Other options for Landcorp

Bill English.
Bill English.
Dairy farm prices are falling mainly because of the reduced payout being offered to milk producers by Fonterra and other co-operatives.

Which makes it all the more difficult to understand why Finance Minister Bill English has decided state-owned enterprises, particularly Landcorp, must maximise their capital under their control.

Mr English will not rule out the state farming company having to sell more farms than usual to ensure it is not too loaded by debt.

With the cloud of Solid Energy hanging over the head of the finance minister, he can be excused for taking early interventionist action regarding Landcorp, which has been caught up in the latest decline in global dairy prices.

Landcorp, the former Department of Lands and Survey, owns 158,000ha of farmland in New Zealand and manages or leases another 226,000ha.

It runs 1.6 million stock units on 137 properties and has a staff of about 700.

The Real Estate Institute's Dairy Farm Price Index fell by 13% in the three months to July, compared with the three months ended June.

Against July last year, the index fell 12.1%. While banks appear supportive towards farmers caught up in a spiral of higher costs and lower revenue, conversations are being held about what actions are appropriate.

Lower dairy prices are causing a revaluation of the assets held by farmers and selling, for a somewhat lower price than previously expected, may need to be an option.

Mr English is ruling out any stabilisation role for Landcorp if the market for dairy properties gets tough.

But, at the same time, the Dipton farmer is also risking spooking the markets by indicating he may force Landcorp to rid itself of properties to reduce debt.

Selling farms at the bottom of the cycle could entice sharemilkers and others into the market.

More than likely, richer overseas investors would take the opportunity to buy into the market or increase their holdings.

Not surprisingly, the Green Party wants some assurance any Landcorp farms sold would stay in New Zealand hands - an assurance Mr English could not give.

Landcorp is already immersed in what is said to be the largest dairy conversion project in the southern hemisphere and would be unlikely to stop because of the current pressure from the Government to reduce debt.

There may be another solution to the problems posed by higher debt held by Landcorp, one which was not available to Solid Energy once the extent of its financial situation was exposed - partial privatisation.

The Government's partial sell-down of electricity-generating assets and some of its stake in Air New Zealand has proved particularly fruitful for the State's coffers.

Not only has the Government seen much of the risk of running large companies shift to a commercially-appointed board, it has also received the dividends from the companies which, by and large, are much better run by the country's professional directors.

Meridian Energy, for instance, has proved to be a cash cow for the Government in the financial year ended June as the company started paying out special dividends to its shareholders.

The one thing which may be holding the Government back is the promise to not sell any more assets in the current term.

But there will be a way around that.

Even being told to ''maximise'' their capital means state-owned enterprises will already be looking at their surplus holdings.

The nature of business for some state entities would not change by the selling off of surplus land and buildings to reduce debt.

However, selling off farm land to overseas investors would cause disquiet.

Long-term investors in New Zealand, such as the New Zealand Superannuation Fund and major iwi, could be potential investors in Landcorp.

Ngai Tahu excels in the commercial arena. Partial privatisation would solve several problems for the Government, not the least being retaining a majority ownership of Landcorp while imposing fiscal discipline on the new entity.

The political backlash against the sale of farmland overseas would disappear, something Mr English might like to consider before he departs Parliament.

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