Landcorp chief executive Chris Kelly yesterday rejected the suggestion that its collaboration with Shanghai Pengxin in the Crafar farms deal would be a "sharemilker" relationship and said it would be a joint venture.
He said a joint venture company would be formed called Milk New Zealand Farming Ltd which would have two directors from Landcorp, two directors from Shanghai Pengxin and an independent chair.
The company would advise each of the two shareholders independently about whether to hold shares, or not, whether to buy more farms or sell farms.
"That is a joint decision making body which is yet to be formed because the deal isn't completed."
Mr Kelly was being questioned by Labour MP Damien O'Connor in a select committee yesterday about the deal and its view on the proposal to allow trading among farmers of Fonterra shareholders.
Mr O'Connor asked if it was fair to say that "as sharemilkers you will be providing the people and the expertise to make a huge amount of money for Shanghai Pengxin.
"No we will be making a huge amount of money for us," Mr Kelly said.
It was not a classic share-milking arrangement.
In the classic 50/50, the sharemilker supplied the people, the cows and shared the revenue 50/50 and some of the costs.
"The difference with us is that we have a sliding scale of revenue sharing based on 50/50 at a certain point.
"We get more of the revenue once the payout goes lower and we get less of the revenue as the payout gets higher.
"What that does is lock in an ability for us to pay our fixed costs, within reason, whatever the payout."
The state-owned enterprise will manage the 16 farms for Milk New Zealand, a subsidiary of Shanghai Pengxin which has won approval under overseas investment laws for the purchase from Westpac receivers for $210 million.
The actual deal has not been finalised until the outcome of a Court of Appeal hearing on July 2 taken by rival bidders, the Michael Fay consortium, is known.
Landcorp itself was an unsuccessful early bidder with Wairakei Pastoral for the Crafar farms.
Mr Kelly said while he wasn't speaking for Shanghai Pengxin, it had paid a premium for the farms because it wanted to secure the raw milk and add significant value in China.
By way of example he said when he visited China recently he saw a litre of UHT milk sourced from New Zealand that cost 28 RMB ($5.60) and the same litre of milk sourced from China was 6 RMB ($1.20.
"They believe they can capture that top 28 vs 6 part of the market which will then create enough money for it to be a successful enterprise and therefore they are prepared to pay a premium in their view for the farms back in New Zealand."By Audrey Young Email Audrey