Following the Crafar Farm sale, challenged in the court by a New Zealand group led by Sir Michael Fay, the Government tightened criteria around farmland sales.
A trigger point of four times the average farm size meant there also needed to be economic benefit to New Zealand.
The court also instructed the "visible and identifiable" benefit must be a benefit over and above what a New Zealand purchaser would do.
Lochinver is a substantial property -- 10 times the trigger level to require "economic benefit". The OIO advised the sale should proceed but the decision was "finely balanced".
The ministers disagreed and turned down the application.
Foreign ownership has been keenly discussed by Federated Farmers for some time. On the one hand there are those who consider it a property right to be able to sell to the highest bidder wherever they may be in the world.
On the other hand there are some who worry that sale of land to foreign interests is akin to selling the family silver. This I am sure reflects the range of public views.
Federated Farmers welcomes foreign investment, however we are cautious of land aggregation (buying of multiple farms) and of vertical integration (the purchase of farms and the processing facilities). Such vertical integration gives no opportunity for the market, from a New Zealand perspective, to intervene.
As land aggregation to any single entity increases we consider the benefit test should increase.
Sure Lochinver, it is purported, would have netted $88 million, $20m over and above what a New Zealander was prepared to pay, and this would have been recycled back into the economy, but we must also remember that it is a one-off fee and we have traded away an asset not created income.
With 35 farms already in their portfolio and Lochinver adding the equivalent of about 40 farms, Federated Farmers would have liked to have seen a significant economic benefit associated with the sale. Perhaps Shanghai Pengxin could have brought to New Zealand some significant technology or provided other New Zealand producers a pathway to market through collaboration or joint venture.
This brings us to the announcement that Silver Fern Farms (SFF) is planning to go into joint venture with Shanghai Maling -- a Bright Foods subsidiary and the largest meat processor in China.
The joint venture would own the assets and the business which is now Silver Fern Farms, leaving the co-operative as a holding company.
The deal with Shanghai Maling provides significant access to the Chinese market. According to public statements processing will continue in New Zealand.
While the deal is a 50:50 joint venture, the Chinese have a casting vote over the hiring and firing of the chief executive and over the joint venture's strategy -- the two most important functions of any board.
Meat industry reform has languished for many years and this deal is a significant move.
Alliance, it seems, have dragged their feet on amalgamation of the two co-operatives, considering themselves to have the stronger balance sheet and greater survivability.
However, others questioned their strategic strength with processing plants in a country which is increasingly turning to dairy and little in the way of brand development.
They've been left flatfooted by this move and time will tell if it's their eventual undoing or an opportunity to attract greater supply.
The SFF deal does not trigger land aggregation nor vertical integration concerns for Federated Farmers.
Like the Lochinver sale, there is a one-off sale aspect to this deal, but it also promises new opportunities and benefits at a cost.
While SFF is a large player in the meat industry, farmers have the option to supply elsewhere if they are not satisfied with the outcome. This is an important protection.
Supplier shareholders, like me, have a big decision ahead and will need to weigh up the deal very carefully. This is not just about the company, but also the future structure of our industry.
We are not a country of savers and have thin capital markets to show for it.
Sheep and beef farmers, for various reasons, have not been enthusiastic investors.
We need foreign investment in New Zealand to realise the opportunities we have. We also need to ensure that investment does not unduly restrict our choices in the future.
