Dairy industry is our own cash cow

We sold the railways and they were run into the ground.

We hocked off the core infrastructure of our telecommunications system - Telecom - and it provided a cash cow for investors, including a great many offshore, while failing to modernise its assets, leaving the country to play broadband catch-up.

Now, large swaths of prime dairy land are in the sights of overseas interests.

A Hong Kong listed company, Natural Dairy New Zealand, hit the headlines a couple of weeks ago as a prospective buyer of the 29 Crafar farms in receivership.

Then, last week, it was revealed that, in the wake of a failed bid by Dubai interests to buy a large number of Southland farms through the auspices of northern iwi, the same company - a mining shell company in a former guise - was seeking to raise $1.5 billion from Asia to buy additional farms, including up to 100 farms in Otago and Southland.

Whether or not such a move will be successful hinges on getting approval from the Overseas Investment Office which, Agriculture Minister David Carter said, would be forthcoming only if the applicant could show it was a decent corporate citizen and if the deal would be of net economic benefit to New Zealand.

Let's return to those propositions, but first it should be acknowledged that the comparison of the sale of private farmland with public rail or telecommunications assets extends only so far.

It is private land so surely the owners are entitled to sell it to whomsoever they might choose? Well, barring the oversight of the OIO, which has always had a say in land purchase by overseas interests, it's a fair point.

The fly that sticks in the ointment is that question of economic benefit.

At present, the New Zealand dairy industry is our top export earner.

Largely through Fonterra, it earns foreign exchange in large tranches for the country; it is at the core of our economic infrastructure.

Hollow it out and what's left? Tourism, wine, education, pockets of small high-tech industries ... mining? The point is that the history of foreign investment in what might be called strategic assets has, in hindsight, not always proved a boon to the country.

And why should foreign-owned dairy consortiums be any different? In the short term, yes, the deals might look attractive: the farmers would probably get a good price for their land which is already so highly priced as to cut down the pool of potential domestic buyers; alongside the purchase of the land itself there is talk of building processing plants - and that, too, will involve initial local investment - and local employment.

In the longer term, the profits, which once would have gone into local farmers' pockets to be spread around the community - the local tractor and ute dealer, the local travel agent, the local builders and tradesmen for the grand new house, and so on - will be repatriated offshore, leaving behind a portion in company taxes.

How will the the OIO decide whether a former mining shell company, now sticking the word "Natural" in front of "New Zealand Dairy" in a pre-emptive branding strike, will prove to be a good corporate citizen? To date, "corporate dairying" - witness the likes of the Crafar empire which has been fined several times for environmental misdemeanours - has not had a particularly good track record.

When the shareholders in the land are far removed from it and have no historical or familial ties to it, how keen will they be to observe "100% pure" niceties over another percentage point in the profit margin?And the net economic benefit to New Zealand? That perhaps ties in with another kind of wake-up call which came earlier this week in the form of a report from KPMG on the comparative efficiency of the indigenous dairy industry.

It warned that New Zealand has a window of about five years before it begins to be undercut by low-cost, bulk commodity products from currently underdeveloped agricultural regions such as South America, Western China and Central Asia.

Intensive farming practices in such countries will erode our cost advantage in producing bulk commodities.

The same report emphasised the need for New Zealand to adopt sustainable practices and to become more efficient by investing heavily in science, and technology and infrastructure of the kind needed to produce quality food products for customers in premium markets all year round.

This is the long-term economic future of dairy production in this country, as it is with much other industry - high quality for premium markets.

We have an enviable head start in our "natural New Zealand" image.

Let's not hock that off, too.

Simon Cunliffe is assistant editor at the Otago Daily Times.

 

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