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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.

Thu, 16 Feb 2012

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