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Who Owns Us?

Magazine Business/Economy

Mark Sweet02 October 2014

BB19

Forty years ago, when Hastings was The Fruit Bowl of New Zealand, Hawke’s Bay’s undisputed king of commerce was Sir James Wattie, and he drove a silver Bentley between his stately home, Mangapapa, and the food processing factory that bore his name.

Today, the owners of Heinz-Wattie are Americans, Mangapapa is a boutique hotel owned by Japanese, and Bentley, once a hallmark of the best of British, is now part of the German-controlled Volkswagen Group.

The newspaper Sir James would have read in the evenings was The Hawke’s Bay Herald Tribune, owned by a group of local farmers and businessmen, and his choice of banking and insurance was from New Zealand companies.

If he watched the All Blacks on TV, then unpaid amateurs, there was only one channel financed by license fees
with no advertising.

Now, Hawke’s Bay’s only daily newspaper is owned by Australians, as are all the major banks and our five biggest insurance companies, except for AIG, which is American, and the major sponsor to the highly-paid professional All Blacks, and there are dozens of TV channels in multiple local and overseas ownership.

That the AIG logo sits alongside the Silver Fern is a powerful symbol of the globalization of commerce, which for New Zealand began with the free-market monetarist policies of the 1984 Labour Government, and has continued unabated to this day.

In Hawke’s Bay, the deregulation of the financial markets and removal of foreign exchange controls has seen the takeover of some of our biggest companies by foreign interests, and overseas acquisition of our land and property.

Processing

J Wattie Food Ltd was bought by H J Heinz in 1992, which in turn was acquired last year by US investor Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital for a total of US$23.2 billion.

Buffett usually acts alone in his takeovers, but with the Heinz acquisition he has handed the operation over to 3G to run. 3G also owns Burger King and has a reputation for ruthless cost cutting. How this impacts on Heinz-Wattie in Hastings has yet to be seen, but major departmental re-structuring is underway.

Pan Pac began in 1971 as an international joint venture between newly merged Carter Holt Harvey (60%) and Japanese companies Oji Paper and Kokusaku Pulp (40%). Robert Holt & Sons were timber and building supply merchants established in Napier in 1872. Today Pan Pac is 100% owned by Oji.

Exemplifying the complexity of corporate exchanges, the once family owned Carter Holt Harvey, with extensive forestry interests in Hawke’s Bay, was purchased by Graeme Hart’s Rank Group for $3.3 billion in 2006. He sold off the forestry to US-based Hancock Group in 2007, and on 1st August 2014, the Commerce Commission gave clearance for Oji Oceania Management (NZ) Limited, owners of Pan Pac, to acquire up to 100% of the shares in Carter Holt Harvey Pulp & Paper Limited, which own the Tasman (Kawerau) and Kinleith (Tokoroa) mills.

The Commission considered whether Oji would be able to depress the prices it pays to current Carter Holt Harvey log suppliers. They decided it would not. Time will tell. But the nature of monopoly is to reduce competition.

When asked about the vulnerability of these off-shore owned operations, Hastings mayor Lawrence Yule said, “I think the new owners of Heinz-Wattie will cut costs and improve the balance sheet and perhaps sell bits off, but I’m hopeful it’s secure. Same with McCains (Canadian owned). They’ve made considerable recent investments and I can’t see them moving, and Pan Pac has just spent $76 million on new technology. They wouldn’t have made that investment unless they were sure about their future here.”

Apples

Hawke’s Bay has 64% of New Zealand’s productive apple land and apples have long underpinned the local economy.

David Cranwell has been involved in the industry all his life. His great-grandfather partnered in establishing one of the first apple orchards in the country; 500 acres in Henderson in the 1890’s.

Over time, Cranwell has seen the once family-owned orchards decreasing, “Either by selling out, or entering into leases with the larger pack-house cold-store, owner operators.”

He points out that corporate pip fruit horticulture commenced in the early to mid 1980’s, and in Hawke’s Bay, through a complex series of mergers and acquisitions, two major corporates now control the bulk of the industry.

