Chinese buyers talk up benefits

Buying the Crafar farms is just the beginning for Natural Dairy. The company has announced plans to buy dozens more properties. Photo / Christine Cornege

The Chinese investors backing May Wang's bid for more than a dozen Crafar family farms may be media shy, but behind the scenes they are believed to have been lobbying politicians and other key players at the highest levels.

An eight-page fact sheet compiled by Natural Dairy argues that its proposal will provide a significant boost for the dairy industry, and the economy.

The company has estimated its initial plans will create an extra 92 jobs, including 50 at a $20 million yet-to-be-established factory in Tauranga producing UHT milk.

It has outlined plans to spend $18 million on new stock for the Crafar farms, and has estimated that its plan will produce export receipts of at least $70 million next year, increasing to $127 million in 2015 - almost four times more than Fonterra would get if it simply exported whole milk powder.

The company estimates the Chinese market would easily absorb 95 million litres of UHT milk "with little market risk, with the potential to substantially grow this volume in future years once the product has proven acceptance". And in "due course", it says, it hopes to expand into the even more lucrative market for infant formula.

The firm is proposing to lend $5 million a year to new sharemilkers, and to commit $500,000 a year to a new charitable trust for dairy training. The latter initiative alone is likely to result in a "substantial and identifiable benefit", given the pressure on funding for education in the sector, it claims.

Natural Dairy would also provide an alternative customer for many farmers looking for a more competitive offering "and this will clearly add to the market competition in the domestic market for milk in New Zealand", it argues.

While it claims the problems the Crafars have had over environmental and animal welfare issues are "debatable", Natural Dairy notes that it is "committed to being a good corporate citizen" and to achieving "better-than-average" compliance with environmental concerns.

Natural Dairy's lawyers, Knight Coldicutt, have also defended the proposal in their regular newsletter to clients. According to the firm, the subject of foreigners buying New Zealand land is "fairly black and white: you either don't see a problem with it or you are very much against it".

It would appear at least some of its clients fall into the latter camp, as the firm says the intention of the newsletter is to "give other Knight Coldicutt clients some comfort (and try and convert them from non-believers to believers)".

The firm argues that Natural Dairy will have to pay tax in New Zealand. "Fonterra as a co-operative doesn't pay tax - it distributes its profits to its farmers and a great majority of farmers have tax shelter as a result of the way they structure their affairs."

It also claims it will reinvest its profits in New Zealand, rather than send them overseas.

"The bottom line is that if Natural Dairy transactions produce $200 million of extra capital invested within New Zealand, this has an enormously positive effect over and above the status quo of Landcorp or other New Zealanders buying the Crafar farms and simply farming them for milk."

And it takes a swipe at Fonterra, which it describes as "our national monopolistic hero".

"Whatever issues that their foreign CEO may talk about can be overcome," it says. "The bottom line is, Fonterra does not want the competition. They don't want to have a company that can afford to pay farmers more for milk (because it makes more margin on the sale of the finished product rather than selling milk powder). You will recall a certain other monopoly by the name of Telecom who had similar ideas - look what happened to them because they focused on stopping the competition."

The firm also makes the point that the current portfolio of Crafar farms that are up for sale totals less than 9000ha - or less than 1 per cent of all available pastoral land in New Zealand. And it points out that since January 2005, the Overseas Investment Office has approved 150,000ha of land for sale to overseas owners.

What the newsletter doesn't mention is that the Crafar farms are just a starting point for Natural Dairy, which has announced plans to spend up to $1.5 billion buying dozens more farms and building up a dairy business here. If those plans were to go ahead, it could become the largest single owner of dairy farms in New Zealand.

While farmers and the public have been understandably sceptical about the proposal, given the firm's limited experience in the dairy industry and the business reputations of some of its key players, many concerns have also arisen from within the Chinese community itself.

Since last week's article outlining the business background of Jack Chen and others involved in Natural Dairy, The Business has been contacted by many people who claim to know Chen and his associates, questioning their motives.

Neither Chen, colleague May Wang, nor anyone from Natural Dairy, has been in touch.