What might happen if we restrict foreign ownership in farmland

Personally I see globalisation as a bit of a disaster, which makes this article a bit irrelevant. Unless we all think that the wage arbitrage going on with China where wages are at the Congo levels is a great idea as well. If we all believe in globalisation then wages in the world must eventually even out which I think wage earners and those on benefits may find a bit hard to swallow even if Chinese wages triple. Meanwhile those with cheap fed money get to game the commodities markets.

 Seems the debate wasn’t rigorous enough last time because the percentage of overseas owned land has got worse since then, maybe we need to make more noise about it then not less like Roger Kerr seems to suggest.

 “Foreigninvestment in agriculture is just 1.6% of total foreign investment.” All that proves how ridiculously bad the situation in the rest of the economy has got, we basically own nothing in NZ anymore. 

“The benefits of foreign investment are well understood” all it’s meant to NZ is massive amounts of capital going out of the country every year in profits, that in most other countries would be staying within the local economy.

 “Should other countries ban such New Zealand investment?” don’t care if they do, Roger is vastly exaggerating the amount of investment in overseas farms, it is actually quite small, and in recent times got smaller since the recent sale of land by NZ farm systems in Uruguay.

“Should other countries ban such New Zealand investment?” don’t care if they do, Roger is vastly exaggerating the amount of investment in overseas farms, it is actually quite small, and in recent times got smaller since that sale of the land by NZ farm systems in Uruguay.

Irrelevant spoutings of an agent of the 80s who got us into this mess

Its globalisation that is the issue Roger - get with the play

None so blind as those that will not see......sigh

Land should only be sold to foreigners, setting up 100% sustainable, rather small farm units. This guaranties most needed diversity within the agriculture industry aiming for top quality products.

Aussie banks now own a large chunk of NZ farm land, perhaps they need to apply to the overseas investment commission.

Don't forget that many improvements to our primary sector would not have happened without foreign investment. think Craggy Range, Selini Estate etc. These wineries would not have been built without outside dollars. They now employ hundreds of people. If they were in NZ hands they would still be weedy paddocks. Also many farmers who want to sell their farms for an inflated price unrelated to the income rely on a foreigner to pay a silly price. 

Foreigners quite often come with greedy, megalomaniac plans to New Zealand, which even have the potential to destroy smaller, sustainable and healthy farming communities here. As I wrote above New Zealand has to be very selective.

Skeeter, dont get too excited about the wine industry, throwing names around gets dangerous.

Roger Kerr seems to make many woolly assertions in his article.
 

Selling New Zaland assest off to foriegn interests is wrong on so many levels it is not funny. The idea behind foriegn investment since the mid 80s was sold to us as one in which foreign entities would invest in new deveopments, new industries, to invest in things that New Zealand was not already doing. The strange thing is that this has almost never happened. Foreign investment has concentrated on things that New Zealand had already created and already owned and paid for. Infrastructure, Newspapers, Farms etc. The expertise has been in the main existing New Zealand expertise and the assets revalued and revalued, money flows offshore and we are left to pay.

Debt to foreign banks for assets we used to own (domestic housing) is of course the biggest transfer of wealth from New Zealanders to foreigners that we have seen. And it happened without a murmour.

New Zealand cannot afford to compete with foreigners for our assests. This is a fact, We have to buy things with real tax paid money. The foriegn investor dosen't. The money can come from Soveriegn wealth Funds or oil revenuses or simply bank debt created out of thin air at the time that the asset is purchased and the obligation to pay the interest is made. There is simply no way that we can out bid these sources of cash so we will loose our assests again and again.

Roger ends with:

New Zealand cannot make a practice of adopting policies that are not in its best economic interests and hope to close income gaps with Australia and other more prosperous countries.

Yet nowhere in his article does he explain how selling off the country makes us richer. That is because it doesn't, He knows this.

"In an era of globalisation, any country that restricts capital movements pays an economic penalty."

Remind me again.....China restricts, no prohibits, capital account movements. What overall  detremental price has their economy paid for that action?

Roger, you have in my view simply failed to make your case. I can see absolutely no benefit in foreigners buying up New Zealand farms whatsoever. New Zealand farms and farmers are recognised as being amongst the best, most productive and most successful in the world. It is very difficult to see how a foreign purchaser is going to somehow dramatically make a quantum improvement to something that is already internationally competitive and performing at the top of its game. And I note with some interest that you have not provided us with any examples in your piece to show us where foreign ownership has lead to an improvement and where that innovation was subsequently used by other New Zealanders to advance their farms and businesses to greater profits.  We can't live on rhetoric you know! More likely foreigners will undertake a technology transfer taking the best NZ practices back to their home country and implementing it there, leaving NZ to compete against its own technology quite possibly from a low wage economy.

Moreover you fail to address the geopolitical realties that New Zealand faces by virtue of its location and size. Your argument, such as it is, is limited to a purely business one, but land, farms and farming are so much more than just that. They mean so much more to people than an economic theory/unit/output.  Have you learnt nothing from the last 30 years and the attempts by Maori to seek redress from the Crown for the land that was unfairly taken from them? Have you not listened to them when they say they have a special relationship with the land? Have you not understood what they mean by that? Do you think that that relationship between the land and people just applies to Maori New Zealanders? It does not.

