Fran O'Sullivan: Dividing lines over Landcorp sell down

Farm prices are holding steady despite lower dairy prices.

Why is the Government effectively forcing Landcorp to sell down its farm portfolio at the bottom of the market?

That's the question in dairy farming circles.

Sure, it might enable younger aspiring farmers -- and share milkers -- to buy farms at a more favourable entry price (assuming they can get bank backing). But there is risk that too many farms coming on to the market, while the commodity cycle is bumping along the bottom point, will depress overall values.

Finance Minister Bill English floated the prospect of a farm sell-down after he became concerned that the Government might be left "tail-end Charlie" -- as happened with Solid Energy - if the commodity slump persisted.

Cabinet Minister Todd McClay says the company has $250 million or so of debt over an asset base worth some $1.6 billion.

The financial results for Landcorp will be released next week.

Yesterday, the Real Estate Institute reported that farm prices had been holding relatively steady despite widespread fears lower dairy prices would force down land values.

Compared with July 2014, the Reinz Dairy Farm Index has fallen by 12.1 per cent.

Landcorp owns 137 farms and employs 692 staff. It also manages 226,692 hectares of farms; more than the 158,394 hectares in ownership.

But selling off farms may not prove a quick fix to shore up Landcorp's balance sheet. There are Treaty of Waitangi issues that complicate the sales processes.

In any event, McClay's suggestion he would like to see New Zealanders buy the farms will not be fulfilled unless the Government gives a direction to the Overseas Investment Office to give Kiwis priority -- something that is highly unlikely under NZ's current foreign investment regime.

Landcorp could also usefully obtain new equity through the Government selling a holding to the NZ Super Fund.

But (so far) the Government is ignoring that option.

The whole issue is sparking a dividing line at political level.

The Greens and Labour have said the Government must rule out mass sales of Landcorp's 137 farms to overseas interests.

They are concerned that 5 per cent of New Zealand's agricultural land has been sold to offshore buyers in the past five years.

The Opposition's claim that the SOE is vulnerable due to the Government's "hands-off approach" will resonate.

They have said that allowing Landcorp to plough ahead with its dairy conversions despite their impact on the environment, other farmers, and Landcorp's declining earnings, is another example of National's economic mismanagement.

Perhaps, a "line in the sand" has been reached now that Opposition parties are saying, in unison, that the value proposition from dairy needs to be more critically evaluated.

It is a subject that will spark widespread debate.