Corporate
Agriculture/Free Trade Contradictions Bite Home
- Dennis
Small
“New
Zealand is well situated to be a supplier of raw materials to rich
neighbours, a home to well fed peasants who hopefully would not
unsettle things for the outward looking elites” (Simon Upton,
former National Party MP & Cabinet Minister – NZ Herald,
30/12/89).
“Once farm ownership is lost, it is largely irrecoverable.
If you sell your soul for silver, the prize must be compelling”
(Alliance Group Chairperson, Owen Poole – Press,
12/8/08).
“Concentration in corporate power is the defining feature
of today’s global economy” – Action Group on Erosion,
Technology & Concentration (ETC) www.etcgroup.org/
“These spills . . . tell us that our addiction to oil is madness
. . . the spill tells us that this is a stupid way to run our planet”
(The Times journalist Simon Barnes on BP’s oil spill
in the Gulf of Mexico - Press, 3/5/10).
Capitalist globalisation continues to run into accumulating problems.
From deepening debt contortions in Europe, currently epitomised
by Greece and it woes, to the ecological catastrophe in the Mexican
Gulf caused by BP’s oil spill, confrontation between rich
and poor on the streets of Bangkok, and social antagonisms arising
from the bloody drug war spilling over the Mexican border into Arizona
and the rest of the US, market forces have wreaked havoc. Of course,
for the most part the mainstream media studiously and assiduously
obscure the links to capitalist exploitation of people and the environment.
On the other hand, there are yet many conventional economic analysts
and commentators still voicing concern about the fragile prospects
for future growth.
Here, in Aotearoa/NZ, we are thankfully not burdened with any aggressive
social turmoil. One international rating project, the 2010 Global
Peace Index, even lists Aotearoa/NZ “as the world’s
most peaceful country”, and long may it last (Press,
9/6/10). But the growing challenges of foreign corporate control
and environmental limits are now starting to impact heavily on our
most important primary industry, agriculture. Indeed, dispute is
rapidly rising over our natural resources, their use, and consequences.
Water is a special focus for conflict. As well, the inequalities
and distortions inflicted on our socio-economic system by the external
and internal agents of globalisation are deepening and consolidating
in their effects. We certainly need to better address these conflict-inducing
conditions before they eventually turn nasty.
Restructuring And Corporate Concentration
As we have long predicted and monitored, the corporatisation of
NZ agriculture has increasingly meant the decline of the family
farm and mounting foreign control. This has been a function of a
worldwide process of the global corporatisation of agriculture.
In his authoritative “Rural Geography: Processes, Responses
and Experiences in Rural Restructuring” (Sage Pubs., 2005),
Michael Woods used NZ data in a summary table to demonstrate how
far corporate concentration had already proceeded in primary processing
by the early 1990s. For example, in “meat freezing”,
the measured level of concentration had gone from 37.5% in 1960
to 67% in 1992; and in “dairy”, from 42% to 75% over
the same period (p49).
Inherent in this worldwide rural restructuring process as engendered
by globalisation, “there has been a spatial effect as traditional
agricultural geographies have been remoulded. The concentration
of agricultural production included regional specialisation in production
sectors such as dairying and fruit farming” (ibid.). In Aotearoa/NZ,
the huge extension of dairying in Canterbury, the West Coast, and
Southland has been the most dramatic example of such spatial remoulding.
“The South Island dairy herd is almost seven times the size
it was 20 years ago” with Canterbury the Island’s largest
dairying region (Press, 14/5/10); and the South Island’s
dairy herd is still growing substantially, up 13% in 2009 to 2.1
million animals (ibid.). “The national herd was now a record
high of 5.9m” while sheep numbers have continued to fall (ibid.).
Inherent in this market-driven process of new monoculture formation
are all the dangers of putting most of our eggs in one basket. Winegrowing
in Marlborough is a lesser example of such geographical restructuring
processes at work, and also a current example of entrepreneurial
over-reach and over-supply.
Application
of agricultural neo-liberalism in Aotearoa/NZ has appealed constantly
to the need to adjust to external market demands. While “the
imperatives of globalisation have been employed as a rationale for
most of this change”, as Robert Fagan points out in regard
to Australia (and by extension to NZ), “policies designed
to encourage new patterns of connection with globalising [capital]
accumulation have resulted from political processes at national
and local levels . . .” (“Local Food/Global Food: Globalisation
and Local Restructuring” in “Geographies of Economies”,
ed. R Lee & J Willis, Arnold, 1997, Ch.16, pp195-208, quote
p200). “The so-called deregulation which has resulted is just
as much an intervention by the State as was the policy regime it
has been designed to replace but often on behalf of different fractions
of capital, and encouraging different connections with different
firms and trading partners. This has been carried out in the context
of dramatic changes in the Pacific Asian region . . .” (ibid.).
Today, “different fractions of capital” reflect the
changing dynamics and fortunes of the broader comprador elite within
Australasia.
Corporatising
Dairy For China
From the perspective of this contextual analysis, the latest significant
intervention by the NZ State has been the highly controversial and
dramatic usurpation of regional environmental control in Canterbury.
The governmental objective is clearly to allocate more of Canterbury’s
severely stressed water resources to corporate dairying, especially
for the Chinese market. The eminently self-serving former Labour
Minister, David Caygill, has been Acting Chairperson of the National
(Party) Government-appointed Commissioners at Environment Canterbury
(ECan). In jackbooted fashion, Agriculture Minister David Carter
has explicitly warned that the fate of ECan is meant to encourage
other regional councils to toe the new line (Press, 29/4/10).
