Worth watching.
Selwyn Pellett from the Productive Economy Council, interviewed by David Beatson on why he thinks a $1.5 billion plan by a Chinese Syndicate to buy NZ dairy farms will undermine our strategic capability.
Natural Dairy NZ Holdings (Chinese syndicate) has lodged an application with the Overseas Investment Office after announcing plans to buy the Crafar family’s farms as part of a $1.5 billion buy-up of land, stock and milk production plants in New Zealand.
Can’t embed the video. See the interview here
Selling off our country
NZ needs to grow its productive capacity in ways which keep the capital generated from exports onshore for us to use within our economy. It is the only way that NZ can become a rich country. Selling assets which then cause capital to be sucked away overseas in an ongoing regular manner is totally destructive to us. Think about all the banks we have sold to the Australians. Every financial quarter, each of those banks makes a massive profit off the work of NZ’ers. And every financial quarter $1B or more of NZ capital gets sucked out as profits and transferred over to banking corporates and banking shareholders in Australia. That’s $1B less available for use and investment in productive enterprise in NZ, and $1B more available for use and investment in enterprise in Australia.
No wonder they are doing better than us, they know how to work this system in their favour.
Put another way, NZ farmers have to ship out 170,000 tonnes of milk powder just to compensate for that loss of financial capital, before we break even again. And degrading our ability to do even that would be a disaster.
Question – with our new FTA with China, can we go and buy their farms and forests and dams and land etc?
@ Jeremy, that would be unlikely IMHO. The Chinese are not interested in foreigners buying up assets unless your investment creates new productive capabilties and introduces new technologies and skills that they do not already have.
Buying a Chinese forest does nothing on any of those counts, so you’re out of luck (I believe). If you wanted to buy a forest, and then put a brand new $500M advanced wood processing facility next to it which will create hundreds of brand new jobs then you may have a chance. And even then you would have to go into it using a joint venture with a Chinese govt company.
The Chinese idea is simple: they don’t just want to appropriate your money (boring, and what good is it to their country if you use your investment to then rip hard currency away from their shores on a regular basis): they also want to appropriate your specialist know-how and your specialist skills. Which they can then use later on in whatever economic and productive ways they wish, even if you decide to withdraw from the country.
NZ could learn a thing or two from this approach.
Unfortuantely New Zealand over time through neo-liberal policies have bought into the language of deception. Many believe that the term “off shore investment” means gains for us. But that is not so. This term involving off shore investers is for the profits to be shipped off shore with little benefit for us. And running along side this is the desire of the off shore owners to have lower wages, thus more profit goes off shore. Also is the desire for greater productivity. The most frequent method used to increase productiveity is to have a smaller work force producing the same or more, so greater profits go off shore.
It is glaringly obvious that the NACT government is not interested in reducing unemployment for the above reasons. It is in their and their off shore mates interests to have a large pool of people unemployed.
This is also useful for the repetition of the neo liberal plan for privatised prisons. High unemployment will assist to ensure a steady stream into this perverse world of incarceration for profit.
Doesn’t this (and the current plane embargo in Europe for that matter) just highlight a bigger issue- the dangerous dependence we have on moving capital, things and people in perpetual motion to support our lifestyles.
The Chinese have all this excess capital which they need to invest and an expanding middle class how want to new food products. We have a single industry economy (dairy) that relies on selling that product to the other side of the planet. Of course they are going to want to invest in that industry to ensure that product is obtained as cheaply and efficiently as they can get it.
But how does that help us? In end the end we end up paying more for milk.
Surely the solution (and the best way to protect the economy for our children) lies in diversifying our economy, producing more goods locally for our own consumption and doing something about the economic debts this is racking up- which will be probably be payed for in teh short term by selling aour remaining assets ie our land.
You all seem to forget that these are private properties and its really none of the governments business, how people choose to invest/divest in them.
