New Zealand spent more than $11.5 million to help establish a demonstration farm in Saudi Arabia after Foreign Minister Murray McCully warned Cabinet not doing so would worsen a "serious bilateral relationship issue".

A spend of $6 million on equipment and animals for the farm near Dammam has previously been heavily criticised by opposition parties as an effort to buy a free trade agreement.

After being questioned on the deal today, Mr McCully released a document that was previously presented to Cabinet in February, 2013.

It shows that in addition to the $6 million, the project had an initial $4 million cost.


The total cost is around $11.5 million after more funds to air-freight almost 1000 breeding ewes from New Zealand to the farm owned by businessman Sheikh Hamood Al Ali Khalaf.

His Sydney-based business partner, George Assaf has said the fit-out was done to "compensate" the pair for New Zealand's ban on live sheep exports for slaughter.

The 2009 ban, implemented by the Labour Government and extended by National, had cost them hundreds of millions of dollars and the fallout was a reason for a stalled free trade agreement.

The farm and its equipment and livestock, while able to be used as a demonstration model to promote New Zealand agribusiness, is entirely owned by the Al Khalaf Group.

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

In the document released yesterday, Mr McCully warned that the ban on sheep exports "poses a major threat to New Zealand's trade and economic interests".

"Even if we achieve nothing more than the removal of the source of major aggravation in the relationship, while creating a hub for New Zealand businesses to launch into the Middle East and Africa, [the farm] proposal would be justified," Mr McCully wrote.

Mr McCully said the Saudi investors had indicated they had received legal advice suggesting they pursue a claim for between $20 million and $30 million.


After touring Saudi Arabia and other Gulf states in April, Prime Minister John Key told media there was no longer an issue of a disgruntled Saudi investor opposing a deal, however he said Saudi Arabia was not as enthusiastic as other members.

In Parliament today, Green MP James Shaw questioned how the New Zealand ewes were faring in the heat of Saudi Arabia, and whether it was suspicious that the company that won the tender to fly the sheep over was part owned by Mr Al Ali Khalaf.

Mr McCully said the Greens were hard to please on welfare, as the sheep had been flown on Singapore Airlines.

"If the member is telling us that he wants to fly them business class next time that's something we'll give consideration to."