KEY POINTS:
The search for greater primary sector profits through overseas expansion has been highlighted by farm services and supplies giant PGG Wrightson and kiwifruit exporter Zespri.
Their motives for overseas developments are a little different but - elements of self-interest aside - clearly aimed at significantly cranking up returns
to growers, farmers or other shareholders.
PGG Wrightson's announcement on Friday of an investment offering seeking up to $150 million to develop dairy and beef farms in Uruguay appears a sound strategic move.
The rationale behind New Zealand Farming Systems Uruguay (NZFSU) is simple: buy land for a much lower price than here, apply New Zealand techniques to massively boost productivity and, hey ho, up goes your rate of return compared with that available in this country.
Of course, whether the venture can achieve what it hopes remains to be seen.
But what may prove attractive, for Fonterra dairy farmers and others facing lower incomes and higher costs, is the chance to diversify risk and reduce exposure to their co-ops. Fonterra farmers, and suppliers to other dairy companies, are obliged to have significant capital locked up in their dairy companies.
It's understood the Dairy Equity scheme - which is offering to swap cash for beneficial rights in Fonterra shares - will this week announce a special deal to dairy farmers to coincide with the NZFSU offer.
Interestingly, ABN Amro Craigs, the lead manager for the NZFSU offer, was the joint promoter of the Dairy Equity float.
PGG Wrightson and NZFSU director Craig Norgate says he wants to give farmers a chance to get a slice of international action "because otherwise they just end up with their heads in the sand and the competition coming".
While that might sound like promoter's hype, Norgate does point out his Rural Portfolio Investments is planning to stump up $10 million for the scheme - a good PR line in itself but a significant slice of dosh nonetheless.
More overseas farming offers are being talked about. Norgate also says PGG Wrightson is looking at Chile, then Argentina and Brazil, once the Uruguay operation is fully functioning.
Meanwhile, kiwifruit exporter Zespri is seeking to grow from a $1 billion to a $2 billion company within a few years, with overseas expansion playing a significant part in driving that. Currently, Zespri's international growing operations include Chile, California, Italy, Korea and Japan, while it will soon get going in China.
These orchards are designed to help Zespri supply its branded products all year round.
With Zespri kiwifruit currently attracting a 30-40 per cent premium because of its brand and quality, CEO Tim Goodacre says foreign growers are keen to sign up for a slice of that extra return.
Zespri notes kiwifruit is still a small part of the overall fruit market, providing plenty of opportunity for growth. So ramping up supply - from both existing and new growers - globally has strong potential to increase revenue.
Goodacre notes New Zealand will never be a low-cost kiwifruit producer, meaning a strong brand, high quality and constant innovation will be important for boosting earnings.
So his spirited defence of Zespri's export monopoly - on the grounds that certainty of supply helps ensure stronger marketing and R&D spending - makes sense.
But growers will want to see hard results if they are to continue to have faith in the current system. Zespri has ambitious growth targets - now it will be up to whoever succeeds Goodacre to ensure the company uses its privileged position well to deliver the goods for growers.
Ultimately, results are what farmers and growers want, whether taking a punt on PGG Wrightson in Uruguay, supporting the status quo at Zespri, compulsorily buying shares in meat company PPCS, or handing over significant sums of capital to Fonterra to help fund overseas expansion. But getting it right is not just about farmers and growers - it's also about ensuring we generate the returns necessary to ultimately support development of the wider economy.
Wine to watch
The New Zealand Wine Fund - which is set to join the elite ranks of New Zealand's category three wine producers - looks like one to watch.
NZ Wine is a private equity-style investment fund set up by David Belcher's Clavell Capital in 2002 to be a significant producer of premium and ultra-premium New Zealand wine, particularly Marlborough sauvignon blanc.
It is acquiring Clifford Bay Estate in Marlborough. Clifford Bay's 40,000 cases per year production will mean all of NZ Wine's operations will produce more than 260,000 cases a year, making the fund the latest of seven top-ranking, category three producers.
NZ Wine - whose wealthy shareholders include National Business Review publisher Barry Colman and former TVNZ CEO Brent Harman - is believed to be paying just under $10 million for Clifford Bay. Earlier this year it paid more than $10 million to control Goldwater wines.
As a private equity-style operation, there may soon come a time when NZ Wine shareholders look to cash in on their investment through a public float or trade sale; or they may like the thought of becoming an even bigger player in the wine sector.
Colman - a 30 per cent fund shareholder - is certainly no shrinking violet when it comes to taking a punt, while fellow directors Belcher and Vavasour Wines managing director Peter Scutts are also enthusiastic promoters of the industry's prospects.
