Ministers approve Crafar farms bid

Land Information Minister Maurice Williamson and Associate Minister of Finance Dr Jonathan Coleman have accepted the recommendation of the Overseas Investment Office (OIO) to grant consent to Milk New Zealand Holding Limited (Milk New Zealand), a subsidiary of Shanghai Pengxin Group Co. Limited, to acquire the 16 Crafar farms.

"It is clear that all criteria under sections 16 and 18 of the Overseas Investment Act 2005 have been met, therefore we accept the recommendation of the OIO to grant consent," Mr Williamson said.

"We are satisfied that Milk New Zealand's application for consent meets the criteria set out in the Act," Mr Coleman said.

The approval follows the receivers, KordaMentha’s acceptance in late 2010 of Milk New Zealand’s bid for the farms.

Milk New Zealand’s acquisition will further support the supply of high quality dairy products into the Chinese market and help set the foundations for further economic and export opportunities with China.

Stringent conditions policed by the OIO will ensure that Milk New Zealand's investment delivers substantial and identifiable benefits to New Zealand. These include investing more than $14m into the farms making them more economically and environmentally sustainable; protecting the Nga Herenga  and the Te Ruaki pa sites and improving walking access to the Pureora Forest Park and Te Rere falls.  An on-farm training facility for dairy farm workers will also be established.

A copy of the OIO's recommendation is available at:
http://www.linz.govt.nz/sites/default/files/docs/overseas-investment/oio-recommendation-crafar-farms-20120127.pdf

A copy of the OIO’s Decision summary is available at:
http://www.linz.govt.nz/sites/default/files/docs/overseas-investment/decision-summary-milk-nz-holding-limited-201110035.pdf

OIO background information is available at:
http://www.linz.govt.nz/sites/default/files/docs/overseas-investment/oio-background-information.pdf

 

Questions and answers

Which Ministers made the decision?

The deciding Ministers were Associate Minister of Finance Hon Dr Jonathan Coleman and Minister for Land Information Hon Maurice Williamson.

What were the criteria for consent? 

After a comprehensive review and consideration of the OIO’s recommendation, Ministers were satisfied that Milk New Zealand met all of the relevant criteria in the Overseas Investment Act 2005, and therefore accepted the OIO’s recommendation to grant consent.

The "substantial and identifiable benefit to New Zealand" criteria were satisfied by particular reference to the following factors:

• Creation/Retention of jobs - section 17(2)(a)(i)
• Increased export receipts - section 17(2)(a)(iii)
• Added market competition/productivity - section 17(2)(a)(iv)
• Additional investment for development purposes - section 17(2)(a)(v)
• Increased processing of primary products - section 17(2)(a)(vi)
• Indigenous Vegetation/Fauna - section 17(2)(b)
• Trout, salmon, wildlife and game - section 17(2)(c)
• Historic Heritage - section 17(2)(d)
• Walking Access - section 17(2)(e)
• Offer to gift riverbed to the Crown - section 17(2)(f)
• Consequential Benefits - regulation 28(a)
• Advance significant government policy or strategy - regulation 28(f)
• Economic Interests - regulation 28(i)

What are some of the proposed benefits Ministers considered before granting consent?

Benefits considered by Ministers included the intention of Milk New Zealand to invest more than $14m in the properties to make them more economically and environmentally sustainable.

Milk New Zealand will also ensure protection of two important pa sites (the Nga Herenga pa and the Te Ruaki pa), and provide improved public walking access to the Pureora Forest Park and Te Rere falls.

Milk New Zealand will also establish an on-farm training facility for dairy farm workers.

Milk New Zealand intends to engage Landcorp Farming Limited (Landcorp) to manage the farms. The Overseas Investment Office considers that the involvement of Landcorp makes it more likely that the expected benefits will occur.

In addition, Ministers have imposed comprehensive conditions of consent on the company to ensure that the benefits proposed by Milk New Zealand are delivered.

What conditions of consent did the Ministers impose on Milk New Zealand?

