1, the milk cheque and operating costs will be "roughly" split 50:50 between Pengxin and Landcorp, he said.
Landcorp had bought the Crafar farms' 16,000-cow herd for about $21m, about 10 to 15 per cent below the national market average, Kelly said.
The condition of the cows was not "too bad" though some were older than was ideal.
"We always knew there would be surprises. We've done a number of deals like this and there are always surprises. But all of a sudden we get the worst drought on record."
It would be a challenge for some of the departing sharemilkers to fulfil the pasture cover aspects of their contracts, but Landcorp would work this through with them, said Kelly, who steps down as chief executive at the end of August after 12 years in the role.
His successor is Steven Carden, who heads PGG Wrightson seeds division in Australia.
- © Fairfax NZ News