Shanghai Pengxin yesterday jumped into the PR war by labelling an offer by the Sir Michael Fay-led consortium for the 16 Crafar farms as a "phantom bid" which would result in fewer economic benefits to New Zealand than its own conditional bid.

The Chinese firm's response appears to signal a renewed determination to take the PR battle directly to the Fay-led consortium, which it alleges had pulled numbers "out of thin air" in its own latest submission to the Overseas Investment Office.

Irrespective of Shanghai Pengxin's press statement, it would appear very likely that the whole issue will soon be bogged down in front of the courts for what could be a lengthy legal war of attrition. But so far there is no indication the Chinese firm will blink.

The Fay-led consortium - which formally goes under the name Crafar Farms Independent Purchaser Group - upped the stakes on Monday by serving notice it would seek to appeal Justice Forrie Miller's findings on the first ground of the judicial review.


The group claims the judge made an error in finding the OIO and two cabinet ministers did apply the correct test under section 16 (1) (a) of the Overseas Investment Act 2005 when they approved Shanghai Pengxin's application to buy the Crafar farms.

That section requires the individual or individuals who control Milk New Zealand (Shanghai Pengxin's the bidding vehicle) to collectively have business experience and acumen relevant to the overseas investment.

Justice Miller discounted the consortium's claim during the judicial review hearing that direct experience in the dairy industry should be a pre-requisite to acquire the farms.

But while the consortium's latest tactics will slow things down, it does give the Government an opportunity to also enter the fray by launching its own appeal against the Miller judgment.

At his post-Cabinet press conference this week, John Key appeared to leave that option open. Key confirmed that the Government would seek an opinion from Crown Law before making a decision.

One avenue that Crown Law will no doubt consider is the presumption from the Miller judgment that vendors' rights no longer matter. And that an overseas bidder must bring more to the table than a local player could.

Yesterday the OIO had yet to work out how the Fay-led consortium's legal tactics would affect the timing of its own recommendations to ministers following Miller's direction to go back to the drawing board and reassess Shanghai Pengxin's bid in light of his judgment.

The door is open to Shanghai Pengxin to change aspects of its original application. The OIO said yesterday this often happens during the application process as "applicants refine their applications and agree to conditions of consent."


It is not hard to foresee an outcome where the Chinese firm submits a new application which places stronger emphasis on the value proposition to New Zealand from its proposed joint-venture with Landcorp to manage the 16 farms, and on its plans in the export space.

It is also not hard to see that if that application is recommended for approval, then approved by Cabinet ministers, that it will again be challenged through a new judicial review.

The Crafar farms saga will continue to play out.

But the whole issue of farm ownership is an emotive one.

The Government could usefully ensure a full study is taken into the foreign ownership of New Zealand farmland and agribusinesses to ensure a factually-based debate.

The OIO controls foreign investment in "sensitive land" - any parcel of non-urban land of 5ha or more falls within this category.


The office considers a range of potential economic benefits when evaluating a foreign application.

But it does not specifically recognise the broader benefits from foreign investment, nor is it required to examine investment by foreign governments.

A study by the Australian Bureau of Agricultural and Resource Economics and Sciences (Abares) reports that the overwhelming majority (98 per cent) of applications by foreign investors to purchase farmland in New Zealand are approved.

"To the extent that foreign investment is effectively deterred by the act, the economic cost could be considerable," said Abares.

"New Zealand is considered to be short of capital. It has a small pool of savings available for domestic investment, and incoming capital is of considerable benefit to the economy."

The November 2011 report into Foreign Investment and Australian Agriculture noted the Overseas Investment Act was distortionary, saying it deterred investment in land relative to other capital.


"Some joint ventures have been artificially structured to leave a land ownership component in New Zealand hands with other capital owned by the foreign investor."

It also pointed out that foreign debt is not restricted by the OIA.

"To the extent that the OIA restricts foreign equity in New Zealand land, it is likely to have increased foreign debt. Increased use of debt in place of equity will lead to upward pressure on domestic interest rates, increasing the risk of exposure to economic shocks."

Abares went on to note that there was a lack of hard data on foreign farmland ownership in New Zealand. But indications were that foreign ownership of land is fairly low. It pointed to a 2010 study that said of the approximately 600 dairy farms which changed hands annually, a maximum of 0.5 per cent went to foreign purchasers.

Among the 34 OECD member countries, New Zealand is also the seventh most restrictive recipient of foreign direct investment in agriculture according to the OECD.

These realities don't take away the need to consider whether New Zealand does have the right framework for assessing foreign investment in farmland.


But they do underscore the fact that the level of farm sales to date to overseas buyers does not pose an imminent threat to the economy.