David Cranwell

Scales Corporation, with a diverse portfolio in agribusiness, and 2013 turnover of $278 million, listed on the New Zealand stock exchange in June. It owns Mr Apple, New Zealand’s largest apple exporter, producing around 4 million cartons a year from over 1,000 hectares of plantings in Hawke’s Bay.

The other big player is BayWa, a German company, which operates in the agriculture, building materials, and energy sectors in 14 countries, with annual revenue over $10 billion. They now control, once New Zealand-owned and operated, ENZA, Turners and Growers, and Apollo Apples.

The Enzafoods factory in Hastings processes a wide range of fruits into premium juice concentrates, and other food products for the export market, and Apollo Apples has over 500 hectares in production.

Although important to the Hawke’s Bay economy, David Cranwell points out that New Zealand lies 27th in world apple production with around 500,000 tonnes, compared to top producer China at 35 million tonnes.

He doesn’t see overseas investors “breaking their necks to invest in New Zealand orchards or buying land to plant new orchards.” But he does see a future with some exciting new varieties in the pipeline, and he praises energetic, young, owner-operators like John Bostock, who has carved a niche and respected reputation with JB Organics.

Viticulture

Sir James Wattie was known to enjoy ‘a tipple’, and over dinner it’s likely he appreciated Tom MacDonald’s 1965 Cabernet Sauvignon, described by UK wine writer Frank Thorpy as, “The finest commercial red wine ever produced in New Zealand”.

MacDonald’s was one of a handful of Hawke’s Bay wineries; all in private ownership. Today, Hawke’s Bay has over 100 vineyards, and over 80 wineries, many small family concerns, but volume in the industry is dominated by corporations.

Tom MacDonald’s Church Road winery is now owned by giant French beverage company Pernod Ricard, whose other New Zealand wine brands include Montana, Brancott, Corbans, and Lindauer. Their international liquor brands include Absolut vodka, Jameson whiskey, Havana Club rum, and Kahlua.

Another corporate giant, Constellation Brands, based in New York, with an annual turnover of nearly US$5 billion, has acquired New Zealand wine brands Selak, Nobilo, Kim Crawford, Drylands, and Monkey Bay.

Steve Smith

Their ‘Corner 50’ winery on Mangaroa Road, Hastings, was commissioned in 2005 and processes the Hawke’s Bay and Gisborne crops from their own holdings and contracted growers.

David Cranwell points out that, “Corporate interest in the wine industry is similar to that of apples. Many small family vineyards started in the early 1900’s. Now the move is toward purchase or lease of small blocks to give the (corporate) winery the required critical mass, ensuring consistency and the ability to supply all market segments from entry level to top end.”

When asked about foreign investment in the wine industry Lawrence Yule said, “We wouldn’t have Craggy Range or Elephant Hill without it.”

Elephant Hill in Te Awanga was established by German couple, Ralf-Roger and Reydan Weiss, in 2003, and already, with young vines, the winery has achieved outstanding success in competitions, the latest being Champion Wine of the Show at the Spiegelau International Wine Awards for their 2013 syrah. (August 2014)

Susan White of Business Hawke’s Bay signals Elephant Hill as a prime example of the type of foreign investment positive for Hawke’s Bay, because (the owners), “Coming from Europe understand the European market. It’s not just that they’ve established a great winery here, it’s their knowledge and access to the German market.”

Craggy Range is owned by the Australian-based Peabody family, whose patriarch, Terry, teamed up with New Zealand Master of Wine, Steve Smith, to create a world-class winery. Peabody had the money and Smith “provided the wine industry expertise and experience”.

From the outset, Peabody was clear in his intentions, telling Smith, “Within my life time I want what we
do to be recognized alongside the great wine estates of the world”, and together they are well on their way to achieving that ambition.

