Media hype over foreign investment unwarranted

Media hype over foreign investment in New Zealand unwarranted
• There is no evidence that New Zealand is experiencing an unusually high level of foreign investment in agricultural assets
• No justification for significant changes to the overseas investment rules

While inbound investment into the New Zealand agricultural sector has received significant attention in recent weeks on the back of some high profile transactions, there is no evidence of an increase in overseas investments in agricultural assets, according to the KPMG Agribusiness’s Evolving Agenda: Foreign Investors – friends or foes?

KPMG’s Head of Agribusiness, Ian Proudfoot says, “As a small, developed economy New Zealand has always required inbound investment to support the standards of living we are now accustomed to, and this holds true even in the current environment. The agricultural sector in particular lacks sufficient equity to take advantage of the opportunities available to it and foreign investment offers the potential for us to maximise the value of our land. Events of the last year have demonstrated we are not always able or prepared to finance these opportunities from our own resources.

“The high price of quality agricultural land in New Zealand and our remoteness to the rest of world means that even with the natural benefits of water and the link product has to New Zealand’s sustainable brand we are unlikely to be top of the list of preferred destinations for most international land investors currently looking for opportunities,” says Mr Proudfoot.

According to the paper, New Zealand agribusiness companies have the opportunity to benefit from adopting global sourcing strategies.

“It is our belief that a key part of the transformation that needs to occur in New Zealand’s agricultural sector is encouraging agribusiness companies to follow Fonterra and Zespri’s lead in developing global product sourcing strategies. The achievement of such strategies requires the companies to be able to source product from owned or controlled facilities around the world to provide key customers with guaranteed year round supply, enabling the profits of these activities to be remitted back to New Zealand. This strategy relies on us being able to gain land access around the world and we do not want to adopt policy settings which would restrict this access in an adverse way.”

KPMG, however, recognises that the high price of land in New Zealand is a deterrent to getting young people onto the land and investing in farms and this needs to be addressed.

“Part of the solution relates to the development of schemes that link young farmers with potential equity investors, be they domestic or international, to create equity partnerships that provide an entry point to the farm ownership ladder. We believe such schemes should be encouraged and supported by Government and industry bodies to enable willing investors to be identified. There is an argument that an inbound investor who is prepared to co-invest in an equity partnership with a young New Zealand farmer should be able to short cut the overseas investment approval process as their investment is to be welcomed rather than regulated, given it does assist in creating an entry point for New Zealanders into land ownership,” says Mr Proudfoot.

KPMG does not see value in a significant tightening of the criteria by which inbound investment is assessed.

“This does not mean that our overseas investment criteria are perfect, they have in the past been amended for political expediency, and it is an opportune time for a review to be performed to ensure that the policy will enable the economy to maximise its growth and development in the next decade or more. We need to establish a set of rational assessment criteria to ensure that the best outcome is achieved for growing New Zealand’s wealth and exclude to the maximum extent possible emotion from the decision making process,” he says.

Areas where changes could be considered include ensuring the criteria used by the Overseas Investment Office to assess an application expressly consider the value the transaction creates for New Zealand and the inclusion of a cap on the amount of land an inbound investor can hold to prevent excess concentration of land ownership to the detriment of the future wealth of the economy.

The Government should not rush the process of reviewing the Overseas Investment Act, but must ensure that the right outcomes are achieved, investor confidence is maintained and ensure that New Zealand remains an attractive destination for foreign investment capital.

ENDS

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