Corporate Agriculture/Free Trade Contradictions Bite Home

- Dennis Small

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.

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Foreign Control Watchdog, P O Box 2258, Christchurch, New Zealand/Aotearoa. August 2010.

Email cafca@chch.planet.org.nz