Editorial: Efficiency key criterion for farm takeover

Opinion

The prospective sale of the Crafar family farms - the country's largest privately owned dairy farming business - to a Chinese company is bound to raise some public alarm. The offer from the Hong Kong-listed Natural Dairy (NZ) Holdings, which will need Overseas Investment Office approval, could be the start of significant foreign ownership of New Zealand farms and their products.

Natural Dairy wants not only to buy the 22 Crafar farms now in receivership but aims to raise $1.5 billion eventually for investments in milk processing. It is a long way from ambition to fruition, or even to approval of the farm purchases. Natural Dairy's local subsidiary, UBNZ, has not helped its reception by buying four Crafar farms without seeking the OIO's approval.

Suspecting UBNZ was buying on behalf of its Chinese parent, the office started an investigation and UBNZ retrospectively applied for the required consent. UBNZ's directors include Aucklander May Wang, whose previous business difficulties have been investigated by the Serious Fraud Office. She faces charges brought by the Companies Office over the records of her Dynasty Group, now in liquidation.

The application may fail the OIO's test for reasons that have nothing directly to do with the nationality of the parent company, and indeed that cannot be its concern. But it would be idle to pretend that the prospect of a foreign takeover of so many farms is not the foremost concern of farmers and many other New Zealanders.

A neighbour of one of the Crafar properties probably expressed a common sentiment when he told the Herald, "I don't really trust the Chinese ... There's a lot of money to be made in China by selling our products, but they do things a lot differently to the rest of the world and they don't seem to be too worried about what the rest of the world thinks."

A less-prejudiced view was heard from a spokesman for a "Productive Economy Council", who said it was nonsense that it did not matter where productive assets resided. Land might not be an asset that can be uprooted and taken overseas, but its foreign ownership raises the prospect of New Zealand farmers becoming tenants at best and possibly employees.

But it would be a mistake to let these fears prevail. Corporate farming is not yet an unmitigated success in this country. Carter Holt Harvey is disposing of 29 farms that it recently converted from forestry. Four of the Crafar family companies have been placed in receivership reportedly owing $200 million.

Two years ago, rural industry analysts were confidently predicting that the amalgamation of farms into increasingly bigger dairy units and the rising cost of land spelled the end of the family farm. But maybe not. The commitment of time and attention needed to keep a New Zealand farm profitable might be more suited to individual ownership than corporate management.

The important thing is not to preclude any form of ownership. The health of an export industry depends on its ability to develop the most efficient organisation possible. Foreign or multinational ownership could be the source of maximum efficiency, providing the capital and scale that enable New Zealand products to compete.

Fonterra is one such multinational, with holdings in China among other places. Its farmer shareholders can hardly object to foreign farm ownership here. The prospect of a big rival processing venture buying milk from New Zealand farmers may be unsettling for Fonterra, but it ought to face the competition.

If Natural Dairy is turned down, it must be on good grounds, not mere prejudice or protection. This bid will not be the last.