The farming sector is a National Asset that must be protected, says Productive Economy Council
The proposed buyout of the Crafar dairy empire by Natural Dairy (NZ) Holdings, a Cayman Islands registered, Hong-Kong based company – previously known by the more illuminating name of the China Jin Hui Mining Corporation – should start alarm bells ringing with the New Zealand public, says the Productive Economy Council.
The public has a historical resistance to asset sales, but many might not understand that our agricultural sector is just such an asset, of such importance to the economy that selling large parts of it off to foreign interests is not in the national interest.
“Ill-informed commentators like Paul Henry might say that ‘it doesn’t matter who owns the business as long as it’s here’ but that just shows their lack of understanding of the basic business issues at stake,” says PEC spokesman Selwyn Pellett. “Thinking it doesn’t matter where ownership of the country’s productive assets resides is nonsense. The public realised it was nonsense when previous governments pursued asset sales as some type of economic silver bullet, and they should realise it remains nonsense today.”
The reality is that a business exists to make a profit, and that profit is retained by the business owners, not the workers. When the business owners reside in the same country, that profit is re-invested to the benefit of the local economy. When they do not, the greater part of that profit goes off shore and does not benefit the country.
“If our tax laws were robust, then at least the country would retain some of that money via the tax system,” says Pellett. “But that’s not the case. Foreign entities have the ability to shift the location of the high value-add activities off shore and leave large debt servicing here, meaning tax can be organised to be near zero. Why wouldn’t a foreign owner do just that? It makes sound business sense.”
“As the value-add migrates off shore so do the jobs and the PAYE that was collected from those employees. The result? A bigger tax burden on those that are left.”
“And if we sell enough agricultural assets off, then the scale of our farming sector and its ability to contribute to the economy suffers as well,” he says.
“Chinese businesses have become very competitive by driving the cost of production down. It’s a strategy that applies to food production too. Quality may not always suffer, but the environment often does and that’s a potential risk to New Zealand’s already tarnished brand,” says Pellett.”This is not scare mongering,” says Pellett, “we have already seen our hi-tech businesses picked off one by one and slowly migrate off shore. First the manufacturing went, then the research and development and finally the entire company.”
“We cannot have a first-world lifestyle without wealth generation. If all our businesses are owned off shore then we have lost our economic sovereignty and we are now just a source of labour – and only then if it’s cheap enough. We’ll be little better off than the Irish were under absentee English landlords in the 19th Century.”
“Farming is today a marginal business given the high on-farm debt, but allowing those debt levels to result in the transfer of a significant portion of our farms to foreign ownership would be a mistake that future generations of New Zealanders would come to bitterly regret,” says Pellett.
“The government needs a coherent vision and strategy to get through the current debt issues facing many farmers so that the country can retain the wealth generation, both in terms of productivity and tax, those farms represent.”
Should Australian banks really give a toss about selling chunks of NZ to non-NZ buyers?
If it were the other way around, would NZ banks give a monkeys about selling chunks of Auz to non-Auz buyers?
How would the Australians deal with something like this, or the Americans, or Chinese?
What advice would the NZ authors of the Chinese PTA give in this situation?
What would Labour do?
What should this Nats govt. do?
It doesn’t seem a great situation, so how could it be avoided again?
Where did we go wrong, policy wise?
Can it get any worse? (Too right it can….)
Cheers, Les.
For me the test for foreign investment should be what’s in it for NZ.
International investors can have a lot to offer: capital, technology, market access, new skills etc which are often in short supply around here.
In the technology sector, among others, these may be valuable and make the investment worthwhile.
What this new offer brings to the table for our primary sector (which already has many of the above resources) is not exactly clear.
But not sure it should be stopped, unless there is some clear negative net economic benefit (or bad for the economy I suppose).
Hang on a moment
1. We are talking about a private property owner selling its private property. Try telling any urban house dweller that they are not entitled to sell their house to the highest bidder! The uncertainty generated by interfering in people’s rights to sell their property is going to far outweigh any possible gain in any particular instance.
2. the only thing any foreign recipient of a NZ dollar can do is use it to buy goods or services in or from New Zealand, so the idea that money that flows outwards is gone for ever is false.
3. the world is more complicated than being divided into New Zealand and foreign interests. new Zealand pension funds may be shareholders in foreign companies (in fact they should be). A foreign company may even be owned by a New Zealand company. The biggest shareholders are pension funds (including trades unions) and insurance companies, so profits equals our pensions.
4. as for tax issues, that is easily dealt with. Cut taxes.
Bernard the world is basically split between two categories of thinking, The “ME” and the “WE” thinkers. Both are relevant and have a place in society and in this debate. If you think it’s okay that one group of farmers in selling their farms to a foreign entity can under mind the value of Fonterra and its shareholders then that’s okay. It’s legal for sure so not a lot anyone can do about it. The same thing happens in a publically listed companies. However is it smart to allow it to happen by the rest of the shareholders is an entirely different question.
