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Fran O'Sullivan: Fonterra boss not playing games

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Fonterra chief executive Theo Spierings' refreshing approach is bound to annoy some in the agriculture sector. Photo / Dean Purcell
Fonterra chief executive Theo Spierings' refreshing approach is bound to annoy some in the agriculture sector. Photo / Dean Purcell

Fonterra chief executive Theo Spierings is not afraid to puncture some of the irrational games being played in the local dairy industry.

The Herald's China Business 2012 report in today's paper reveals how he floated the prospect of going into partnership with Shanghai Pengxin to develop dairy farms in China.

This refreshing approach will no doubt annoy the vocal Cyclops of the New Zealand agriculture sector. Some of them have been in full battle cry attacking Agriculture Minister David Carter over the Dairy Industry Restructuring Bill, oblivious to the fact that unless competition is encouraged within the industry our trading partners will allege Fonterra is simply a Government-backed monopoly.

In Spierings' case, his visionary and commercial approach will strike a chord with the thinking members of the local farming community.

It should also strike a chord with the business community which - apart from BusinessNZ's Phil O'Reilly - has lacked the guts to publicly go to bat to preserve what was once seen as an "open and fair" foreign investment regime.

New Zealand's foreign investment regime is verging on being in tatters as a result of Justice Forrie Miller's decision on Shanghai Pengxin.

Major deals are backed up all over town and putative investors are having to go to lengths which border on being uncommercial to retrofit deals to get them over the line. Many can't be bothered as they can't see a rational exit strategy.

The upshot is that liquidity is under pressure.

Spierings is a quick study. An internationalist, he is obviously surprised at the amount of venom that has been sprayed about since Shanghai Pengxin made its $200 million-plus bid for the Crafar farms. Also at the way some of the politicians in the local dairy industry focus their attention inwardly when the "battle is out there".

Spierings sees sense in engaging not just with Shanghai Pengxin's chairman, the personable Jiang Zhaobai, to canvass potential partnerships in China, but also with John Penno, chief executive of Synlait Milk (51 per cent owned by Shanghai's Bright Dairy).

Such overtures do have to be carefully managed to ensure New Zealand's competition regime is not breached. But in many respects what Spierings has floated is very like the approach that other sectors such as wine and aquaculture are using to ferociously compete in the domestic market, but look for "win wins" offshore.

It's all at the flirtatious stage.

But if Cabinet ministers do finally approve Shanghai Pengxin's application there must surely be an opportunity for the two players to form a dynamic relationship which could lead to more upside for Fonterra in China.

The Chinese Government wants the big "foreign" dairy companies which are invested in China to expand into setting up industrial-style farms to produce fresh milk for its growing population.

This dovetails with Fonterra's strategy to develop 25-30 farms in China over the next five to six years.

But Fonterra does not have sufficient free capital to pony up the $1 billion-plus needed for the major farm expansion as well as the multi-millions of dollars that will be required to also invest and boost production capacity in China to utilise the milk. It is seeking partnerships with some major players in the Chinese dairy sector (Chinese and foreign) to help underwrite the expansion.

Shanghai Pengxin is still waiting to get the green light from the New Zealand Government.

Cabinet ministers Maurice Williamson and Jonathan Coleman are yet to decide whether to approve the Overseas Investment Office's recommendation in favour of Shanghai Pengxin's application to acquire the 16 dairy farms. The OIO recommendation went to the two ministers last Thursday.

This week, Sir Michael Fay's Crafar Farm Purchase Group went hyperbolic, saying it "expected the worst" as it awaited another decision from the ministers on the sale of the farms to Shanghai Pengxin.

It's instructive that the latest purple prose by the so-called "independent" group doesn't have Fay's name anywhere near it. It's now the "iwi" buyers (in the group) who are "furious" that the OIO has gone back to the Government with new recommendations. They feel "betrayed". They claim Shanghai Pengxin has been given "VIP treatment" by the OIO.

They claim the OIO has "glad-handed" Shanghai Pengxin and given the Chinese company red-carpet treatment. The Fay group's PR man Allan McDonald goes onto allege "collusion" between the Chinese and Landcorp.

This is desperate stuff.

The truth is that Shanghai Pengxin's application has now been in front of the OIO for a year. The Shanghai company has racked up more than $10 million in holding costs. It has been subjected to inordinate delays.

This is the true scandal.

The iwi have had plenty of chances to buy these farms in the past. But did they offer enough to buy them at the time Allan Crafar was expanding his farming empire? Or have they simply seen an opportunity to whip up opposition "to the Chinese" and pressure the Government to turn down a deal for political reasons?

- NZ Herald

Fran O'Sullivan

A columnist for the NZ Herald

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

Read more by Fran O'Sullivan

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