The whole episode has been remarkable for its crude heavyhandedness,
transparency of motive, and clumsy suppression of local democracy.
If this had been an intervention by the former Helen Clark-led Labour
government, there would have been an onslaught of denunciations
by the corporate brigade, the mainstream media, and general Rightwing
elements, despite the fact that the ultimate free trade agenda of
both major parties is pretty much the same. Instead, it has been
left largely to the people of Canterbury to protest this flagrant
abuse of corporatising State power.
Capitalist Water Grab
To be fair, however, whatever valid criticisms can be made of the
Fairfax-owned Press on free trade in general and related
matters, this local newspaper has performed quite well in its coverage
of many of the issues involved. It is, of course, a lot more immediately
and directly accountable to its local readership on such matters,
and a range of informed opinion has been canvassed. A Press
editorial, titled “Under Siege”, even actually remarked
on “the scale and speed of the National Government’s
audacious change in policy direction on the environment, as compared
with Labour’s approach”, including “the sacking
of ECan’s democratically elected councillors” (12/5/10).
The present National government is indeed proving most ominous in
its widespread and accelerating attack on our environment. It is
easily the worst Government for many years in this respect, and
this moreover in an era when environmental matters are more desperate
and urgent than ever before, both globally and locally.
What is so graphically demonstrated here is the ultimately self-destructive
nature of capitalism, and how underlying forces - expressed in profit
maximisation - drive momentum blindly on into an ecological morass,
and consequent fierce competition and conflict over resources. Unfortunately,
the NZ microcosm is more and more mirroring the worldwide macrocosm
instead of modelling genuine alternatives for the future. Yet a
strong groundswell of public action is now under way which may rein
in governmental abuse to some extent. Water action groups like Canterbury’s
OurWaterOurVote and the national anti-privatisation movement, Water
Pressure, coordinated by the inspirational Penny Bright of Auckland,
among other activists, are drawing thousands of people in protests
and rallies. Thankfully, along with the anti-mining movement and
various other environmental and social pressure group activity,
resistance to the National government’s foreign-driven corporate
agenda can only widen and deepen. The long-term danger, however,
is deepening divisions in our society. We need to step up the advocacy
for really sustainable and cooperative development.
Foreign Control of CraFarms?
As dairying consolidates further on the South Island, the impending
fate of some North Island dairy farms may signpost the direction
of environmental and entrepreneurial outcomes for much of NZ dairying
in the fairly immediate future. The controversial CraFarms (Crafar
Farms) sale episode is another “classic” case of NZ
local entrepreneurship creating assets for foreign investors. In
this particular case, instead of say a successful Trade Me ending
up via a straight sale to an overseas corporate like Fairfax and
its media empire, the botched North Island CraFarms outfit may be
disposed of by means of the receivers to some highly suspect Chinese
investors.
At the time of writing, the Overseas Investment Office (OIO) still
has to okay the sale. Although it has raised some questions about
the Chinese venture, the OIO has seemed ready as ever with its rubber
stamp. But this particular venture might be a step too far at this
stage for the National government and the corporatising cabal it
represents. Whatever the outcome here, the case is well worth describing
in some detail because it is so illustrative of the sort of foreign
investment/control which will increasingly be seeking to dominate
our agriculture, often in conjunction with collaborative fractions
of NZ capital. May Wang, the key person involved here, might well
appear again anyway in future foreign investor manifestations.
Wang’s current project has also been reported as looking for
South Island dairy farms and businesses Press, 26/3/10).
Consequences Of Wheeling And Dealing
In Watchdog 123 (May 2010), our indefatigable Secretary/Organiser
Murray Horton waxed lyrical about the seemingly naïve surprise
shown by Federated Farmers over the proposed sale (see “Chinese
Buy Up Dairy Farms. Get Used To It. This Is What A ‘Free Trade
Agreement Looks Like”, http://www.converge.org.nz/watchdog/23/02.htm
Ed.). In the past, of course, Federated Farmers along with
the Government, has been quite happy, even enthusiastic, to encourage
sales of land to foreign interests and promote foreign investment
in farming. But when the scale of purchase seems very much like
a burgeoning large-scale takeover by some very suspect buyers, Federated
Farmers - partly at least anyway - resiles against some of the obvious
implications of free trade. As ever, ironies abound.
The history of CraFarms, the largest family farm enterprise in the
country, is yet another sad saga of local entrepreneurial greed
gone sour for its agents and the wider society, just as we have
recently witnessed with the demise of so many financial companies.
A dairy empire was built up oblivious to a litany of environmental
and animal abuse for which the enterprise was fined a number of
times. Having grossly over-reached itself, CraFarms is now ripe
for the picking. It points to the prospect of NZ farmers being virtually
exploited peasants in their own country for markets in Asia, which
I suppose does aptly turn history on its head to some degree. All
this was once infamously predicted by “blue-greenie”
Simon Upton, former National Party Cabinet Minister, far Right Mont
Pelerin Society acolyte, and Organisation for Economic Co-operation
and Development (OECD) political bureaucrat (see his quote at the
very start of this article).
Suspect Chinese Capitalist Move On Crafar
When Deng Xiaoping, as China’s leader, proclaimed to his people
it was alright for some of them to get rich first, he was instrumental
in helping unleash capitalist forces in Chinese society that will
continue to have earthshaking ramifications in the 21st Century.
Among these ramifications are those represented by the type of
enterprise seeking to take over CraFarms. “Economic reform”
in China since the 1980s has meant that the country was set to become
“one of the world’s major importers of food and energy”
with a constantly expanding appetite for natural resources (“China
without Deng”, D Goodman & G Segal, Imprint,
1995, p94) - just like the global reach of the big Western industrial
countries and others following the same sort of development path.