When the Aussies have sold all their minerals we will still have good land with plenty of water. To sell off the land which is our main asset base is just plain dumb. The Chinese will not allow us to buy their land so why should we sell ours to them ? Without the dairy industry we would be right in the poo, so to speak.
@ Ben. Entirely incorrect from my point of view, I’m afraid. The neo-liberal free market standpoint is far more beneficial to rich and powerful nations which already have highly advanced and competitive industries, than it is to smaller, poorer nations with fewer competitive industries.
Therefore: its the Government’s responsibility to ensure that a nation gets, keeps and uses the maximum amount of financial capital available to it from all sources, and then to ensure that it is put to productive use in the economy for the benefit of all citizens in the development of advanced industries and advanced services.
NZ cannot become a rich country without the development of serious, advanced industries and advanced services which can sell to the world.
Allowing foreign enterprises to rip away hard currency away from our shores on a regular basis is incredibly damaging to the investment required to the development of these advanced industries and services. It stunts the development of the NZ economy by ensuring that NZ capital cannot stay in NZ to be used in productive ways.
Government may approach these issues from both a macro and micro economic viewpoint of course but to summarise, the idea that “its really none of the governments business, how people choose to invest/divest in them” is basically and utterly wrong.
I’m afraid that one of things that gets lost in this debate on whether foreign investment is good or bad for us is the underlying question of: Why aren’t New Zealanders wealthy enough to own these assets themselves?
Blaming one government or another isn’t the answer to that, as it’s happened over several governments.
@ The Gnat:
Great question, its pretty simple, NZ has never developed strong advanced industrial and advanced service sectors which can sell to the world. Without enough hard currency coming in to the country and staying here, and without the motivation to invest that currency in productive industries, we end up with our current situation.
We’ve relied solely on horticulture/agriculture and tourism, and yes they bring money into the country, lots and lots of it, but it is still only enough to move our economy sideways.
Put another way: it takes one tonne of NZ milk powder to buy 8 iPhones (total weight 1.08kg).
Put yet another way: Nokia used to pulp wood and make rubber gumboots. Today it is a Finnish telecommunications equipment company which generates 7x the revenues of our entire dairying sector. It could not be the size and value it is now by pulping wood and selling gumboots.
So, we can’t become a rich country without developing advanced industries and advanced services to sell to the world. To do so would probably take 10 to 25 years of consistent effort, focus and policies. Our politicians find it really hard to think that far in advance. And if we are not a rich country, we do not have the capital base required to finance the purchase and expansion of existing NZ assets, hence they often end up in foreign hands.
Once there they function to ship hard currency off shore to overseas investors instead of keeping it in NZ (making stable, available, cheap capital even more scarce, worsening our situation).
Rinse and repeat.
@ Loota
aahhhh left wing idealism I remember being young and foolish, clearly you have never owned these type of assets, if you did you would be pretty irked if the government attempted to interfere with the transaction.
What you appear to miss in your analysis is that the money has to go somewhere and if its reinvested in New Zealand then nothing is actually lost BUT if the transaction is not completed in the first place all you have is a bunch of unrealised gains that will eventually be devalued by the type of policy you suggest.
In terms of the neo-liberal standpoint benefitting the rich? well what are you going to do about it? take the assets off them? have you been getting advice from Robert Mugabe?
aahhhh left wing idealism I remember being young and foolish, clearly you have never owned these type of assets, if you did you would be pretty irked if the government attempted to interfere with the transaction.
What you appear to miss in your analysis is that the money has to go somewhere and if its reinvested in New Zealand then nothing is actually lost BUT if the transaction is not completed in the first place all you have is a bunch of unrealised gains that will eventually be devalued by the type of policy you suggest.
In terms of the neo-liberal standpoint benefitting the rich? well what are you going to do about it? take the assets off them? have you been getting advice from Robert Mugabe?
@ Ben – you’re mistaken. I never said anything about taking assets off the rich: you came up with that all by yourself.
Of course, your condescension is noted.
