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On the Crafar Farms sale, and what really makes us strong

Like many, I have an instinctive aggression toward foreigners buying big tracts of New Zealand land.

Part of me was pleased when the High Court ordered a review of the Crafar farms sale.

It strikes an emotional chord when opponents ask why we should hock off some of our most valuable assets, and become tenants in our own land.

But what really makes New Zealand strong?

Many economists argue that foreign investment always creates jobs and growth for the recipient country. During a recent visit to NBR, a senior cabinet minister said it would be intellectually dishonest of his government to say it could create more jobs if it did not allow foreign investment. 

There are also more pragmatic arguments.

No, Fonterra can buy land in China. But that merely puts it on a par with the locals, who can only lease. Fonterra can and does make major investments in Chinese companies that control farm production. It's also making major investments in India and Brazil.

Other New Zealand companies are trying to break into these fast-growing markets. Most of us want them to succeed. As a tiny, export-led economy we need them to.

Export success, and our own foreign investment, is how we can genuinely grow wealthier, and more secure, as a country.

Yet trade is a two-way street. We can’t expect China, India and others to open their huge markets to Fonterra, and other New Zealand companies, if we slam the door shut here.

Reality is messier, of course. Countries cheat and drag their heels. Especially those in more dominant positions (and for better or worse, we need China more than it needs us). And Fonterra, with the Sanlu scandal, has found China treacherously difficult so far (and anyone too starry-eyed should read Cathy Odgers' cautionary advice here). But quid pro quo has to be our working principle.

The High Court has asked the OIO to apply a wider test: whether a foreign buyer will bring economic benefits over and above those that could be provided by a domestic owner.

If you look at the big picture, it’s easy to argue "yes" in the case of the 16 Crafar farms.

More so because it will help the world's most populous country develop a taste for New Zealand's largest export.

There will always be regulation, and limits, on foreign investment. But subjective criteria, such as commercial acumen and character tests, are open to political abuse. As recent events have shown, they can be used to bog down an application in procedural disputes, and cynically undermine the central element of any transaction — which party is willing to pay the most.

The amount of land owned by non-NZ residents is tiny. The people of Newmarket did not become serfs in their own suburb when an Abu Dhabi-led group bought a giant tract of land from Lion Nathan for around $162 million. In fact, they became better off as Auckland University in turn bought the site for what was widely assumed to be a cheaper price.

Land can't be put on a super-giant barge and shipped to China (though I wouldn't rule out Winston Peters alleging the Chinese are working on this technology).

Money generated by a business can be sent offshore. But the sale price of an asset includes the value of anticipated future profit. Like land, it's not gone forever, and investment is a two-way street.

Foreign ownership can provide more NZ control over NZ land
A footnote: Leaving aside the poor financial management that saw them rack up $194 million in debt and lose their farms to an Australian bank, the Crafars' dirty dairying practices were an embarrassment to Fonterra, and New Zealand as a whole.

By contrast, when the OIO approves a foreigner's purchase of NZ property, it can add caveats on how land can be used, or protected. Shania Twain’s 24,731 hectare tract of around Wanaka is wrapped in so many provisos that large parts of it are practically public land.

The situation is more shaded when land is put to more commercial use, such as US billionaire Julian Robertson’s Cape Kidnappers and Kauri Cliffs developments. But it’s generally true that foreign owners have to follow stricter rules. Ironically, that often gives locals greater control.

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Comments and questions

At long last a balanced, intelligent view. Great article.

I am in agreement witth the previous comment, Chris this is an impartial article, very well written.

In my opinion, You cannot have the piece of the cake and eat it. If the New Zealand farmers are protesting against Chinese ownership, then they should practise what they preach and not make any foreign acquisition.


It would be nice to think that 'quid pro quo' results in a fair deal for both parties but it ignores scale. If NZ was to spend all its capital buying up Chinese land I suspect China wouldn't even notice. The same cannot be said about China spending all its capital buying NZ land.

[China can't spend all its capital buying NZ land, and NZ can't spend all its capital buying Chinese land.

But Fonterra can take a shot at dominating the Chinese dairy industry, and companies like Shanghai Pengxin can - maybe - invest here.

If Shanghai Pengxin is successful, it will presumably export milk power back to China, helping to develop the market for NZ dairy products there. Worse things have happened - CK]


Except that no NZ company can actually buy land in China can they? [But they can and are investing in Chinese farming operations, and other businesses beyond agriculture - CK.]