As we advance into the second decade of the 21st Century, the current
worldwide scramble for natural resources, including for food production,
has heightened China’s urgency to try and grab what and wherever
it can.
The corporate interests lined up for the takeover of CraFarms are
certainly very questionable on a raft of best business practice
standards. As Murray indicated, these matters have already been
widely aired in the mainstream media. So a final decision on the
Crafar farms sale will be another good test for the OIO, exposed
in the past by CAFCA for dereliction on deals like those of Archer
Daniels Midland (ADM) and Cedenco Foods (see again Watchdog
123, “Monkeys With Rubber Stamps: The Overseas Investment
Office, Quentin Findlay, http://www.converge.org.nz/watchdog/23/08.htm
Ed.). We can only hope to be pleasantly surprised at what
will be quite a landmark decision. A summary of key concerns below
highlights the kind of indicators to watch out for in the future
as well.
A
Highly Questionable Venture
The list of question marks over the Chinese takeover of CraFarms
includes:
• the Chinese company concerned was originally a mining company
but is now called Natural Dairy (NZ) Holdings Ltd;
• it is registered in the Cayman Islands tax haven;
• it lists a street address in Hong Kong but without a phone
number;
• May Wang, the person fronting for the investors, “has
two liquidated businesses and owes hundreds of thousands to creditors
and business partners through a failed property and hotel company,
Dynasty Group” (NZ Farmers’ Weekly, 15/3/10).
• Wang’s outfit has already illegally bought four Crafar-linked
farms here, without getting the required OIO approval, and is now
applying for retrospective sanction; so she may be partly successful
in her ambitions, and get a foot in the door. May Wang herself is
a NZ citizen.
• The intermediate vehicle for the purchase of these farms
is UBNZ Assets Holdings with UBNZ Funds Management the immediate
purchaser Press, 25/3/10) but the OIO has raised doubts
about the ability of Wang’s group to fund the deal. “She
owns 80% of UBNZ Asset Holdings”…while the “remaining
20% of UBNZ Assets is owned by NZ Natural Dairy Ltd, in turn a wholly
owned subsidiary of Hong Kong-held Natural Dairy (NZ) Holdings”
(NZ Farmers’ Weekly, op. cit.);
• one of the directors of NZ Natural Dairy, Jack Chen, “was
reportedly prevented from running any company in mainland China
for three years in 2004 due to breaches in security law. Complaints
were also filed to the Hong Kong Stock Exchange in 2009 about his
involvement in Natural Dairy (NZ) Holdings” (ibid.).
• Wang herself has already been subject to Companies Office
legal action over earlier business dealings in Aotearoa/NZ and arraigned
on breaches of contract and commercial law Press, 10/5/10).
In April 2010 she was “remanded on bail after appearing in
Auckland District Court on three charges of breaching the Commerce
Act“ relating to the collapse of the Dynasty Group tourism
venture in October 2008 (Sunday Star Times, 2/5/10).
• On June 8th 2010 “Wang appeared in the Auckland bankruptcy
court over an unpaid bill of $620,000” Press, 9/6/10),
after failing in the past to turn up in court on this charge (Sunday
Star Times, 25/10/09). “Ms Wang was listed in [the] bankruptcy
court on petitions from Westpac and, as supporting creditor, Nationwide
Finance” Press, 5/5/10 & 16/6/10). Wang initially
committed herself to only six cents return in the dollar for her
creditors but has recently reduced this to a mere two cents! As
well, Wang was reported as owing money to the Hawkes Bay-based Wine
Country Credit Union and Kiwibank, among others (Sunday Star
Times, 4/4/10; Press, 29/6/10).
• The fraction of NZ collaborative capital represented in
this venture is certainly interesting given some of the people involved.
The public relations spokesperson for the group is former TVNZ boss,
Bill Ralston. “Auckland lawyer Kerry Knight of Knight Coldicutt
is legal adviser to Natural Dairy” (ibid), and Maori leader
Sir Ralph Love was one of directors of UBNZ Assets Holdings (but
was one of two directors who resigned in July 2010, after just weeks
in the job).
• Wang, who has flaunted conspicuous consumption via former
ownership of a multi-million dollar Auckland mansion, has had her
“character” called into question given the commercial
and financial matters already mentioned (Sunday Star Times,
23/3/10). In response, Ralston dismissed the commercial legal charges
faced by Wang as only “minor matters” (ibid.).
White Gold Rush? – Welcome
To The Mucky Mirage!
The receivers for CraFarms have announced that the 16 properties
at issue are to be sold to UBNZ pending the OIO’s approval
or a better offer. At present, Bayleys is scouring Asia seeking
possible buyers there. Farmers’ groups well warn that with
such purchases, including exploitation of Fonterra’s subsidy
to new “startup” companies, profits will flow overseas
and damage NZ’s economy (e.g. Press, 26/3/10). At
last, blowback from the cargo cult mentality of dairying and free
trade in general might be starting to register a bit on some well-placed
opinion makers in the farming sector. Wang’s corporate plan
for restructuring CraFarms would implement a completely vertically
integrated operation selling into Chinese supermarkets as Bill
Ralston so thoughtfully helped to explain Press, 15/4/10).
The $1.5 billion plan includes an ultra-high temperature (UHT) milk
processing plant to export infant milk formula to China. Like other
any big power, China can certainly milk its free trade agreement
with NZ.