There is nothing unrealised about the gains surrounding creating and supporting advanced industrial and advanced service sectors in the economy.
Just ask, oh, Singapore, South Korea, Germany, Sweden, Finland,…all countries who within living memory were either post war wrecks, or poor agriculturally driven countries, or both. Not any more.
Put capital to productive use within NZ to develop advanced industries and advanced service sectors; don’t ship it offshore to foreign shareholders so they can use it to build their economies while we starve ours for financial resources. Its not a difficult idea to grasp.
The question is- what is Labour going to do about this? Anything? Labour made it easier rather than harder for foreigners to buy our land during its 9 years in power.
FDI has already undermined our ability to produce and use that to enhance our own community. Letting it happen was basic stupidity. Open up to free trade but not free capital movement or ownership.
And yet Ben, that was exactly how the economics professor at Otago university explained it to me. He then justified it by saying that, although one economy was worse off (NZ), the global economy was bigger and therefore better.
@Draco, actually not that the “global economy” was somehow vaguely and ethereally “bigger and better”, more that a British or US based multinational somewhere got bigger and better off our capital and off our work.
Not surprisingly, the heavyweight countries in the global economy (and the economic theories they promulgated via the WTO, WB, IMF, and academia) were fully OK with this situation. I mean, if I were them I would be too.
FDI directed at greenfields projects which create new productive capabilities onshore and brings new productive technologies which did not exist in NZ before into NZ is probably a very good form of FDI. Help make our people smarter, train us up, build up our capabilities, help us make and export stuff. (This should remind you a lotof how China has been running the last 15 years).
On the other hand, FDI where foreign interests buy existing capability and then extract maximum profit out of it by running it down/using it to rip hard currency off our shores is bad news.
@ Jane – Good question. I hope someone does something about it because I will vote for them. Sick of seeing all my good friends and close family members going off overseas just because they can get better careers, more interesting jobs and better pay elsewhere.
All the while we are here with our business “leaders” who think that “increasing productivity” is all about squeezing your wage and my wage down another notch, and outsourcing all the interesting work overseas.
NZ has to make itself a rich country, no one else is going to do it for us.
Clare,
A harsh take on your posting here would be that you’re using xenophobia and racism to generate fear, and all for political gain.
What exactly is wrong with Chinese ownership of farms, when foreigners of all stripes have probably been buying for years? Why is this now a threat to our “strategic capability” (whatever that is)?
It would be a bit of a shame if you were encouraging people to fear the “yellow peril”. A couple of decades too late, methinks.
@ The Baron – actually, it wouldn’t even matter if it was white Australians buying these farms. See my posts above – in super brief summary, selling off your means of gaining hard currency/export revenue (no matter whom to) is a bad idea because it removes productive capital from your own economy.
@Loota – Supporting the gist of what you are saying. Re Nokia whats the bet they had support from govt contracts (and EU) to progress. Unlike the firm making wind turbines in Chch who lost out to foreigner. May I suggest a change like, govt departments & SOEs when tendering should work with the kiwi companies to see if they can match the foreigners bids, ie open tender. After all it is in NZ where most will start their portfolio & prove their capabilities to the world.
@ Ben – “all you have is a bunch of unrealised gains that will eventually be devalued by the type of policy you suggest”.
Not as much as ACT would have you believe. Obviously if the number of purchasers is reduced it will take longer to sell a big business (but not so the shares). But purchase price should be valued (generally) by profits expected in the future. Any other capital gains (asset valuation) unrealised should not be held up as a real value until it returns $$.
Loota… theres nothing wrong with a food producing economy, but everything wrong with selling milk powder by the tonne. And for The Baron, it’s not fear of the “yellow peril”, it is the Chinese Government buying these farms, they will become strategic assets for expansionism, in other words, a soft war, one that we are already losing,with the eventual results every bit as dire as that which came close to happening 70 years ago.
@ Adrian: agriculture and horticulture are key strategic strengths for NZ. You are right, those industries need to continue to find added value ways to diversify and expand their market portfolios and capabilities even further, to become true international food conglomerates.