In fact China WILL need us more than we need them. The history of the next X years is all about food and energy shortages in a grossly over-populated world. Forget the paradigm of the last twenty years - its already out of date. We should not be selling any of our land to anyone, let alone the Chinese.

There's no such thing as over-population. The world will feed what it can and energise what it can and because of this there are clear constraints on population sizes. Since we can't magic food out of nothing, if the amount of people ever outweigh the amount of food produced, those people die and bring the population down. Simple math really.

Overpopulation solved - people will just starve and die. Brilliant.

That happened to China during the "Great Leap Forward" policy of Mao Zedong where 10s of millions of Chinese starved to death. The same thing happened to millions of North Korean in the 90s and somehow still happening.

But wow, what a brilliant solution!

Agree this is a balanced article. What most people seem to forget here is that a "NZ Farmer" i.e Crafar borrowed $200m from banks (who borrowed the money offshore). These banks now effectively own these farms and guess what, they are 100% all offshore owned entities. The Chinese are going to introduce new capital into NZ and hire NZers to run and develop these farms.

blankets and beads

If the Farms are already owned by Foreign banks, then it follows that a lower sale price (to NZ farmers) will be a loss to them. Offshoring a loss is good or bad for the NZ economy?

It will also allow NZ farmers/business to acquire a capital asset at a lower cost. Again, good or bad for the NZ economy?

So the question then becomes; what will this foreign buyer do that will result in a greater benefit to NZ than that which is proposed to be done by a notional domestic buyer?

In answer; there are several options, but the most obvious is that the foreign buyer will realise a higher value for the milk than would be achieved by a local buyer selling the milk to Fonterra. In other words the foreign buyer might avoid commodity production and produce only year-round clean, green and fresh consumer items, e.g. cultured foods.
The milk might then be worth $15-$20/ kg of milk solids. With a 50:50 sharemilking agreement in place Landcorp would be better off at the higher raw milk price. Would that be a greater benefit to N.Z? Would year round dairying, with no cows calving in spring, a lower stocking rate, lower wastage of cows, better animal welfare, year round employment, and less fertiliser percolation to groundwater as a result of less treading damage(pugging) be better for N.Z.?

The judge started a war between farmers and urban residents. Farmers: your dream for retirement rich is over because you will not be allowed to sell your farms at market value. Instead, you have to sell them to your fellows at a big discount. Sooner or later, urban residents would not allowed to sell their houses at market value. They have to sell houses to those who only want to pay 1 cent. What a wonderful country NZ would become? I guess it would be in same situation as it was 300 years ago: no foreigners, no trade, 100% pure.

The race card is played.

A NZ judge falls for it.

Well done, NZ!

That seems like a very ignorant comment. The law is colour-blind , as you well know.

Yes, all very well but we will of necessity need to continue to sell our assets overseas or to borrow therefrom until our credit runs out as long as the current government/reserve bank low interest rate policy is maintained.
My wish is for policy makers who actually understood Economics 101, ie, much needed domestic investment capital will not be built until savings are attracted and that savings will not be attracted until savers are offered a positive return;at present the vast pool of money sitting in bank term deposits gives a negative return after tax and inflation. Where is the incentive to save? ?
Peter Martin

Well we may yet have deflation. What sort of interest rate would you want in order to save in a zero inflation enviironment?

So what if a N.Z. buyer is going to practise sustainable agriculture, while the foreign buyer's modus operandi can be characterised as exploitation?
Of course sustainability is not black or white; yes or no. It's a question of degree.
But our own MAF(Policy) has published a view on this, a very long time ago.
And we do now have a RMA, but which has yet to make any judgements about what practices are more or less sustainable.
Who would argue that the less sustainable option was more in our national interest?
This could be the battle of the Q.C.s. Fascinating!

Since it's Fay.....with a spin about looking at the flip side of your argument.
The Chinese might surprise you. Fay never will. He's an asset stripper to the end.
Milk food-for-thought?

Leave Fay out of it; he's a red herring.
I wasn't arguing that one or other of the vying purchasers was of more benefit to N.Z. than the other: rather I was suggesting some of the criteria by which we might assess the benefits. You're right of course; either party could choose to try to make themselves more attractive to the OIO.
The question remains : how do we decide what is of greatest overall benefit to this country?

