Agricultural capital market hub proposed by Taskforce

Proposals for a specific agricultural capital market represent the most unexpected – and farsighted – outcome of the Capital Markets Development Task Force.

The idea focuses on a more aggressive approach to developing New Zealand’s biggest area of competitive advantage – and also neatly finesses the tricky political fact that much of the sector remains determinedly within co-operative structures.

The report recommends a specific capital market hub tailored to firms and products in agriculture – ranging from commercialisation and early-stage funding, through to public listings and derivative products.

Other smaller capital markets had their largest growth areas where they specialise, Task Force chair Rob Cameron told a Wellington business breakfast this morning.

“If you take out financial institutiones and resources from the ASX, the NZX market has grown faster than the rest of their market. If you take out resources from the Toronto market, then New Zealand has grown.

“The Toronto market has been particularly focussed on the protection and development of that resources market – they select market makers coming into that market; they spend a lot of time making sure they dominate that market. We think the same sort of opportunity exists for us in the agricultural area.”

Knowledge and expertise within that market is the key, he said. In global terms New Zealand New Zealand agricultural production is relatively small, but because most of New Zealand agricultural produce is exported the global presence is relatively high.
That gives New Zealand a high level of expertise, he said.

The advantage for New Zealand is not merely in the fact we are a producer of agricultural products “but we are a particularly sophisticated agricultural producer.

“And if you look at the medium term outlook, we can see the end of the supply curve (for agricultural products) and the rise in the demand curve for soft commodities is going faster than that curve.”

One option getting a lot of attention is a closed capital market where investors who are part of closed co-operatives could trade with each other.

The proposal also addresses the question of capital raising for New Zealand’s agriculture co-operatives, NZX chief executive Mark Weldon told the meeting.

“If you’re Telecom or General Electric, you have lots of options: if you are Silver Fern Farms or Fonterra you don’t.”

There would need to be a major rethink of rules around capital rasing, he said.

“Across all the rules there is a bias against related party transactions, but in co-operatives related party transactions re a fact of life. So a fundamental re-think is needed there.”

Other, more widely anticipated and well-flagged parts of the report include partial listings of businesses owned by central and local government, noting that most countries now have a mix of public and private investment in state-owned businesses.

Even the stolidly social democratic Scandinavian countries such as Norway, Denmark and Sweden have up to half the investment in their government’s owned businesses coming from private investors.

The approach widens the asset pool for New Zealand investors, as well as serving as a further source of funds for expansion.