Fran O'Sullivan: Much at stake in Crafar court ruling

Photo / Christine Cornege

It was hard to suppress the image of a black-singleted John Clarke singing, "If it weren't for your gumboots, where would ya be?" when I took part in a Federated Farmers debate on foreign ownership.

The proposition that "if foreigners want to own dairy farms in New Zealand, they should put on their gumboots and come and live here", got plenty of spirited backing from the floor at the Feds' National Conference in Auckland last Thursday.

It's fair to say that not all of those in the audience wear gumboots on a regular basis these days. A good deal still do. But more than a few are in the investor category.

The intensity of the debate was tempered by support from those that wanted a free-market approach by allowing sufficient offshore investors into the market to put a floor under farm land prices.

Some wanted additional provisos. These ranged from ensuring foreigners should maintain their shareholdings in Fonterra, to alternatively placing requirements on investors to place additional investment into added value processing and brand development in New Zealand.

But while many delegates felt the Government should make sure the overseas investment rules in this area are more transparent, Feds chief executive Conor English was adamant that the upshot of the present court challenge to the Crafar farms sale would provide sufficient clarity.

There was no need for a full-scale revision of the Overseas Investment Act 2003. Or an Australian-style Foreign Investment Review Board.

Federated Farmers leadership clearly believes sufficient clarity can be brought to the New Zealand foreign investment regime for farm land ownership through a series of court decisions. But the view from offshore investors is not so cut and dried.

Legal firms report that potential investors, not just in agricultural land but also businesses worth more than $100 million on "sensitive land", prefer a more transparent regime.

At issue is their fear that it they get ministerial approval to buy an asset, they might still find themselves up against potential legal challenges from New Zealand buyers out to get the asset at a cheaper price by arguing that they don't bring more additional value to the table than an NZ-domiciled buyer would, or don't have the relevant expertise to run the asset.

There is a lot riding on the Court of Appeal hearing into the latest challenge to the sale of the Crafar farms to Chinese firm Shanghai Pengxin.

The Feds' debate had been sparked by the furore over the sale to Chinese firm Shanghai Pengxin which is being legally contested in Wellington this week.

This is the second time the Crafar Farms Independent Purchaser Group (aka former merchant banker Sir Michael Fay and two North Island iwi, Tiroa E and Te Hepe B Trust ) have contested the Overseas Investment Office approval process. Shanghai Pengxin had to redraw its application after the High Court sent Cabinet ministers back to reassess the application.

Now the Court of Appeal is considering whether Shanghai Pengxin meets the investor test.

The challengers want the court to rule that Shanghai Pengxin - which has investments in sheep farms but is only just getting started in dairy - does not have the relevant expertise to meet the investor test.

Crown Law (which is arguing on behalf of the Cabinet ministers who approved the deal) maintains that Shanghai Pengxin had the business acumen to acquire the relevant dairy expertise by forming a joint venture with Landcorp and that the Chinese firm's broader business skills will bring something more to the mix.

Many recently approved foreign investors in New Zealand dairy farms - like film-maker James Cameron - are hardly going to be "putting on their gumboots" to run their farms here. Neither will the directors of the Harvard University funds, which owns a sway of farms here.

Nor the many German and Swiss investors who have shares in various dairy partnerships.

If the court finds in the challengers' favour this will effectively circumscribe the ability of farm owners to sell farms on the external market. It should be noted farm owners do have to advertise their land within New Zealand first.

Shanghai Pengxin chairman Jiang Zhaobai has yet to settle the $200 million-plus acquisition for the Crafar farms.

The billionaire will have to confirm the company's lines of credit in China once all NZ approvals are confirmed.

The company also needs to get final approval from the Shanghai Foreign Exchange Commission, which is dependent on the court process being finished.

The unfortunate aspect of this protracted battle is that what Shanghai Pengxin will ultimately bring to the table is a work in progress.

For instance, it is in talks with Fonterra over the possibility to form a joint venture as part of Fonterra's China farm expansion plans. It has received approval from the provincial government to set up 30 dairy farms in Anhui province, near Shanghai.

This is clearly a fast-moving situation. Unfortunately for Shanghai Pengxin, the Court of Appeal's decision will be based on its original application. Not on what has happened since, or, might happen in the future if Shanghai Pengxin leverages the deal as expected.