Fran O'Sullivan: Why Key will let Chinese buy Crafar farms

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The battle continues for ownership of the properties once owned by Allan Crafar. Photo / Christine Cornege
The battle continues for ownership of the properties once owned by Allan Crafar. Photo / Christine Cornege

Realpolitik dictates that John Key will not brook controversy over Shanghai Penqxin's bid for the Crafar dairy farms overshadowing the upcoming 40th birthday party between New Zealand and China.

On Friday February 3, Key and Chinese Ambassador Xu Jianquo will take to the podium to unveil plans to commemorate 40 years of diplomatic relations between the People's Republic of China and New Zealand.

This will the centrepiece for New Zealand diplomacy in 2012; a busy year which will also include major celebrations of NZ's official relationships with Japan (60 years) and South Korea (50 years); plans to develop a major economic relationship with fast-growing Indonesia and a sweep through Chile, Brazil and Mexico. All of which will be led by Key himself.

The last thing the Prime Minister wants is to have the high-profile event marred by pesky questions over why his Government scuttled Penqxin's bid to buy the 16 North Island dairy farms.

Particularly, when the Shanghai company offered the top dollar and has clearly spent nine months recalibrating its business plan to meet the tough rules that the National Government imposed on the sale of agricultural land to foreigners to ensure greater economic upside for New Zealand.

That's why I am betting that well before February 3, Key's Cabinet ministers will rubber stamp the Overseas Investment Office's expected recommendation to them to approve Shanghai Penqxin's $200 million bid.

The reality is that China is on track to be New Zealand's largest single market; it takes by far the biggest portion of NZ dairy giant Fonterra's milk powder exports; it is also lining up to bankroll a significant portion of the Canterbury earthquake rebuild and invest in our resource sector. And it is investing in New Zealand bonds; a valuable vote of confidence in this country when other indebted nations face difficulties in a capital constrained world.

The ground-breaking free trade deal that Helen Clark's Government signed with Hu Jintao's Chinese regime in April 2008 is envied by other nations like Australia which after years of negotiations has yet to ink its own deal. But its investment footprint in New Zealand is also minuscule compared with other countries that Chinese diplomats refer to as "the Anglo-Saxons".

I don't believe it is in New Zealand's long-term economic interest to allow xenophobia, whipped up by a rival (late-comer) bid, to damage a relationship cemented by years of diplomacy by officials in this country and China.

There will be more to the OIO decision than mere political cosmetics. Penqxin will have made sure that its business plan includes processing milk powder from the Crafar farms within New Zealand and to export branded high-value products back to China. Thus it ought to pass the OIO's muster.

That is also where the value proposition for New Zealand-sourced dairy production lies. Not simply in exporting vast quantities of milk powder to Fonterra's customers and competitors offshore (including within China) for them to refine. This will lead to more jobs in New Zealand - not fewer.

Sir Michael Fay - who is spruiking the cheaper rival bid for the farms - had his spin-meister challenge the notion that state-owned Landcorp will take-up the sharemilking contract after the farms pass into Penqxin's ownership. The Fay argument goes that Penqxin is a construction and property development company with "no expertise in dairy farming".

The Fay syndicate's press statement said the Chinese were passive investors relying on Landcorp to add the farming component." The Fay syndicate also plans to launch a High Court review of the OIO's decision if it approves the Chinese bid.

Labour's Trevor Mallard has joined the fray opposing the Chinese bid. But it's notable that he has not challenged any of the successful "Anglo Saxon" bidders for NZ farm land such as German investors, US and Australian investors. No dairy farms have yet to be sold to Chinese buyers. Penqxin also has extensive agriculture investments in South America and elsewhere.

Something Mallard omits to say is the Crafar farms are diddley squat in size and value compared to the amount of farm land that was sold offshore during the Clark reign. The Real Estate Institute said yesterday that rural property sales had a strong finish in 2011, reflecting good growing conditions across the country.

The institute pointed to the emergence of offshore buyers, mainly from Europe, acquiring properties in both Canterbury and other regions, although "this comes after extensive due diligence and securing OIO approvals in the six to 12 months prior".

On February 3, we can expect to learn more about the Government's China strategy; plans for more Cabinet minister-led business missions to China and (although the date has yet to be finalised), the Prime Minister's own visit to Beijing for the official 40th celebration, and (hopefully) the architecture that the Government will unveil to underpin the growing relationship.

Foreign Minister Murray McCully is known to favour a high-level "partnership forum" following the model established to strengthen New Zealand's relationships with Australia and the United States. Other mechanisms include a China New Zealand Council, or, a bilateral business council.

These developments will be the result of successful diplomacy by Prime Ministers, ministers and officials over many years.

Let's focus on what really matters, rather than the whinging of a merchant banker who missed the boat on buying up New Zealand dairy land when it was cheap.

- NZ Herald

Fran O'Sullivan

A columnist for the NZ Herald

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