Conditions of consent imposed by Ministers include the following: The individuals with control of Milk New Zealand must continue to be of good character

• Milk New Zealand must invest a minimum of NZD $14m in the properties
• Milk New Zealand and their associates must not acquire an ownership or control interest in milk processing facilities in New Zealand unless a 50% or more ownership or control interest in those facilities is held by non-overseas persons
• Milk New Zealand must establish an on-farm training facility for dairy farm workers and must meet the capital cost of establishing this facility
• Milk New Zealand must give two scholarships of not less than NZD $5,000 each year to students of the on-farm training facility with the first two scholarships to be awarded by 31 December 2013
• Milk New Zealand must use reasonable endeavours to assist Landcorp to extend its business to, and market its products, in China
• Milk New Zealand must provide public walking access over Benneydale Farm and Taharua Station, in consultation with the Department of Conservation  and the New Zealand Walking Access Commission
• Milk New Zealand must take reasonable steps to protect and enhance existing areas of significant indigenous vegetation and significant habitats of indigenous fauna and flora on the properties
• Milk New Zealand must register a heritage covenant in respect of the Te Ruaki pa site on Tiwhaiti Farm
• If required by the Office of Treaty Settlements, the Applicant must transfer the Nga Herenga pa site (approximately 1.6ha located on Benneydale Farm) to the Crown for nil consideration.

Milk New Zealand agreed to all conditions of consent imposed by Ministers.

How did Milk New Zealand satisfy the business experience and acumen requirement?

The Overseas Investment Act 2005 requires the individuals with control of the relevant overseas person to collectively have business experience and acumen relevant to that overseas investment.

The level of business experience and acumen required to satisfy this condition may vary according to the nature of the investment.  In this case, the overseas investment is the acquisition of a large corporate farming business. The Ministers considered that the individuals with control have sufficient business experience and acumen to operate a large business of this nature.

Milk New Zealand is a subsidiary of Shanghai Pengxin Group Co. Limited, a fast growing international agribusiness which includes investment in sheep breeding, wheat, soy and maize production in China and South America.

Shanghai Pengxin has obtained advice from leading New Zealand consultancies such as Perrin Ag, Landcorp and PwC. Shanghai Pengxin will also employ two New Zealand directors and an independent chairman to the board of Milk New Zealand.

Was the Ministers’ decision influenced by New Zealand’s Free Trade Agreement with China?

No.  Ministers were satisfied that Milk New Zealand met all of the relevant criteria under the Overseas Investment Act 2005.  Ministers can only have regard to the criteria and factors outlined in the Overseas Investment Act 2005.

Every application is decided on its individual merits and the outcome would be the same even if New Zealand did not have a Free Trade Agreement with China.

What is the total land area of the Crafar farms?

The 16 Crafar farms have a combined area of approximately 7,893 hectares.

How much agricultural land has been the subject of consents granted in the last two years?

In the last two years, consent was granted for overseas persons to acquire 357,056 hectares of agricultural land. 

Where did the investors that gained consent to acquire land for agriculture over the last two years come from?
Consents granted involving agricultural land by country of majority ownership, are:

• United States to acquire 25,306 hectares of farm land
• Germany to acquire 6,834 hectares of farm land
• Switzerland 9,727 hectares of farm land
• Australia 3,861 hectares of farm land
• United Kingdom 22,600 hectares of farm land
• Hong Kong to acquire 759 hectares of farm land.

Excluding Hong Kong, there were no other consents granted to Chinese investors to purchase land for agriculture during the last two years.

What happens if Landcorp decides not to manage the properties?  Would consent be revoked?

If Milk New Zealand does not enter an agreement with Landcorp to manage the farms, the conditions of consent require Milk New Zealand sell the properties.  All conditions of consent will be strictly monitored by the OIO.

Why did it take so long for the OIO to assess Milk New Zealand’s application?

Milk New Zealand’s application was extremely complex due to the number of properties involved, with each having its own unique issues that the OIO needed to consider.

For applications like Milk New Zealand Holdings Limited, the OIO aims to make decisions within 70 working days, excluding the time it takes for an applicant to provide information requested by the OIO and for Ministers to reach a decision.

The OIO took a total of 54 working days to assess the application and Milk New Zealand took 123 working days in total to provide information requested by the OIO. 

Why didn't Ministers or the OIO let the consortium led by Sir Michael Fay buy the farms?

It is important to note that Ministers and the OIO were not involved in accepting the bids for the Crafar farms.  This question is best directed to the receivers, KordaMentha.

What impact will the legal proceedings filed by the consortium led by Sir Michael Fay have on the consent granted to Milk New Zealand?

We cannot comment as this matter is currently before the Court.