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MyFarm launches mezzanine product for NZ farm investors – exclusive

New Zealand's MyFarm has launched a mezzanine debt product to provide farms with up to $300m investment in the face of the dairy crisis and a crackdown by the government on foreign investment.

MyFarm, the New Zealand livestock farm management company, has launched a mezzanine debt product to boost investment capital and enable overseas investors to access farm investments in the face of a crackdown on foreign investment by the New Zealand government.

Through the quasi-debt, quasi-equity instrument, MyFarm will look to provide financing of between US$50 million (€44.6 million) and $300 million to fund the expansion and acquisition of farms across the country.

“Turning down overseas investment is counterproductive. We need investment in New Zealand and we are not going to get all the capital we need locally, which is why we’ve developed this instrument,” Andrew Watters, executive director at MyFarms told Agri Investor. Watters said that MyFarm’s mezzanine product “will enable investors to get farm-type returns but without the operational risk and at a lower fee structure”.

Earlier this month the New Zealand government blocked a deal by Chinese conglomerate Shanghai Pengxin to buy the NZ$70m Lochinver dairy farm, which would have been the country’s largest single farm sale.

Watters said the decision reflected a change in methodology employed by New Zealand’s Overseas Investment Office for assessing the benefits of a non-New Zealand investor, with a higher standard now being set, particularly for foreign investors who want to aggregate large parts of land.

“The implication is that overseas purchasers will be permissible but they will need a good quality business plan. It will no longer be a rubber stamp but a proper assessment of what value is being added,” said Watters.

The launch of MyFarm’s mezzanine product comes at a time of strife for New Zealand’s dairy industry, with a global glut of product sending prices down by more than 50 percent to a 13-year low and raising worries about the future of some dairy farms.

“I think the dairy crisis is deep and will be painful on many, particularly those that have invested heavily and recently, and on those who haven’t been able to modernise production and gain more milk from grass and forage systems,” said Charles Whitaker, managing partner at agricultural managers and consultants Brown & Co. “I can’t think New Zealand is immune to that.”

Watters said MyFarm, which has more than $550 million of farm assets under management, is responding to the crisis in a number of ways. “We are dropping cow numbers 10-12 percent, we are aiming to drop production 7-8 percent, we’ll keep cows at home through the winter and we’ll use fewer supplements. We believe we can reduce costs by 50-70 cents a kilo for milk solids and bring our break even down towards $3.85.”

While Watters said he expects the recovery to come more quickly than most, “for the next three, four, five years we think it will be a lower production, lower cost system. Increasing production has always been big part of New Zealand’s success, but you’ve got to do it at low cost. The international cost of production is about $42 dollars per hundred kilo and the cost of production in New Zealand is now $34-36 dollars per hundred kilo, so the traditional advantage in cost production has eroded.”

The crash, said Watters, “has been a general wake-up call.”