Despite her flawed business record in NZ, May Wang claims she has
the financial resources for the deal. Although, she declined to
reveal the venture’s backers on TV3’s Campbell Live
(12/5/10), one of them is apparently “Chen Fashu, one
of China’s 25 wealthiest men, whose empire includes a stake
in the massive Tsingtao brewery” (NZ Farmers’ Weekly,
op. cit.). Whatever the outcome in this particular case, and whether
farm and land sales to overseas’ interests happen in piecemeal
form, or in wholesale fashion, the way will still remain wide open
for similar foreign buyers. This will be the prevailing situation
unless the OIO is completely reoriented to carry out a responsible
mandate for the people of Aotearoa/NZ, and there is no sign at all
yet of that – far from it! However, CAFCA’s long diligence
and dedicated work is now paying off in contributing to the increased
awareness, scrutiny, and concern among the NZ public and media.
The UBNZ/Natural Dairy (NZ) Holdings Ltd project follows in the
footsteps of a failed shonky Dubai venture to buy 28 Southland farms
which also “tried to sidestep Government controls on foreign
ownership by funding an NZ entity [a hapu] which would technically
own the land” (NZ Herald, 8/3/10). Once again, adequate
funding was problematic here (Sunday Star Times, 20/12/09;
Press, 19/12/09). With more corporates and overseas buyers purchasing
farms than local farmers Press, 17/3/10), the OIO, despite
its rubberstamp reputation, is even investigating a number of reported
cases where its oversight has been evaded, as CAFCA has disclosed
(NZ Farmers’ Weekly, 19/4/10). Christchurch-based
national agricultural services firm PGG Wrightson (PGGW) is looking
to change the way it operates to take advantage of this trend to
“more corporate and investment-based buying” Press,
17/3/10). Obviously, New Zealanders in general will increasingly
lack proper democratic economic control over such enterprises, let
alone gain any worthwhile benefits, whether okayed by the OIO or
not.
In
July 2010 Bright Dairy & Food of China bought a 51% stake in
Canterbury-based milk processing company, Synlait Milk, for $82
million. Bright, China’s third biggest dairy company by volume,
will use Synlait to source high quality infant and whole milk powders
for sale in China. That same month the Prime Minister, John Key,
announced that the Government’s review of the Overseas Investment
Act, which has been underway since 2009, would now reconsider farm
and other land sale rules. Key said: “The concern, I guess,
is that there is so much wealth out there that they could literally
buy New Zealand’s productive base. It’s not impossible.
That’s the question – what do we want to be? Do we want
to be tenants in our own country or do we want to own our own destiny?”
Press, 28/7/10, “Rethink on overseas landowner rules”,
Martin Kay and John Hartevelt). Ed.
Helping Feed The World?
Yet already some academic voices are rationalising this kind of
takeover of our natural productive assets. For instance, Jacqueline
Rowarth, Massey University’s Professor of Pastoral Agriculture,
has declared that: “NZ could do little to resist growing food
demand from population growth pressure from countries such as China
but it was something we might have to get used to” (NZ
Herald, 8/3/10). Foreign ownership could, however, mean changes
to the way NZ farms were managed or run, providing a challenge
for regulators” (ibid.). For instance, she indicated that
this might mean “lower animal welfare and environmental standards”
(ibid.). The dirty dairying and animal abuse record of the Crafar
farms and certain other enterprises could get even worse. So much
then for all the propaganda that free trade will help raise standards!
Sorry, Prof, quite a number of us are prepared to draw a line in
the sand here, and fight for better practices, especially in these
more parlous times. The struggle to prevent the race to the bottom
surely looks to get a lot more intense in the near future.
Back in 1971, Professor Georg Borgstrom, a prominent expert on world
food production, estimated that at the then Chinese dietary level,
Aotearoa/NZ could feed about 50 million people while sustaining
a maximum ecologically viable level of output (“Focal Points:
A Global Food Strategy”, MacMillan). Locally and internationally,
conditions have certainly changed a lot since the early 1970s. But
the social and environmental challenges are greater than ever before.
Today, the planet’s human population grows by 83 million people
a year. Despite the occasional self-serving rhetoric, NZ has never
aimed to feed the poor and needy but instead has always worked to
serve its own narrowly perceived interests. It has increasingly
targeted the top end of the market wherever it can, relying more
and more on a relative minority of affluent consumers. On the whole,
meat and dairy products are directed at the middle and upper classes
in Asia, as well as other well-off international consumers.
Over-Reach And Bursting Bubbles
Indeed, Fonterra foolishly over-reached itself in China with the
Sanlu fiasco and melamine scandal. In the longer term, it would
be extremely foolish too to rely on steadily increasing affluence
in so-called “emerging market economies”. Even Fonterra’s
Chairperson, Sir Henry van der Heyden, warns about future volatility
in returns, echoing a call he made earlier in September 2008 Press,
6/5/10 & 19/9/08). The Chinese bubble will indeed burst at some
stage for a potential host of reasons (e.g. “Made in China”,
TV1, Sunday, 20/6/10).
By far the most positive thing that Aotearoa/NZ could do in regard
to helping feed the world would be to renounce its iniquitous free
trade policy on food, and strongly advocate and press for sustainable
food security in as many countries as possible. It should pull back
from fostering investment and support for meat and dairying in poorer
countries, as in parts of Latin America and Asia, and instead promote
the fair, sustainable and efficient production and distribution
of food for the poorest sections of society. Large-scale and widespread
meat and dairy production can exact high social and environmental
costs, with an increasingly inequitable allocation of resources
that we cannot afford in the coming era of scarcity. Sustainable
development and environmental non-government organisations (NGOs)
in Aotearoa/NZ need to forge more effective working bonds with similar
groups in China and elsewhere - a really tough challenge indeed!