However, that alone won’t be sufficient. The development of serious, advanced industries and advanced services will be required for NZ to become a sustainably rich country.
Loota- I will also vote for anyone who will stop the sale of land and housing to foreigners. This is the number one election issue for me. Letting non-New Zealand people buy our land/housing is utter madness. Our children will not be able to afford housing and will instead become the tenants of overseas landlords. Once our productive land is owned by foreigners we will see none of the money from what is grown on it. I can’t believe the stupidity of our leaders letting this happen. We are on our way to third world status.
@ Jane, quite right and not just land and housing, but our most productive assets and companies which bring in foreign revenues year after year. It is thoughtless and short term.
Loota and all, Great debate.
To be clear I welcome foreign investment for some things. New things that will truly generate new jobs and new exports or provide competition to monopolies and duopolies that exists here. What I don’t want is undermining of our strategic asset base or the selling of monopolies that are currently owned by the state. That’s just another way of being milked by foreign market. As for the government interfering in the sale of an asset of strategic importance…..the bloody well should! That’s what Leadership is all about.
It’s strange that in business we hire true leaders and visionaries and who a) know where they want to take and company and b) know how to align opinion and support to get there. Yet when it comes to running a countries the same people that advocate that sort of leadership is essential in business say “the government has no place meddling in the market” “The market knows best” “The market is the most efficient”
If leadership is a good thing then leadership is a good thing…everywhere. I will vote for anyone that says “I believe in protecting New Zealand’s Economic Sovereignty and our policies will align the economy to achieve this as a strategic imperative” Oh and this person will also have the grit, determination, personal energy and credibility to deliver on it.
Selwyn- thank you for your comment and for what you are trying to do with the NZ Productive Economy Council.
@ Selwyn, yes thanks indeed. I’ve just finished reading Chang’s “Reclaiming Development” and just skimmed through “Bad Samaritans” so I am with you on each of your points made.
IMHO Labour needs to make a stand for making NZ a rich country, for sharing that wealth equitably with our citizens and our communities, and for doing all of this in ways which make NZ an even better place to live.
Not neurosurgery, this.
Been mainly offline the last couple of days – what a great discussion and I think between Selwyn and Loota it has pretty much all been said.
I think there is a real need for tweaks to the Overseas Investment Act tightening the strategic asset definition. the auck airport change was pretty ad hoc and we need to think as farms as strategic even if they are not near a river or lake.
The current Crafer issue is also important. A logical approach would have been for Landcorp to buty off the receivers – clean up, finish development and on sell to an orderly market.
But I’m right with you guys on the point that we have to own more of our own assets and as far as possible reverse the invisible balance of payments outflow.
I think that requires a compulsory kiwisaver as well but that is a whole new debate.
But Trevor Kiwisaver and mutual funds are for people who either do not know of care what they are investing in, just hand the cash to some plonk & hope!
Id love to see a return to housing corp 1st home loans & similar practical assistance (cash & Ed) for kiwis to start up or buy into NZ business.
As a recently aired example, Fonterra needs several hundred million dollars investment in the next few years in order to expand to the next stage of its presence in the world food market. Let’s see if we can find a way to provide that capital locally instead of having to do it by selling off chunks of that asset into foreign ownership.
Also, we have to be assured that a large portion of the foreign income from Fonterra is adequately and productively invested back into the NZ economy.
@Loota 5.36pm I’d like us to be thinking that far ahead (10-20 years at least) and I like the Nokia example. I think our ICT industry has huge potential for generating ideas that with the right sort of investment and incentive in turning those ideas into products and being able to successfull sell and market them.
Advanced industries and servcies you described them. Let’s try and do that and be serious about it.
Clare, this is my suggestion for a must read book (if you haven’t already):
http://www.amazon.com/Bad-Samaritans-Secret-History-Capitalism/dp/1596915986/ref=sr_1_1?ie=UTF8&s=books&qid=1271661197&sr=8-1
Chang is a Cambridge University Economist and is by no means a fringe operator.
