Land investors could maximise opportunity

Fairfax NZ

FARM VISIT: Former Chinese Ambassador to New Zealand, Zhang Yuanyuan, enjoys a trip to a New Zealand farm.

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OPINION: Ignore race, ignore culture, writes Tony Alexander this week. If you were forced to sell a chunk of New Zealand to overseas buyers, which foreign buyers would give the strongest benefits in terms of employment, access to markets, creation of distribution channels we could piggyback off, deep enough pockets to weather storms without closing up shop, and strongly interested in onshore as opposed to overseas processing?

Would it be the buyers from Germany, Ireland, the United Kingdom and USA who have been purchasing large tracts of land in recent years with an eye towards long-term global food demand, overseas water shortages, and diversification away from the banking and fiscal uncertainties in their home markets? Their interest is long-term holding for slowly accruing long-term capital gain and portfolio diversification. Their intention is to farm the land fairly much as Kiwi farmers always have – a 100 per cent focus on commodity production rather than downstream processing.

These buyers come from markets we have long struggled to gain – nay simply keep – access to. They come from economies producing minimal growth with poor outlooks for the next few years, where protectionist sentiment is growing as local businesses find themselves struggling in the face of more efficiently produced imports, and where populations are turning against migrants.

Now consider China. Wariness of Chinese buying our land is very high because we know their pockets are deep, we know there are thousands of Kiwi farmers approaching retirement and wanting to realise the value of their asset from whoever will pay them the most, and the bulk of Chinese companies investing overseas are indirectly owned by a Communist state enacting human rights policies we strongly disagree with.

But from which buyers will we ensure the greatest long-term growth in our wealth? The Western economies are "mature" and offer us little new. China is developing rapidly with huge demand for infant formula produced overseas – not mixed in China. The two parents and four doting grandparents of the single child couples are allowed to have will pay top dollar for infant formula guaranteed not to make their little angel sick. (That is why the supermarkets I visited in Guangzhou had electronic alarms around infant formula cans and the best stuff kept under lock and key behind the checkouts.) The Chinese want to process milk into infant formula in New Zealand. They have distribution networks throughout China set up to take the product.

The distribution networks which exist for milk can also be used for other New Zealand food products and as any New Zealand company planning Chinese expansion knows getting distribution sorted out in a country with still very poor logistics is a challenge. Piggy-backing if possible on a dairy network offers perhaps some greater confidence about the quality of whom one is partnering with.

Do we need to sell the land to Chinese buyers in order to get these potentially huge benefits from an economy which is on its way to accounting for more than 25 per cent of world GDP? No. But that raises the question then of who will own the land?

Not all the retiring hard working farmers who, by and large, logically want to realise the value of the asset they have built up over decades. Not the New Zealand Government – it is investing its political capital in selling assets rather than slaughtering the RMA, slashing company tax , giving incentive to R&D, and sponsoring nationwide business competitions, management upgrading, and entrepreneurship education.

Who are the parties then who might end up leasing land to the Chinese to secure the long-term quality milk supply they want rather than selling it to them? Maybe the very Germans, Irish, British, Singaporean, Canadian, Dutch and others to whom we have approved the sale of 1.1 million hectares of land in the past five years.

The country appears to be screaming out for a set of private sector Kiwi-owned land investors/leasers to "solve" this issue and to ensure we make as much wealth as we can from the end buyer the Europeans, Australians, British and others are purchasing land to make money from – the Chinese.

So if the end buyer of the product is the same, and we choose not to buy the land our retiring farmers sell, are we not better off selling to the Chinese and working their network for all it is worth?

» Tony Alexander is the chief economist for the Bank of New Zealand.

- © Fairfax NZ News

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karla   #2   via mobile 02:44 pm Feb 22 2012

NZ land should never be for sell! Only lease, we are far from the rest of the world and obviously don't want shut the doors for foreign investors too, chinese or any other, just on the sensible manner. Oh, and not to be forgotten other agricultural countryes that are very good at this. So just another reason to be wiser about this decisions.

Numbskullinglyboring   #1   04:27 pm Jan 29 2012

First time I find myself agreeing with you. A deal is a deal. Stop being racist NZ !

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