I shall touch briefly again on the theme of environmental limits
later below.
Enriching Agribusiness?
Investment and concentration in the NZ agricultural sector has been
rocked by the demise of agri-business entrepreneur Craig Norgate’s
ventures in the field. As one newspaper headline recently put it:
“End of Line Looms for ex-rural Kingpin”, with Rural
Portfolio Capital (RPC), the principal investment vehicle for Norgate
and the McConnon family (founder of cheesemaker Mainland Products
in 1954), coming to grief in a tougher financial climate Press,
1/5/10). In early May 2010, RPC investors faced meltdown with a
loss of as much as $30m, given that RPC could not raise enough funds
for a dividend due on the $60m of preference shares (ibid.).
Over the last decade, Norgate and the McConnon family had become
“major players in the rural sector, building a minority stake
in one company into control of rural services combine PGGW”
(Sunday Star Times, 9/5/10). RPC has actually been a subsidiary
of Rural Portfolio Investments (RPI). After leaving his position
of chief executive at Fonterra in 2003, Norgate had “set up
RPI to consolidate the rural services industry” Press,
5/5/10). In 2004, Norgate and Baird McConnon gained control of the
rural services company Wrightson through RPI. Wrightson was targeted
because it was the one company with a truly national coverage,
as well as having a diverse range of activities: rural supplies,
agricultural development, livestock, wool, grain and seed, Fruitfed
(PGGW’s horticultural subsidiary), irrigation and pumping,
insurance, as well as remunerative real estate and finance units.
The strategy was to effectively expand its operations as much as
possible for increased profitable gains.
Hawkes Bay’s Williams & Kettle was acquired in 2004, and
next a merger was effected with Pyne Gould Guinness (PGG) to form
PGGW in 2005 Press, 24/7/09). We need to note here that
in 1987 Pyne Gould Corporation (PGC) had been formed as a holding
company with PGG becoming a wholly owned subsidiary of the former
entity. When PGC facilitated the merger of PGG with Wrightson in
2005 to form PGGW, PGC gained a large minority shareholding in the
newly merged company. Local accumulation proceeded for PGGW with
further acquisitions like Dunedin’s agricultural firm FECPAK
International Press, 2/12/06). Norgate himself did not
actually put any capital into investment vehicle RPI but had appealed
to “mum and dad investors to back the firm”, while he
got a “management fee” of about $500,000 Press,
5/5/10). Of late, he had been seeking “to get a capital gain
on the project that brought together Wrightson with PGG” (ibid.).
By far the biggest immediate loser in this contorted saga has been
the McConnon family, to the tune of many millions of dollars.
Contortions Of Rural Restructuring
At extant share prices in May 2010, assets backing the RPC shareholders
only amounted to half the sum owing. While Norgate blamed market
forces, especially the international credit squeeze and recession,
for the collapse and resulting receivership, his decision-making
role was evidently a pivotal part of the accounting equation. Among
the highly criticised decisions associated with Norgate was a PGGW
$250m share issue in November 2009, “with a 45c a share rights
issue at half the previous market price”, leaving his and
McConnon’s stake in PGGW much diluted (Sunday Star Times,
9/5/10). This particular share issue was needed by PGGW –
more debt along with equity as it turned out – “to repay
bankers and inject financing into its finance subsidiary”
Press, 26/2/10). By February 2010, Norgate and the McConnon
family’s stake had been reduced from about 30% at one time
in the past to just 12% (ibid.). Norgate then halved his stake in
PGGW to help write down debt, leaving it with about 6% of PGGW Press,
22/4/10).
Later again, the receivers for RPC sold the shares in PGGW which
were “security for redeemable preference shareholders in RPC”
Press, 12/5/10), and next another tranche of shares from
NZ Farming Systems Uruguay (NZFSU), also held as security for the
RPC preference shareholders Press, 19/5/10). NZFSU shares
were sold “to existing NZFSU shareholder Olam International
Ltd”, a big Singapore-based transnational corporation (TNC)
agribusiness (ibid.). NZFSU is an NZ Stock Exchange-listed dairy
farmer that was “founded by PGGW and its [then] controlling
shareholder Norgate” in 2006 Press, 20/2/09). Olam
International Ltd had already well positioned itself in relation
to NZFSU by September 2009 with NZFSU claiming “a new Singaporean
cornerstone shareholder will help it make further inroads into the
development of the Uruguayan dairy industry” Press,
11/9/09). In May 2010, Norgate was reported as retaining “a
directorship of NZFSU, and directorships “of Wool Partners
International and Sealord” Press, 1/5/10). In
July 2010 Olam made a full takeover bid for NZFSU. Ed.
Market Machinations
Norgate’s complex financial wheeling and dealing prompted
some questions for the receiver, according to one newspaper report
(Sunday Star Times, 16/5/10). Among the relevant considerations
was the fact that RPC had breached “an important debt covenant”
on two separate dates (ibid.). The failure of this local capitalist
fraction to fund RPC and its rural investment commitments opened
yet another gap on the NZ agricultural scene for further predatory
foreign incursions. In October 2009, another Cayman Island-registered
Chinese company, Agria Corporation, bought a 13% slice of PGGW,
and quickly established itself as the new cornerstone stakeholder,
replacing RPC Press, 27/10/09). Agria’s shareholding
portion had increased to 19% by the end of 2009 with the placement
of two board members Press, 21/12/09). There are now lots
of questions swirling around Agria’s participation in PPGW,
given especially its troubles with the New York Stock Exchange and
“four class action suits from US investors” (Sunday
Star Times, 25/10/09). PPGW desperately needed a new cornerstone
investor after its banks put the heat on repayment of debt Press,
28/8/09).