In a blind tasting of Bordeaux-style wines in San Francisco, Craggy’s Gimblett Gravels 2007 ‘Sofia’ was placed first alongside twelve world-class wineries. As Wine Spectator writer Harvey Steiman noted, “The folks who make wines from Merlot and Cabernet in New Zealand’s Gimblett Gravels district proved that they belong on the same table as those from big-name Bordeaux châteaux”. (Mouton-Rothschild, Pavie, and L’Evangile.)

It was on Steve Smith’s advice that Terry Peabody purchased the Gimblett Gravels land, site unseen, and when Peabody first visited Hawke’s Bay in March 1998 he turned to Smith, and said, “Holy shit, I’ve paid $3 million for a desert”. Stoney and parched is what makes the land so good for grape growing, and it’s arguable that without overseas money the phenomena of the Gimblett success may have taken many more years to mature, if at all.

Terry Peabody’s wealth comes from vehicle distribution and waste disposal. His company, Transpacific Holdings, sold it’s New Zealand operation in March 2014 for $950 million.

The buyer was Beijing Capital Group, a top 500 Chinese company with total assets and revenues exceeding US$21 billion and US$3.7 billion, respectively.

When mentioned to Lawrence Yule, he said, “I met the owner in Shanghai. He told me he was buying it. His same company owns a vineyard in Crownthorpe. He was quite excited and showed me where the land was on a map.”

China

When Sir James Wattie relaxed after dinner he may have read in The Hawke’s Bay Herald Tribune about the turmoils in China; the cultural revolution, the gang of four, and the struggle for succession after Mao Zedong.

Hawke’s Bay ‘Ambassador” Yule at the opening of the Qingdao Wine Museum

He didn’t live long enough to witness the rise to power of Deng Xiaoping, who can be credited with laying the foundations of modern China. Deng was a pragmatist and his philosophy for economic expansion is aptly expressed by his oft-repeated mantra, “It doesn’t matter what colour the cat, as long as it catches mice.”

Lawrence Yule has visited China 26 times over the past decade, making contacts, and encouraging investment. He said, “Many people in China, when they get to a certain level, don’t trust the regime, and they look at minimizing their risks by putting assets and their family overseas.” But Yule is clear he doesn’t want Chinese people buying property in Hawke’s Bay simply to get residency.

“The investments I’ve been looking for are the more prolonged type of investment. There may be residency tied up there, but more importantly it’s about using their resources to add value to our products, that they can then market through their own chains and contacts. A little bit of investment here opens up a whole suite of connections in China.”

Business Hawke’s Bay’s Susan White is on the same page as Yule, and says, “Overseas investment should lead to jobs, and added value to food and beverage. We’re building a value-added proposition in Hawke’s Bay as part of the country wide effort.”

David Cranwell first visited China on business in 1985, and thereafter every year, until his last visit in 2007. He said, “In this period I observed massive changes … I was there a week after the 1989 Tiananmen Square uprising … saw students virtually working in chain gangs … have spoken at length to people who went through the Cultural Revolution. What they endured must have been appalling, but what amazed me is not one held a grudge. They were all positive about China and where they could help take it.”

The positivity of the Chinese people and their business acumen now sees their country as the second biggest economy in the world, and in 2013, China surpassed Australia as New Zealand’s largest trading partner.

Perhaps because China is a late starter in international commerce, they sit 12th as foreign owners of New Zealand assets, behind, in decreasing order: Australia, USA, UK, Singapore, Netherlands, Japan, British Virgin Islands, Hong Kong, Cayman Islands, Canada, and Switzerland.

Now, as the economic might of China intensifies, we are seeing them acquiring assets globally, and New Zealand is no exception. While there was no reaction to the purchase of Peabody’s Transpacific Holdings, there is objection to their acquisition of our farmland.

Food security

With a population of 1.4 billion, and a growing middle class hungry for premium foods, “The Chinese government is planning for any future eventualities that may affect their ability to feed their people, hence their worldwide interest in buying land,” said David Cranwell.

