Spending millions of dollars on a Saudi businessman's farm was not "compensation" paid to clear the way for a free trade deal, officials say.

Foreign Minister Murray McCully said a push for a regional trade deal was a key consideration when investing in the farm, but there would be no deal if it did not provide a sound opportunity for Kiwi companies.

New Zealand spent $6 million to help establish a demonstration farm near Dammam, in eastern Saudi Arabia, saying it would be used to showcase New Zealand's agricultural technology.

Almost 1000 breeding ewes were air-freighted from New Zealand to the farm owned by businessman Sheikh Hamood Al Ali Khalaf.


His Sydney-based business partner, George Assaf, told One News this week the fit-out was done to "compensate" the pair for New Zealand's ban on live sheep exports for slaughter. The 2009 ban had cost them hundreds of millions of dollars and the fallout was a reason for a stalled free trade agreement.

The Al Khalaf Group is a big player in livestock transportation, and has farming interests in Hawkes Bay with two properties totalling 2150ha.

After touring Saudi Arabia and other Gulf states last month, Prime Minister John Key told media there was no issue of a disgruntled Saudi investor opposing a deal.

Labour's trade spokesman David Parker said if the statements attributed to Mr Assaf were true, the farm investment was disgraceful.

"You shouldn't buy free trade agreements. You shouldn't have to do special favours for powerful people," Mr Parker told the Weekend Herald.

"I think [the Government] is undermining the business ethic in New Zealand and the international reputation we have."

In a statement, Mr McCully said it was estimated the Al Khalaf Group had contributed about $80 million in land, labour and finance towards the project.

"This agri-hub is a mutually beneficial project with 30 New Zealand businesses attached to it. The companies each stand to gain ...


"While furthering our FTA ambitions with the Gulf states was a key consideration in the establishment of the hub, the investment, and our wider food security co-operation partnership with the Gulf states, would not have gone ahead if it did not provide a sound opportunity for New Zealand companies."