PGC, the other substantial shareholder of PGGW, had slipped to about
18%, as it continued its plans to phase down its participation to
be a bank (in line with its subsidiaries, principally finance arm
Marac and Perpetual Trust) after 150 years as an agricultural services
company. PGC plans to merge with CBS Canterbury and the Southern
Cross Building Society, and will need to completely divest its PGGW
shareholding. It had been clearly signaling such intentions back
in 2008 (e.g. Press, 20/12/08).
The continuing market machinations of both local and foreign companies
threaten serious turmoil and uncertainty for NZ agriculture in a
time of volatile international price movements and other relevant
factors. By 2010, prominent local entrepreneurs like Alan Crafar
and Craig Norgate had over-reached themselves in quite spectacular
fashion, and mucked up big time. The trend to greater foreign control
is now steadily ongoing. Global market forces are subjugating local
capital interests for their own objectives and special gains.
Cooperative Gain Or Capitalist Consolidation?
Norgate’s latest failure in the agricultural sector flowed
on from his role in a previous attempt at rural sector consolidation,
namely an attempted merger of the major meat processing companies
that finally collapsed in late 2008. He copped strong criticism
with regard to PGGW in a failed deal to get this company to buy
into farmer-supplier cooperative Silver Fern Farms (SFF), the biggest
meat-processing company in Aotearoa/NZ, formerly known as PPCS [Primary
Producers’ Co-operative Society] (Sunday Star Times,
9/5/10). The proposed merger also foundered for lack of funding.
PGGW was going to buy 50% of SFF but was unable to get guaranteed
backing from its banking syndicate at crunch time and so defaulted
Press, 4/3/09). At the time, Norgate was chairperson of
PGGW, which ended up having to compensate SSF with $30m cash and
ten million shares for the breach of an unconditional contract,
and thus consequent damages and related costs (ibid; Sunday
Star Times, 9/5/10).
Norgate claims that he was ultimately trying to bring SFF and Alliance
Group together since the continuing competition between the two
cooperatives in the South Island is “just bloody ridiculous”
(Sunday Star Times, 9/5/10). Significantly enough, SFF
sold its shareholding in PGGW around the time that Agria Corporation
became a cornerstone shareholder in PGGW Press, 17/10/09).
It can be seen that PGGW’s capital raising towards the end
of 2009 was necessary because of the losses contingent on Norgate’s
trail of decision-making over several years, compounded by a drop
in rural trading. “The loss was caused by one-off costs -
$49.6m – from the failed merger with SFF, and the $39.2m fall
in the value of its stake in NZFSU” Press, 28/8/09).
PGGW’s “annus horribilis” prompted property developer
John Calvin to accuse the company’s leadership of presiding
“over decisions leading to huge wealth destruction, effectively
leaving PGGW in the hands of its bankers” Press,
30/10/09). As well, “angry shareholders” of NZFSU, “the
beleaguered PGGW subsidiary”, complained bitterly about this
company’s $61m loss at its annual general meeting in October
2009 Press, 16/10/09). During 2009, amalgamation continued
in the rural services sector. “Rural Livestock merged with
Rural Livestock Otago to become the largest privately owned stock
and station firm in the South Island” Press, 27/3/09).
It became second biggest behind PGGW and based as well in Christchurch.
Reform Movement For Cooperative Consolidation
Prior
to the failed merger between PGGW and SFF, there had been another
highly publicised merger attempt, an unsuccessful effort to bring
together SFF and Alliance Group, even prior to the former’s
rebranding from PPCS. During a long period of low lamb and sheepmeat
prices and waning sheep numbers, many sheep farmers came to see
greater meat industry consolidation and cooperation as essential
for their survival. Over the years, Federated Farmers has strongly
backed moves for more consolidation in the meat industry, given
the trends indicated, along with other significant factors like
rising costs (including fertiliser), dairy conversions, and changing
markets. Farmer reform groups vigorously pressed for constructive
change and amalgamation in the industry.
A very active grassroots pressure group, the Meat Industry Action
Group (MIAG), arose in advocacy for cooperative consolidation, specifically
calling on PPCS/SFF and Alliance to merge (Sunday Star Times,
8/7/07). MIAG itself merged with the Meat Industry Restructuring
Group (MIRG) in August 2007, joining forces for a better campaign.
MIRG had started pushing for a meat company merger in 2006, drawing
on shareholders from both PPCS/SFF and Alliance Press,
10/11/06). By mid-2007, SFF had grown to be the meat industry giant
(Sunday Star Times, 8/7/07). It had taken over Hawkes Bay
company Richmond Meats “in 2004 following a bitter court battle”
and a six year campaign for control Press, 3/5/08 &
23/5/09). In the process, it had been “fined many millions
for breaking the law” but had still won out, taking “on
a huge debt to finance the purchase” (Sunday Star Times,
8/7/07).
One of the key elements in the tangled saga of PPCS/SFF’s
eventual takeover of Richmond, NZ’s biggest meat firm at the
time, was the question of foreign versus domestic ownership (NZ
Herald, 4/6/01). PPCS/SFF battled for control against North
Meats, a subsidiary of Bernard Matthews, a British food TNC (ibid.).