Lawrence Yule identified the key issue. “If you look at the macro geo-politics of the world we are short of food. There’s an insatiable demand for protein.” And as Cranwell points out, “The Chinese Government and private investors are scouring the world to secure food production bases that will prevent any home shortfall.”

Chinese acquisition of New Zealand land came to the fore last year with the controversial purchase of the Crafar farms by Shanghai Pengxin for $200 million (8,000 hectares carrying 16,000 cows). Now that Pengxin seek to add Lochinver Station to their portfolio, overseas purchase of our land has become an election issue.

About 21% of Lochinver is in Hawke’s Bay, sitting alongside tributaries to the Mohaka River. So if the intention is to establish intensive dairying on the flat land, it is of concern to the health of an iconic Hawke’s Bay river.

Of concern to David Cranwell and many other astute observers is ‘vertical integration’, where farmland is used “to produce protein for shipment back to their country with minimal New Zealand input and little, if any, financial return for New Zealand.” And that appears to be Shanghai Pengxin’s intention.

A Hong Kong website states: “6000 hectares of land (will be) converted into cow pastures, (and it) is expected to need to buy 12,000 cows … that through this acquisition, the company will form a milk self-sufficiency, to get rid of dependence on third-party supply for the company to build a line from ‘pasture to table’, a complete industrial chain closed loop.”

Shanghai Pengxin also owns dairy farms in the South Island and a string of processing and marketing companies. It does not supply Fonterra or any other New Zealand milk processor. (A director on Synlait Milk, the South Island company, is former finance minister, Ruth Richardson.)

While Steven Joyce may accuse critics of Chinese land purchases as ‘xenophobic’, the real issue is not who is buying land, but what they’re doing with the produce. As David Cranwell points out, “Allowing offshore buyers to purchase the freehold to New Zealand productive farm land, returning the profits made to their country of origin, is nothing if not short sighted and stupid.”

Supporters of Chinese acquisition of New Zealand land have claimed, “Fonterra has been buying land in China …” (NZ Herald, 5 August, 2014). This is untrue. Fonterra has entered joint ventures and leases land, but it cannot own freehold in China, as Shanghai Pengxin can in New Zealand.

John Key is “comfortable” with the current land purchase policy. Interestingly, the person who headhunted Key to enter politics, former prime minister Jenny Shipley, is at the forefront of Chinese investment in New Zealand. She chairs CCB New Zealand, a fully-owned subsidiary of the state-controlled China Construction Bank, one of the biggest banks in the world, with a pre-tax profit in 2013 of US$45.85 billion.

The Dominion Post reported on 16 July 2014, “The bank was keen to get exposure to primary industries including forestry, fishing, agriculture, and potentially exploration, (and Shipley) said, ‘It would have to fit our appetite and criteria, but we are very much open to significant transactions’.”

Who owns us?

Foreign ownership of New Zealand companies has increased tenfold since the reforms of the 1980’s, and at March 2013 stood at $101.4 billion, which as a proportion of Gross Domestic Product is 48%, up from 14% in 1989.

In the year ending March 2013, corporate profits and investment portfolio income of $15.5 billion left New Zealand (45% from the banking sector). That’s nearly as much as our $15.8 billion of dairy and forestry product exports.

Foreign owners now control 33% of the share market, up from 19% in 1989.

Statistics on land sales to overseas interests are poorly recorded and incomplete, but at least 8.7% of New Zealand farmland including forestry, or 1.3 million hectares, is foreign owned and controlled.

(Source: Statistics New Zealand, Overseas Investment Office, Overseas Investment Commission, via CAFCA Press Release, 7 January 2014)

We don’t know what Sir James Wattie would make of today’s economic climate, but we do know he is quoted as saying, “In unity there is security as well as strength.”

By any definition, selling too many of our assets and land to foreigners, who have no loyalty to New Zealand, carries significant risks. It weakens our economic power and increases our economic vulnerability … consider the number of Hawke’s Bay jobs and incomes beholden to foreign owners. It diminishes our security and arouses disagreement and conflict.