To be fair farmers protests all revolve around the fact that the market value is reduced if foreign ownership is restricted therefore reducing their tax free retirement nestegg. In fact that (1)shows the distortion that a lack of capital gains tax creates in that a lot of these guys pay very little(income) tax in their working lives and (2)puts the young New Zealander trying to get a foot on the dairy farming ladder at a huge disadvantage due to the price of land.

As far as saying 'Many economists argue that foreign investment always creates jobs and growth for the recipient country' well the Crafar farms are going to continue to be milked to maximum capacity and that milk has to be processed somewhere so where are these extra NZ jobs going to come from?

if there is a downstream extra quid in it for the foreign owners you can be sure it is by way of vertical integration and will never be sighted in NZ.

Make either foreign owners, if individuals, become NZ tax residents (so they pay tax on their worldwide income here) or, if a company or other entity, make a notional rate of return on the land value for income tax purposes(just like overseas investments made by New Zealanders are subject to a notionla rate of return for tax purposes). That way we ensure that they do not just own the land but divert whatever profits are made elsewhere.

I'm an Asian immigrant of 16 years. I love this country and want to see it do well. Despite the FTA with Asia and all the talk about leveraging on Asia's growth, it's disappointing to see the obvious discrimiation against investments by Asian firms in the country.

Let's also face it, New Zealand is socialist of nature and capitalism isn't in our blood. The "No. 8" wire mentality has served us well, but we need to "engage" with the rest of the world. We aren't good at relationship building, and in fact, the Chinese can teach us the value of guanxi in a globalised context. Consider this: Despite the enormous pressure for the Yuan to appreciate, the Chinese continues to "suck it up" instead of dumping the US Treasury. They simply need to look at their own back yard (ie. 2nd, 3rd and 4th tier cities) for opportunities without having to worry about currency fluctuations, policy variances or in this case, the OIA. Do they really need to invest elsewhere or to diversify?

Come on New Zealand, let's engage with the rest of the world and learn to trust!

One of the problems which nobody has pointed out is that Chinese investors can only invest in the booming Milk market by buying farms. If we opened up shareholding to Joe public et al albeit less than 50% they could have a stake in our industry and provide capital which would lighten the burden on the dairy farmers. I fo one cannot see how we can claim that we are a country that has an open door policy while we have restricted share acquisition rules such as those that the dairy farmers of New Zealand have.
The question of our not being able to purchase land in China is also emulated in Singapore and many other countries.
I think we have to be very pragmatic here and encourage Overseas investment in assets that can have caveats such as the Sania Twain property.

Surely you are not suggesting that the formation of co-ops should be prohibited under N.Z. law.
That seems a bit over the top.
Better to direct your attention to the DIRA , which legislated the waiver of Commerce Commisssion scrutiny of the formation of the Fonterra monopoly.

C'mon - the incentive to leverage to the hilt to minimise tax payments would have been averted if there was a simple land tax on all land. Farmers (and other speculative investors) would then be more focussed on cashflow so that they can pay the land tax rather than the interest bill.

Farmers pay no tax. Fonterra pays no tax. Fonterra makes high milk payments (averting tax) to farmers so they can pay their interest bill (averting tax). Really, this country needs to make farmers pay their fair share (and not to overseas banks).

So not only do we export milk, we effectively export profits and tax revenue as well.

Good stuff NZ

Don't let yourself be blinded by the predicament of a few over-geared unfortunates. Farmer who make profits pay tax: end of story. And there's plenty of us who do so.
Get over it!

The starting point ought to be the right of the vendor of private property to sell to the highest bidder.

If that bidder is to be excluded, the New Zealand vendor is being asked to forego value to subsidise a public policy. That is a real cost. So what is the benefit of excluding buyers whose current address is outside of New Zealand?

I find it quite difficult to either describe or quantify the benefits.

If a NZ farm-owner moves to Sydney, what dis-benefit is imposed on the rest of us?

If a US resident moves to Auckland and buys an Otago farm, the perceived dis-benefit is avoided. But if he only holidays here, we apparently suffer in some way. What way?

Doesn't this whole argument seem rather xenophobic?

Why does this article compare foreigners buying and owning land outright in NZ with NZ companies buying a less than 50% share overseas? This is not comparing apples with apples.

If we are holding up the investment in foreign countries as the reason we should allow foreigners to invest here, then let us follow those countries' example too. There's no sense in creating a complete imbalance.

Hence, we should allow foreigners to own up to 49% of a company purchasing land, just as Fonterra and others have to deal with in China.