Many Richmond supplier-shareholders actually preferred to sell to
an overseas corporation instead of PPCS/SFF. Back in 1948: “Invercargill-based
Alliance Group and Dunedin-based PPCS [had] form[ed] as local farmer-owned
cooperatives to wrest control from British-run meat packing firms”
Press, 23/5/09). The ironies deepen in the later Richmond
Meats episode with capitalist accumulative objectives operating
more than ever to undercut cooperative ideals.
Merger Merry-Go-Round
In 2007 Alliance Group rejected a merger with SFF because of the
latter’s high debt level but by the next year various merger
proposals were still running hot. MIAG was promoting the idea of
a “single ‘National Champion’ company with an
80% stake in the meat industry” in order to improve farmer
returns Press, 5/9/08). Alliance even proposed a merger
of the top five meat firms. However, SFF rejected this particular
proposal in turn, calling for beef to be included as well Press,
23/5/09). Another major proposal on the table in 2008 was of course
the 50:50 partnership between SFF and PGGW. But this particular
hybrid proposal, diluting cooperative principles, also put a number
of Alliance Group members off any merger with SFF, or rather with
the likely new hybrid firm Press, 5/9/08). The proposal
was even colourfully called a “cup of cold sick” Press,
23/5/09). Two Alliance Group members elected to its board on the
back of a restructuring vote were among its opponents, and the Alliance
leadership in general took the same view. They said that: “Suppliers
favoured farmer ownership and control of a future industry model”
Press, 5/9/08; see second quote at the very start of this
article).
Unlike their Alliance Group colleagues, SFF’s members had
already taken a critical step away from the cooperative ideal in
the latter part of 2008. A quite radical vote by SFF rebate shareholders
in September 2008 gave the green light to the proposal for a hybrid
company merger with PGGW Press, 12/9/08). Then about a
year later again: “SFF shareholders voted 76.46% in favour
of a restructure to effectively end the group’s cooperative
status by opening its share register to other investors” Press,
1/8/09). New ordinary shares “would be traded on the unregulated
share exchange Unlisted” (ibid.). Farmer shareholders would
still retain voting and board control.
SFF’s leadership did not see the current “debt-burdened
structure” as viable in the long run, with the firm needing
“an injection of money to survive” Press, 30/7/09).
The shareholding restructuring, after 60 years as a cooperative,
was promoted as making SFF more efficient, and “more attractive
as a partner to other companies”, and as being “market-led”
rather than production-led Press, 1/8/09). These days “commercial
reality” is seen as driving change, and SFF’s strategy
as following the policy line endorsed by the Ministry of Agriculture
and Fisheries (MAF) Press, 2/7/09 & 31/7/09). But SSF
raised only limited capital in 2009 from shares Press,
3/10/09).
By April 2008, the merger proposal for Alliance Group and SFF had
in fact pretty well broken down. Both firms have continued since
with a measure of meat industry consolidation according to their
own individual commercial goals. For instance, Alliance Group increased
its North Island presence with the purchase of Levin Meats Press,
25/10/08). Similarly, in January 2009, SFF announced “a joint
venture with Modena Investments to build meat plants to produce
and market meal and tallow”, setting up Farm Brands Ltd Press,
9/1/09).
Meat In The Mincer
London-based food expert Professor David Hughes told SFF’s
farmer shareholders in July 2009 that: “The industry faced
a particularly rocky road over the next five years given the impact
of inputs such as oil and the buying power of giant retailers like
Tesco and WalMart and McDonalds” Press, 3/7/09).
There was also a possibly growing consumer movement to a more vegetarian
diet grounded in animal welfare and environmental beliefs, including
“food mile” and greenhouse gas concerns. Corporatised
industrial farming is coming into question.
Like PGGW, by 2009 SFF had got into serious financial difficulties.
Once again too, a familiar syndrome was playing out: local entrepreneurial
ambitions had markedly over-stretched financial capacities. Despite
a previous good year, SFF in mid-2009 still had $189m of debt, stemming
largely from the torturous Richmond takeover Press, 30/7/09
& 23/5/09). Yet SFF Chief Executive Keith Cooper enjoyed “a
40% jump in salary to nearly $870,000” for the year ended
August 2009 Press, 4/12/09). Cooper’s salary had
apparently earlier also jumped about 27% in the August 2008 financial
year, compared with the year before. In a programme of plant rationalisation,
the 2008 good year had seen a turnaround in returns after “lowering
costs during a business overhaul involving plant closures, and nearly
1,000 redundancies during a lift in trading conditions” Press,
1/11/08; 10/9/08; 29/12/08). “Project Rightsize” has
been the company’s strategic aim in order to adapt to changing
conditions and market demands. Yet the dream of the PGGW-SFF hybrid
merger had been “to follow the path blazed by the dairy industry”
as led by Fonterra, “and ‘globalise’ the meat
industry” Press, 12/9/08).
“Rightsizing”
And “Downsizing”
This “rightsizing” has carried on into 2010 with SFF
choosing “to focus on the Chinese market”, and cutting
up to 174 jobs at two Christchurch meat plants Press, 15
& 16/6/10). SFF’s aim is to target the upper end of the
Chinese market, such as Western-style restaurants and hotels. Its
downsizing was interpreted by TV1 as an indicator of an industry
in decline (TVNZ, One News, 14/6/10). Owing to drought
and dairy conversions, and thus less sheep available, the Bernard
Matthews plant in Waipukurau also closed for the season in late
June, laying off another 174 staff (TVNZ, One News Tonight,
25/6/10). The meat processing plant in Waipukurau is a wholly Bernard
Matthews-owned subsidiary. Altogether, nationally, some 15,000 jobs
are being affected by the downturn. Meat Workers’ Union Canterbury
President Bill Watt remarked that: “Obviously, people are
a little bit bitter. They feel that SFF made some mistakes a few
years ago when they moved into the North Island (with the purchase
of Richmond) Press, 26/6/10). Nationally, sheep numbers
have fallen about 4.4 million over the last two years (ibid.). By
2009, SFF was seen as vulnerable to local takeover, or even more
likely, foreign control Press, 23/5/09).