NZ For Sale

The ‘hot potato’ foreign investment of the day is the proposed purchase of Lochinver, a 13,800 hectare station on the Napier-Taupo road, by Shanghai Pengxin. If approved, the second largest foreign acquisition of NZ land. So, what are the rules anyway?

The regulations around foreigners acquiring significant business assets or sensitive land in New Zealand are contained in the Overseas Investment Act 2005, and the Overseas Investments Regulation Act 2005. The Overseas Investment Office (OIO) is responsible for approving applications and administering the conditions attached to the approvals.

An ‘overseas person’ is someone who is not a New Zealand citizen or resident, or a company or entity that is 25% (or more) owned or controlled by an overseas person or persons. An overseas person must obtain consent before acquiring business assets over $100 million ($477 million for Australians) fishing quotas, or sensitive land.

‘Sensitive land’ includes any non-urban land over five hectares, and land set aside for conservation, reserves, recreation or heritage.

The Overseas Investments Regulation Act requires the OIO to be satisfied the transaction brings substantial and identifiable benefit to New Zealand in line with the following criteria:

  • the introduction of new technology or business skills;
  • increased export receipts or exporters;
  • added market competition, greater efficiency or productivity, or enhanced domestic services;
  • introduction of additional investment for development purposes;
  • increased processing of primary products;
  • assisting to maintain New Zealand control of strategically important infrastructure on sensitive land;
  • New Zealand economic interests being adequately safeguarded and promoted;
  • oversight and participation by New Zealanders.

Recent approvals from the OIO affecting Hawke’s Bay illustrate the criteria applied.

19 June 2014: ‘Sensitive land’, being 8.82 hectares at 210 Ruapare Road, Twyford, for $1.25 million between (vendor) JP & HA Nelson Partnership, New Zealand (100%), and Turners & Growers Ltd, Germany (73%) and New Zealand (27%).

In its decision the OIO cited jobs creation and greater efficiency as benefits, and was satisfied with oversight and participation by New Zealanders.

21 February 2013: ‘Sensitive land’, which included 262.3 hectares at Tutira for $4.26 million between (vendor) Roger Dickie Developments, New Zealand (100%), and Ingolte Investments (40%), Italian Public (31%) and various overseas persons (29%).

The benefits OIO cited were job creation, increased export receipts, added productivity, additional investment, increased processing, enhanced indigenous vegetation/fauna, and enhanced walking access.

21 April 2013: ‘Sensitive land’, which included 866 hectares at Te Haroto, and ‘the consideration of which exceeds $100 million’.

This application illustrates the complexity of some transactions. It involved the sale of 51% of Harvard College Fund (USA) shares in Kaingaroa Timberlands Partnership (KTP) to the Treasury Board of Canada and the New Zealand Superannuation Fund.

The sale price was confidential, but an idea of scale is that KTP is New Zealand’s second largest forestry asset owner, after US-based Hancock Natural Resources, and the NZ Super Fund’s 40% shareholding in KTP is its biggest single investment.

Records indicate that meeting the requirements of the Overseas Investment Office isn’t hard, as less than 5% of applications are turned down.

And Public Opinion?

What does the public think about foreign investment in New Zealand?

Here’s a snapshot. According a recent Stuff.co.nz/Ipsos national poll, 74% say the government should make it harder for foreign investors to buy large amounts of productive farmland.

However, just slightly more than half (52%) agree that ‘too much’ productive farmland has already been sold into foreign ownership.

And a larger number (64%) think New Zealand’s economy benefits from more foreign investment.

Mark Sweet02 October 2014

BB19

One response to “Who Owns Us?”

  1. Kathy Maclean (St Mary Hoo, Kent, England, ME3 8FA says:

    This is extremely interesting. I am researching for facts for a book of childhood memories. One of my stories includes the picking of boysenberries on James Wattie’s farm at Mangapapa in about 1955. Am I correct in thinking that there was an orchard at his lovely homestead? And when biking home from school and later work, he used to purr past me in his silver Bentley on his way to his Mangateretere home.

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