Landcorp should be lined up for a partial privatisation to inject new private capital into the company instead of selling off farm assets at the bottom of the dairy cycle.
Bill English is pressuring the Landcorp board to realise significant farm assets now to reduce its debt exposure.
His statements over the past 48 hours effectively rule out any stabilising role for Landcorp in the market for dairy properties if the going gets rough.
The Finance Minister's pressure tactics also risk spooking the market, causing fallout that will affect asset prices across the board if dairy farms are sold in big numbers.
That won't be good for anybody - particularly those New Zealand dairy farmers who have yet to build significant equity in their farm holdings and/or are over-leveraged.
Such a precipitate government move could also neutralise the undeclared hand-holding operation that the major trading banks have put in place to see out the commodity downturn.
Selling farms at the bottom of the cycle could produce opportunities for sharemilkers - and others - to get into farm ownership at more attractive entry prices. But it's just as likely to spark interest from well-capitalised overseas investors that can afford to amass extensive landholdings.
There are other options.
Injecting private capital from long-term investors such as the NZ Super Fund and possibly also major iwi corporations such as Ngai Tahu and Tainui into Landcorp at an appropriate discount rate would achieve five important things.
First, it would shore up Landcorp's balance sheet and diversify government risk that it would have to inject capital at a later date.
Second, it would ensure Kiwi investors stand behind what successive Governments have spruiked as a major growth story for New Zealand.
Third, it would introduce private sector disciplines and better monitoring of the shareholders' investments. That could only be good for both the Government, which would remain the major shareholder, and other stakeholders.
Fourth, it would keep the assets "in the family" and reduce political risk from the Government's perspective.
Fifth, it would provide options for other more politically palatable foreign investment opportunities to be developed such as leasing Landcorp-owned farms to overseas investors with the ownership retained in New Zealand hands.
The NZ Super Fund can take a long view and ride out the cycles. So, too, can KiwiSaver funds.
Landcorp should also be subject to a full strategic review.
The SOE's PR firm said yesterday that at December 31, 2015, "Landcorp has bank debt of around $220 million, which is approximately 12 per cent of its total assets of $1.7 billion".
It is not clear if the PR firm was sugar-coating. Landcorp's unaudited statement of its financial position at December 31, 2014, recording overall liabilities of $359 million against total assets of $1.846 billion on the balance sheet, which is still conservative by industry standards.
The SOE's full financial results for 2014/15 will be released next week with a full update from chairman Traci Houpapa.
CEO Steven Carden stressed yesterday that Landcorp ran a conservative balance sheet, with low levels of debt relative to its assets. The company worked hard to remove risk from its business, as evidenced by its full support of Fonterra's guaranteed milk price over the past three years, plus its work to build high-value contracts in its wool and meat businesses. He noted that Landcorp ran a diversified business with income coming from dairy, red meat, wool and forestry, further reducing risk.
He said that future plans at Wairakei Estate remained under review as Landcorp determined the optimal economic and environmental use of that land. It was a long-term lease (40 years) and the company was not looking to revoke it. While Carden said that Landcorp had moderately increased its debt over the past few years to fund some dairy conversions in the central plateau and Canterbury, those developments were based on long-term views of dairy payouts.
This carefully worded paragraph glided over the fact that those long-term views should be subject to stress testing given the extent of the price slump.
Clearly English has been spooked by what happened with Solid Energy, which effectively collapsed as a result of the coal commodities bust.
As the owner of the nation's largest corporate dairy farmer, the Government wants to ensure that Landcorp does not go into a serious loss position. But it has options to ride out the storm. It should take them.