I know the Wellington Public Library has a copy but I am sure you will be able to find one somewhere.
I’m also heartened to hear that you view 10-20+ years as the kind of timeframe that we need to be serious, consistent and focussed over to make NZ a rich country. Noice one. Advanced industries and advanced services are the way to do it, exporting rocks – less so.
By the way, I’m with Leith Branch down in DN. Just keeping it semi-anon on the intertubes tho.
I should also add that in the 1930’s and 1940’s, Samsung was a major Korean exporter of fish, fruits and vegetables. Interesting, huh.
Trevor and Clare- to see you both prepared to listen and be willing to take on new ideas is heartening.
When is Labour going to put a stop to foreigners buying our residential housing? Anecdotally at the moment there are many Chinese nationals buying housing in New Zealand. It seems the Chinese government is putting controls on property speculation there, and the Chinese are now putting their money into countries such as ours. In the past we have had other nationalities doing the same- my concerns are not directed at Chinese in particular.
I don’t want to see the next generation of Kiwis the tenants of overseas landlords. I can see no benefits to New Zealand at all of letting our housing stock be sold. A New Zealander is almost always going to be outbid by a foreigner- we are disadvantaged by our low currency and low wages.
New Zealand has a proud history of being a place an average person could buy themselves a decent property. Housing is more than an investment- a house of your own is security.
We need rules in place that stop people with no commitment to New Zealand (ie not citizens or permanent residents) buying and letting out houses here. Any hope of this?
Property speculation is definitely a major drain on available productive capital (and innovative energy) in this country.
@Jane –
Loota- I see property speculation by both foreigners and New Zealanders as impacting in several ways on our progress towards becoming a high tech economy. As well as being a drain on capital it is also a brain drain and this impacts me personally- me and many other New Zealand parents.
My eldest child has just graduated with an honours computer science degree. He has won a number of awards along the way. He is close to his family and would like to stay in New Zealand but the cost of housing is a major consideration. You can stay in a low wage economy if the costs of major expenditure items like housing are in proportion to your income, but this is not the case in New Zealand.
My son and his friends- all the gifted young kiwis New Zealand desperately needs to keep- will end up leaving. Sure-some of these grads would have left anyway just to have bigger challenges in the big wide world. But we are definitely going to lose people who might have stayed if they could have had a good quality of life in New Zealand. Will they come back? I doubt it somehow.
Rather than letting our young leave and then filling their places with immigrants I would like to see this country’s problems fixed. For that we need leadership and long term planning. I do very much believe that if we keep on the path we are going down the country will be almost completely sold off in a decade and New Zealand as a sovereign state will be be history. Maybe it is already too late- I hope not.
@ Jane – yes I agree. It is very hard to get interesting, challenging work here in innovative fields, and if you can find a position, you have to accept 25-40% less pay than in Oz. My brother had to make this call at the start of this year.
I do urge you to think about the US example however: many of their best and brightest in high tech companies and industry have come from immigrant families who have made their home in the US and then helped to “grow the pie” for everyone, so the larger community can benefit.
In summary, I agree with you: if we do not want our best and brightest family members to leave for overseas, do their best work there, only to choose to come back when they feel like they want to downshift in life, slow down and hang out with the grandkids we need to act, and quickly.
Loota- immigration is always a difficult discussion. I take your point about motivated immigrants improving things for everyone- but I wonder how many of the well educated children of immigrants are leaving as well. Many of them I suspect. If this place is unattractive to young educated kiwis then it is a problem for all races.
Perhaps it is now New Zealand’s fate to be a transit lounge at the bottom of the world for people moving from the third world to the first world. Or a nice place for cashed up foreign millionairs to retire. In which case I guess we may as well give up the fight for sovereignty and let everything be sold to whoever can pay for it. Seems very sad though- we did have a unique history and culture.
