Murray Horton has been playing with the big boys. Almost despite themselves, and perhaps with a scented handkerchief in front of their nose to protect against the whiff of the proletariat, the media have been flocking to CAFCA’s door over the past few months. The issue is, on the face of it, quite simple. A Hong Kong company, Natural Dairy, wants to purchase a number of properties known as the Crafar Farms. There is concern that such a large purchase would provide the basis for not only the production, but also the processing of premium New Zealand dairy products internationally, with all profits exported. The valuable local industry could be bypassed and, eventually, overtaken (or taken over).

There are secondary concerns about farming practices, the potential for pollution (in a notably polluting industry) and the competitive effects on the rest of the industry in this country. These matters explain the renewed public and political interest in foreign investment. Not that the debate has been carried out at a high level of analysis. A view often heard in the media over the past month or so is that opposing foreign ownership is merely a form of racism. The media often seemed incapable of grasping the essentials of the debate.

One of the interesting elements of the story is why the dairy industry, apparently one of the few areas not subject to the effects of the recession, is so vulnerable to foreign takeover at this time. That issue was addressed directly in a fascinating story in the Listener (9/10/10; “Lie Of The Land”, Rebecca MacFie, http://www.listener.co.nz/issue/3674/features/16311/lie_of_the_land.html - our Mr Horton featured in that article, of course). Basically, the banks and local investors have jumped on the dairy gravy train, lending enormous amounts to purchase dairy farms or convert land for dairy use. As the price of milk rose, the price of dairy land rose faster. Companies like South Canterbury Finance borrowed from the sector to lend back to the sector, and for a while everyone prospered.

Unfortunately, like every speculative bubble, this one burst. While only temporarily affecting the value of dairy products, the recession has deeply affected the value of the farms. With many dairy farmers leveraging the value of their properties to purchase additional land, the result in many cases has been unsustainable debt. Seen in this light, those favouring the sale of the Crafar Farms offshore see it as a way to bolster flagging farm prices and avert further farm and industry failures. In other words, foreign investment is needed because the local industry is at a point of severe economic failure.

The powerful finance sector has a lot at stake. Enormous losses are likely unless farm prices can be bolstered. In the meantime, the sector has become cautious about lending for dairy farming, leaving dairying further in the economic doldrums. Successive governments have been supportive of virtually open slather foreign investment for 20 years or more. CAFCA has campaigned vigorously but unsuccessfully throughout this period for more control on foreign investment.

Crafar Farms Issue May Have Changed Foreign Investment Debate

Despite the existence of powerful pro-investment influences, the Crafar Farms issue may have changed the debate around foreign investment. The spectre of foreign companies utilising New Zealand land to make enormous profits seems, at last, to have awoken some public and political response. It is hardly a race to the top, however. The Government’s response involves a non-legislative requirement that local economic interests be safeguarded, which came into effect in December 2010. Essentially, buyers will have to demonstrate that the economic benefit of foreign investment outweigh the costs. But in a Government which trumpets its commitment to the benefits of foreign investment to jobs, money and opportunities, it may be argued that the presumption of benefit will be on the side of the buyer.