Farm sale debate should not put off foreign investors, argues NZ agri industry

The sale of New Zealands's Lochinver Station to China's Shanghai Pengxin Group is awaiting approval by the Overseas Investment Office amid media speculation and political debate.

The debate over foreign investment into New Zealand’s agriculture sector is heating up as the NZ$70 million ($59 million; €44 million) sale of Lochinver Station, a 13,000 hectare cattle station on the North Island, to a Chinese conglomerate awaits approval from the Overseas Investment Office (OIO). If approved, the deal will be the second largest land acquisition by a foreign buyer in New Zealand; the largest was a NZ$200 million deal by the same buyer in 2012.

The proposed sale by Stevenson Group, a New Zealand industrial conglomerate, to Shanghai Pengxin Group has attracted sustained media attention in New Zealand after the application to the OIO was made public by one of the country’s political parties. This sparked debate around the costs and benefits of direct foreign investment into one of the country’s key sectors.

But local industry specialists do not think it will impact New Zealand’s appeal as an attractive investment destination for foreigners and think that local media have exaggerated the impact of the deal.

“[The debate] is probably putting off the less organised foreign investors due to the additional work required to make sure the investment meets and/or exceeds OIO requirements and also due to the attention that large foreign transactions attract,” said Con Williams, a rural economist at ANZ. “The larger and more committed investors, such as Shanghai Pengxin Group, are unlikely to be put off. However, a change of government might effect this, due to the recent comments made by opposition parties,” he told Agri Investor.

Lochinver’s challenging geographical location makes it ripe for investment and local investors had the same opportunity as foreign investors to take advantage of that, argued Andrew Gibbs, partner and head of agribusiness at Deloitte New Zealand.

“Lochinver Station’s pumice soils and climate provide a challenging farming environment that I understand presents the new owners with the opportunity to invest further in the productive systems,” he told Agri Investor. “One can assume that this latest proposed purchase of New Zealand farmland has received heightened media attention due to the upcoming election. The station was marketed nationally and internationally, so New Zealand investors had the opportunity to purchase the property and invest in Lochinver’s growth,” he added.

Shanghai Pengxin’s first politically inflammatory purchase of New Zealand farmland was the NZ$200 million acquisition of 16 Crafar dairy farms on the North Island covering 8,000 hectares of farmland. After almost two years battling with the OIO, and an appeal case in New Zealand’s Supreme Court, the deal was approved in 2012.

Few farmland properties in New Zealand are valued at over NZ$30 million, according to Williams, but Lochinver’s valuation reflects the prime farmland category in which it falls, he added.

“Lochinver is a very large property so it’s at the upper end in terms of size and value,” said Williams. “Higher value transactions are more common because of the increases in land values since the early 2000’s and the consolidation of properties since that time, especially in the dairy sector. But there are not too many farmland properties valued over the $20 million – $30 million mark,” he added.

The OIO bases its decisions around the foreign acquisition of New Zealand land on two key concerns: the first relates to investment in vertically integrated businesses that involve production, processing and distribution on a large scale. The second relates to the aggregation of farmland that might not be beneficial to New Zealand’s economic interests such as by impacting the country’s reliability as a supplier of primary products to the global market supporting New Zealand’s export earning capability, according to a directive letter written by the minister of finance to the OIO in December 2010.

The OIO has various other criteria to decide whether an investment is sensitive such as whether an acquisition will impact New Zealand’s image overseas, according to Annelies McClure, acting deputy chief executive Crown Property, Land Information New Zealand.