@ Jane – got to agree with you again re: an attractive/unattractive destination. I have known professional circles of South African immigrants, as well as circles of Asian students, and other long term vistors to NZ shores.
A common theme amongst them: a noticeable number are here not because we provide the best prospects, jobs or educational opportunities (e.g. see a previous blog post on how the reputation and standing of our educational facilities is suffering in Asia), but because their first and second choice destinations rejected them. Making us the default option left.
Of course, plenty of people choose to come and stay in NZ as their no.1 destination as well, but the point is there.
I am appalled at the very thought that our government will allow a former mining company, major world investor, which changed its name conveniently before coming here to buy our productive land/resources. What is going on there in Wellington? There MUST be some other option other than to either let farmers lose their farms, or allow major corporations with dubious motives (don’t tell me they’re giving us jobs), for the DOWN THE TRACK? Do you think for a minute if the billions of CHinese citizens need, and will pay high prices for dairy products, that they wil NOT be sent there? thus rising the price for our own citizens here in NZ. Plus this company is NOT PLANNING to stop at the $1.6 billion dollar buyout at present…no, it’s just the beginning…they’ve already bought other ‘holdings’ (always
productive land, of course)…and plan to keep acquiring.
ONce they have permission do do this MASSIVE BUY OUT of the
current dairy farm deal, they will continue, and under the
‘permission’ receive little objection from OIO in the future…thus paving the way for ALL OUR RESOURCES to be sold out to the highest bidder, to the countries that need OUR FOOD….WOW. This is just plain wrong. We need to protect our natural resources for ourselves, and our children and their….in perpetuity. PLEASE DON”T LET THIS
DEAL GO THROUGH….
I had a posting and it went away…my computer challenged
mentality i suppose, as i had only stepped away fromthe computer for a minute…
the point i was trying to make is that we, as Kiwis, need to think AHEAD,and imagine what OUR KIDS, OUR FAMILIES, OUR CITIZENS need (and deserve to have)…in the line of food, forestry, dairy, etc. Yes the government SHOULD intervene
(and OIO refuse) when clear agenda based investments are imminent, with money coming from huge conglomerate investors, such as the FORMER MINING COMPANY, with holdings
worldwide. THis is a clear land/potential food processing grab, and we are being told its not. It’s not rocket science to imagine that when this company (whose STATED GOAL
is to BUY MORE FARMS OVER THE YEARS) can provide for the country of CHina, they WILL. Are we blind? Who gains here?
It is total madness and I do hope we all wake up, let the OIO know we’re dead against this kind of sell off of our productive land…and suggest that they LOOK INTO the background of this company and it’s CEO, and their stated goals. Surely they must realize that this is JUST THE BEGINNING for corporations coming from that giant country with potentially HUNGRY PEOPLE….once the get their ‘permission’ to invest, it will be near impossible to stop them from their 20-50 year plan of ACQUISITION OF NEW ZEALAND PRODUCTIVE LAND…DO WE HAVE A 50 YEAR PLAN???
WE SHOULD!!
BY the way has anyone seen the trend with the mills in the country? something like 20 of them have had to close. WHY?
Because the Chinese (not xenophobic, just merely a FACT)
are BUYING UP ALL the unprocessed wood (taking jobs AWAY FROM KIWIS) at higher prices than the mills could pay,
and just loading it all up and shipping it away (back to, guess where?)
SO Let’s WAKE UP and take care of the future of our children, and theirs, and of all kiwis to be born inthe future. It is OUR RESPONSIBILITY….
Maybe the dairy industry is taking for granted that we in most areas of this country still have access to water, good quality grazing and an environment that is (at the moment) still conducive to producing milk! That could all easily change and as an economy we can’t afford to be reliant our major proportion of export dollars coming from within the agricultural sector. To a certain extent this country needs foreign investment and people coming to live in this country to stimulate the economy – it just needs to be managed more efficiently and we need to make sure we look after our natural environment from a sustainable perspective.