Then you can overlay that argument with one of National Sovereignty and is it good for New Zealand. If we sell every single farm, vineyard, Hi Tech company, forests and saw mills and all the processing and distribution that goes with it then what are we as a nation? I suspect we are peasant farmers and tourist guides. How can that be in the national interest.
I have money all over the world Bernard and if I sell something in say the UK there is zero guarantee it will arrive back here. So the assumption that money always makes it way back into the economy is not so. Also if I sell a farm to a foreign interest and buy a beach house and a few rental properties we have lost a wealth creation asset as a nation and replaced it with passive assets that don’t generate jobs or export income so again we loss as a nation.
Yes the world is complicated and I’d be happy if we had identical and reciprocal agreements country by country with our trading partners but we don’t. Fix that and then let’s talk about freedom of capital flows.
Yes cut taxes by taxing all income fairly. That I agree with. There is a big difference between my statement and yours though. One acknowledges we currently have an unjust tax system and it needs fixing so all income is taxed no matter where it is earned. Then surprise surprise the amount of tax paid by 90% of the population will be less.
This is baffling. Who is “we”? A country is not an economic unit. If I sell some land I lose control over that land but I have a pile of cash I can do something else with. If someone else sells land I have no interest in then it doesnt affect me to whom they sell it and I have no right to start telling them to whom they can and cannot sell their property.
Fonterra should not exist as a statutory entity. It is ludicrous to have Acts of Parliament organising industries and the particular way Fonterra is organised and pays out leads to more and more people being sucked into dairying and the new produce being sold into less and less profitable markets.
As for tax, nothing would be better for NZ than changing the tax system so that overseas people could come and live here and not pay tax on their overseas earnings.
It is also a huge fallacy to believe that it is necessary to have reciprocal agreements and things. Even if the rest of the world were ganging up on New Zealand, the best thing we can do is have an open economy and no tariffs or import restrictions.
Labour over nine years destroyed our productivity and if in power would continue to do so. The kind of arguments you put forward just give aid and comfort to the meddling politicians who would like to carry on messing up our economy. They are certainly not the path to getting New Zealand back into the top half of the OECD.
The first simple route to making New Zealand more productive is to get rid of the thousands of new public servants occupying offices in central Wellington and doing no good to anyone. Compared to that, any fiddling about with the way industries are organised is small beer. Furthermore, industries should be organised by the people who have put their money into them, not a load of wafflers in Wellington.
Bernard thanks for your comments. Your views in my opinion held a lot more water before the economic crisis. They are certainly those chosen by the USA and the UK and we have seen how well that has turned out. Central planning is bad and so is a totally free market. Could we not start thinking about what it is we are trying to achieve and leave the economic and political religions behind. There are specific problem in front of us that need solving, why do we have ban a whole heap of options because it doesn’t suit our economic religion. More and more economic commentary is coming out saying that the countries that have acted in their national interest, have actually done well through the crises. The paper by the IMFs chief economist makes very interesting reading on these subjects.
Anyway there are things that should be left to run their course (free market) and some that require intervention in the interest of the population. Selling Telecom was dumb and history has proved it. The cost to this country’s GDP trough the underinvestment and over charging is incalculable. So if a strategic asset or resource, looks like, smells like and tastes like a monopoly / duopoly then it should not be part of the free market. If it is it will be used to extract excessive margins and that will have knock on effects to the entire economy.
Throw away the neo liberal rule book and say “how do we solve these problems” simply and pragmatically. We live in a country that has bought and sold property to each other until our net foreign debt to GDP is approaching 100%. We are in the 5 most indebted countries in the world and household debt to disposable income is quoted as being second only to ICELAND. It wasn’t any government that got us to this position it was our own greed and trying to farm capital gain instead of productive returns and that was driven by the prospect of tax free capital gains.
That’s worked well hasn’t it.
Meanwhile our top four banks in 2008 made 3.6 billion in profit while the rest of the NZX 50 made 2.9 billion and yet the current government won’t allow Kiwi Bank to recapitalize itself and take some market share. What would happen if that 3.6 billion stayed here year after year after year and was reinvested in the productive economy.
At some point we have to stop this madness and act in the interest of our NATION and all its tax payers as it’s just unsustainable.
Selwyn – “Central planning is bad and so is a totally free market. Could we not start thinking about what it is we are trying to achieve and leave the economic and political religions behind.” I agree.
Bernard – please have read of some reviews of two books that I completed for NZMEA. They can be downloaded from a link in the top part of this page:
http://www.mea.org.nz/events.aspx
A blind cult-like faith in the economic doctrines of left or right has failed us and will continue to do so because both ends of the spectrum base their interpretation of the prevailing orthodoxy on the view that an economy is an equilibrium tending closed-loop system with linear cause and effect relations, when in fact it ain’t! Hence the need to interpret behaviours and outcomes against a contexural framework more suitable for New Zealand, (and any other economy, see book reviews)even if it does not look like wot they do (so successfully?) in many other parts of the westernised world that have swallowed the orthodoxy, hook, line, rod, reel and all.
Cheers, Les.
‘Farm buyers losing out to foreigners’
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10639700
All because ….