New Zealand's largest corporate farmer is Government-owned Pāmu who deliver a modest return, but trial many alternate land use options

Pāmu (or Landcorp as most still recognise it as) has got into the news lately. The latest item being the news that CEO Steve Carden, after 8 years with Pāmu, has resigned and taken up the role of Managing Director of the Delegat Group. Delegat is well known for wines ranging from Oyster Bay in Marlborough to the Barrossa Valley Estate in Australia.

Carden’s role at Pāmu was noted for his drive to put the business on a more sustainable basis. His replacement is yet to be named.

The other news coming out of Pāmu was the publication of their financial results for the year just finished (June 2020-2021). Consistent with the last four years they have managed to provide the government shareholder with a $5 million dividend. Given the long periods prior to 2018 when the government received nothing from the country's largest farming enterprise this has to be seen as a positive.

This has been a similar return for the last 4 years, so we can only assume that Government is satisfied with this return.

The EBITDA at $61 million is slightly down on last ($65 mln) providing an after tax profit of $29 mln. Given the total assets of Pāmu come to around $2 billion, $61m is an ordinary return, but solid. To put this into context it provides an approximate 3.05% return on assets in the business.

Around the country other farms not owned by Landcorp are producing mixed returns (as percent of assets). Looking online at one comprehensive set of 2020 Dairy farm accounts the average annual return on assets are 7.7% with the top 20% at 11.2%.

Beef and Lambs provisional returns for a Sheep and Beef Farm are 1.2% pa. This make the Pāmu result appear reasonable.

Obviously, there is a lot more to the Pāmu portfolio than dairy and sheep and beef with deer and forestry among others as major contributors. Forestry appears to be where a lot of emphasis is going into the future. Their aim is to plant between 1,000 and 2,000 ha’s per year between 2020 and 2029. Currently the ‘business’ has 12,357 ha planted plus another 16,000 covenanted (much of this likely to be in Molesworth station). The total area of plantation within Pamu owned land is less than 10% although this is likely to increase to over double that with the current forestry strategy.

The current price of carbon provides early returns and is no doubt a great motivator here.

The irony is that Landcorp (originally Land and Survey Dept) was set up in part to ‘rescue’ run down and often reverting farms and get them back into pasture and establish private farmers on them. How the worm has turned.

While I still have a problem with the ‘why’ New Zealand governments feel they need to own a state-run farming entity, especially when there is so much need elsewhere, it seems as though it is here to stay for the foreseeable future. Of all the political parties only ACT have challenged the benefits, or lack of, from the government owning farmland. However, that was back in 2016 with little scrutiny since.

One area that seems to be turning up trumps for Pamu is its involvement in sheep dairying. As 50% holder of Spring Dairy it is steadily gaining traction both in New Zealand and in its export destinations.

It recently beat off Nestle’ and China Feihe (the dominant infant formula company in China) to win “Best infant nutrition” product at the World Dairy Innovation Awards.

The company is aiming to have 40,000 dairy sheep by 2025 quite a jump from the current 15,000 and a rapid increase from its beginnings with one farm in 2015.

Of the other alternative streams Pāmu is involved in is deer milk, and an investment into avocado growing is also a step away from its traditional roots. The sheep and deer dairy investments may show that the best use of Pāmu is to trial new alternative potential farm income streams that most farmers couldn’t contemplate due to cost and risk of failure.