Why are NZers so keen to sell everything off to overseas bidders in a way that overseas countries themselves are not? Because the Chinese are better at thinking long-term than we are, perhaps?

Because New ZEalanders LOVE to borrow.

And buy heaps of properties at the peak of the market.

And borrow to pay groceries.

A kiwi looks in the mirror and it's a most unpleasant sight. So he says it's the fault of the Chinese.

this will be a seriously self-inflicted wound to NZ economy if NZ finally and formally says NO to Chinese investment. Chinese investment will go to other countries. Shut out trade with NZ is not a big deal to China. At the same time NZ collectively condemned itself to the economic league of Ireland, Greece and Italy etc in a few years time. Greece is about to embark on firesale of its assets at the worst of time in its history for the possibly worst price it can get from whoever is willing to risk their money to buy. The current debacle is simply because the world is changing relentlessly and too fast for so many people.

Have you done the numbers on how much we import from China? I bet its more than we export!!

Isnt it time people like yourself wake up to the fact China needs us as much as NZ needs China. The need food to feed their people, which they can not produce because the power elite have rapped their land, air and sea. Go talk to MAF about who is using piano wire on the rocks along our Coastline, leaving nothing. This type of activity removes the entire food chain from our shoreline. Understand the culture of people, and you are likely to have second thoughts on selling land to overseas interests.

Globlisation is all about specialising in your strengths. NZ's is growing more food than we eat, while China is slave labour.

Accordingly, it makes sense we hold onto our strengthes rather than sell off the land that produces it for foreigners; not just China. Otherwise, NZ will have nothing for future generations. Wealthy people hold onto strategic assets, and rarely sell.

This logic is so simple, I cant believe Im having to explain it. Is it that people can nolonger think for themselves, and/or hood winked by peoples comments who have vested interests and dont work for the long term interests of New Zealand. I think they call this lot traitors; whom not that long ago had their heads removed.

[China's population growth is easing - thanks to its one-child policy - and is projected to fall, undermining the (already marginal) lifeboat theory.

And, again, we're not in Medieval Europe. There's more to modern economic success than land ownership.

- CK]

1. NZ total trade with China doesn't weigh up heavily in China's total trade with the rest of he world.
2. NZ has been borrowing money from the world for decades to fund the business and "live beyond means" lifestyle because saving rate is so low as people spend more than what they earn.
3. Food crisis in China is more wishful thinking than a fact as China is working with many nations to develop more food production for itself and for cooperating nations.
4. NZ's strength on farming will be tested because of lack of funds to enhance the production and lack of suitable market to sell.
5. I'm truly scared by the menacing tone from a supposedly peace-loving citizen in a democracy.

In reply to your thoughts;
1.NZ is currently a dominant player in the world market for milk demand. There is an ongoing change to the diet of the chinese, due to their westernisation, and this is unlikely to change anytime soon. The key to holding this position is controlling the supply chain. Ask any corporate!!
2, 3, 4 & 5.It is true alot of NZers have been lively beyond their means for some time. This illusion of wealth has been created by the banks and their relative short term profit motives, together with the lack of spine and foresight of a sucession of politicians to police this.
6.Population is so widespread in China, the health of people is becoming a main concern; especially for those in power.
7. Most economists in this country work for banks, so take their comments with a grain salt. Its plain old spin.
8. History repeats, and land sovereignity will always be key.
Too many power think short term. The chinese are not one of those people.

Chinese has been well survived without consuming milk for thousands years, whereas NZ is borrowing money to import wheat for their bread.

"Foreign ownership can provide more NZ control over NZ land"

That has to be the most ridiculous statement I've ever read.

[And yet it's true. The Crown can apply more caveats and controls to NZ land owned by foreigners than NZ land owned by New Zealanders - CK]

Why do you send your headmasters and trade envoys to court the Chinese for student fees and consumers when so many of you are hypocritical as to be so openly discriminatory when they believe what you say?

I hope NZ's economy tanks further and the Chinese do retaliate then maybe locals might wake up that there are't many lenient cash cows around.

Perhaps a reason Air NZ did not go to Singapore Airlines (I think it was) and was bailed out yet again by those decent enough to work and pay taxes was because MPs get 90% of their jetsetting paid for. I've wondered whether Air NZ's profit comes mainly civil servants/MPs swanning about for no good reason, and now their numbers are cut their profits may further decline.