More Wheeling And Dealing
In making his case for meat freezing consolidation, Craig Norgate
argued that NZ’sheep farming is no longer profitable (e.g.
Press, 12/3/08). However, after the collapse of the PGGW-SFF
initiative, Norgate “was increasingly characterised as rash”
(Sunday Star Times, 9/5/10). For sure, Shareholders’
Association Chairperson Bruce Sheppard called on Norgate to resign
over the deal’s collapse Press, 19/2/09). By July
2009, Norgate had in fact resigned from his Chairperson position.
The man, once called “the big cheese”, had given himself
the chop over his meat industry ventures, indeed in agriculture
for the most part.
Yet some academic analysts had seen him as the man to carry off
consolidation effectively. For instance, “University of Waikato
agribusiness economist Professor Frank Scrimgeour”, in the
course of raising questions about the survival of cooperatives,
had commented that “Norgate, with his significant experience
and track record in mergers, was a ‘genuine player’
to make the [proposed] PGGW-SFF partnership work” Press,
18/7/08). Moreover: “He agreed with his University of Canterbury
counterpart, Keith Woodford, that only a Norgate-led PGGW could
push forward the offer in an industry with a history of more expensive
failures than successes” (ibid.). Similarly, Massey University’s
Professor Jacqueline Rowarth, an advocate of a more combined industry,
saw Norgate’s timing as “frequently good”, and
having had in the PGGW-SFF proposal, “as usual, picked well”
Press, 12/9/08).
Financial Tangles
Another big shock to business in 2010 has been the Government’s
takeover of the fortune of the South Island’s richest man,
Allan Hubbard, and the placement of him and his wife in statutory
management “in an extremely rare move” to protect $134m
worth of loans Press, 21/6/10). The Government has “referred
concerns about some of his [Hubbard’s] affairs to the Serious
Fraud Office” (ibid.). Hubbard’s Aorangi Securities
and seven charitable trusts have been placed into statutory management.
His flagship South Canterbury Finance (SCF) company has played a
very significant role in Norgate’s rural restructuring saga.
In September 2008, PPGW “obtained a pledge from an entity
related to Timaru millionaire Alan Hubbard to underwrite a $32m
capital raising from small investors”, i.e. a pledge from
SCF Press, 31/10/08). PGGW got a $25m loan from SCF early
in 2009 to help it settle with SFF over the “buy-in”
deal debacle Press, 25/4/09 & 28/8/09). Norgate was
most appreciative of Hubbard’s involvement as SCF Chairperson,
“enabling the payment by PGGW outside existing banking arrangements”
Press, 25/4/09). But apparently SCF failed to come to the
party again when RPI got into really serious difficulty (Sunday
Star Times, 9/5/10).
SCF also now has its own liquidity problems, although it stands
apart from the governmental move on the other Hubbard-linked entities.
It is looking for an overseas partner. Incidentally, a PGC subsidiary,
Torchlight Investment Group, has a $100m loan out to SCF Press,
26/6/10). The Government’s intervention is inevitably having
repercussions on SCF’s reputation, including a ratings demotion.
NZ capital markets continue in disarray while the Australian banks
have comprehensively ripped off NZ savers and investors. These days
foreign capital has a lot more openings and opportunities to exploit.
Trying To Restructure Producer Power
One of the great ironies of rural and agricultural restructuring
in Aotearoa/NZ has been the demise of our producer boards due to
pressures from the US and its TNCs in particular, and then latterly
the local efforts to revive in some way or other the cooperative,
coordinating role of these boards, including effective international
marketing. Competitive marketing overseas has allowed the giant
supermarket chains and other buyers to play NZ companies off against
one another. At home, too, there has also been much intense competition
in procurement of stock, especially given less sheep and processing
over-capacity.
While the transformation of the Dairy Board into Fonterra is taken
as the benchmark, model and beacon of restructuring potential,
the tensions between privatisation and the public good, between
gains for the few and benefits for the many, continue to increase,
even for Fonterra’s farmers as recent decisions again demonstrate,
let alone NZ society at large. The cooperative model is struggling
to survive across the whole NZ farming industry. Piece by piece
it is being eaten away by market forces, a process that is generally
celebrated by the foreign-controlled and/or heavily influenced corporate
mainstream media, including TVNZ.
Towards Sustainable Development?
In the very difficult and precarious times of the early 21st Century,
we urgently need far more genuinely sustainable and cooperative
forms of development. In an age of pressing environmental limits,
agriculture as the essential foundation of our economy has to be
well grounded. Professor David Penman, an environmental consultant
on sustainability, calls for a new business model with low carbon
use and much more efficient use of our natural resources Press,
27/2/08). Professor Penman’s approach is obviously “green
capitalist” in style. But Aotearoa/NZ is not even off first
base on track for this model, let alone developing a more cooperative
socio-economic system. For the most part, the Government is going
hard and fast in the other direction. The contest and crisis are
getting more acute by the day.
Non-Members:
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Foreign Control Watchdog,
P O Box 2258, Christchurch, New Zealand/Aotearoa. August 2010.
Email cafca@chch.planet.org.nz |