One area where I do agree with you is that when land is purchased, it is not transferred back to the country of the purchaser. It does indeed remain here. So let’s for a change try not selling any of our productive farmland to foreigners and see how it goes? After all if in 20 years time it turns out to be a bad idea, then the land will still be here for sale, right?

Roger Kerr uses facts, reason and sound economics. Unfortunately 99% of New Zealanders are incapable of getting past their own fear, paranoia and inabillity to use logic. This is why our economy is stuffed.

Iain Parker, Iceland wasn't a "free market experiment", it was a massive bubble deliberately inflated by its own government and central bank, with the government giving an explicit guarantee to all its banks. Hardly a free market there. The "public credit" system you advocate suggests you have no idea how capital works or what interest rates are actually for.

A Herald opinion piece the other day pretty much refuted all the anti-foreign ownership of farms arguments but it won't sway anybody because New Zealanders don't understand economics. Maybe if it became compulsory at school we might not all be so ignorant.

Kieefer raises the interesting point that:
New Zealanders don't understand economics

He may be onto something, the trouble is that his remedy seems to be :

Maybe if it became compulsory at school we might not all be so ignorant.

The trouble is what sort of economics would they teach and would New Zealanders be any less ignorant at the end of the process. Pretty much most economics as it has been taught has been found to be wrong and it is economists that are ignorant.

Modern portfolio theory is wrong

Ideas about comparative advantage are basically incorrect

Asset pricing models are wrong eg Black–Scholes model

The whole idea of market equilibrium is lets face it, a load of rubbish in so far as it has been used and abused  so much that it is like a security blanket being clutched by a 25 year old, it offers no security and it is no longer a blanket.

New ideas of economics are emerging that offer some plausible way forward. They are not being widely taught and they will take some time before they are widely adopted. However we can be sure that much of what passes for economic thought today is simply wrong.

This is not a comforting thought.
 

The MP for Marlborough said to a group of farmers last week that agriculture is New Zealand's 'subprime'......he's right. It is a ponzi bomb ready to go off. The banks are farming the rural sector with the blessing of the Cabinet.

In other words...there is no bloody way the indebted agricultural sector can earn its way out of the banking trap...it is stuffed so long as the ponzi scheme is kept going. Younger Kiwi who thought they might go farming face a wall of debt just to buy in. Therefore it is in the interests of the owners to ensure the govt stays very chummy with foreign buyers thankyou very much. That is the game being played and bugger young Kiwi farmers.

Out of sight...out of the media attention...NZ is being touted for sale everywhere....and the OIO will do what it is bloody well told to do.

Meanwhile the financial crisis works its way past the BS and spin from lying pollys and criminal too big to fail banks....the losses are getting larger....the destruction coming closer....Noddy will not escape the slaughter.

Roger as usual, self serving and biased. 

I do not understand why so many businesses here in New Zealand have a start up going into debt - even worse starting up indebted – a terrible culture.

Just filled up on a load of hardwood off the beach in time for this cold front. Heaps of snow on the Kaikoura ranges...Walter should be into the skiing...heaps of property and falling prices down his way....now I must polish off that wild pork for tea.

Roger you are straight out lying when you write:-

"A foreigner wanting to acquire a New Zealand asset has to buy New Zealand dollars. The New Zealand dollar seller will be paid in foreign currency, which will logically be used to acquire some other overseas asset (maybe a farm). The country’s net asset position is unchanged".

"That the countries net asset position is unchanged" is fundamentally untrue ~ for it is the case that the highest bidder pays more for the same asset than what the second highest bid would have paid, so if 1 acre of land has a local highest offer of $1,000 and an international bid of $1,200 then clearly the country has a net gain of 20% - not just to the acre of land that actually sold, also to other land which can be viewed as being 'similar', as a new bench-mark value has been set.

You could be correct Roger if you were to look at this and say, well a 20% increase to the value of our country's land resource has to be a good thing. It closes the gap with Australia and how could people possibly object to the new bank balance on an economic basis?

As you know Roger, the cost of land is relative to the economic return that you are able to retrieve from it over time - so as local bidders better know what the real return on 1 acre of land is in terms of either rent or production, their price (the second highest), is almost always going to be a better indication of the Profitability Point. (A point where both the seller and buyer get fair value in the exchange).

Worse though is that when land is revalued to take into account the 20% increase in value per acre, all land holders are then able to borrow 20% more from their bank - this may also seem great as some of the money filters through the local community and it's great news if you are a banker lending more money.

How-ever, what we are learning about borrowed money and what people are beginning to understand is that money is paid back over time and NOT by the people who take on the responsibility. Actually, the person who pays off borrowed money is the tax payer. 

Ultimately, once the cost of land loses touch with it's ability to generate a return on investment, you have a situation such as America where the whole banking industry has been underwritten by the tax payer and here in New Zealand Mr Hubbard is but a small example there-off, of how banks and business people privatize their profit and socialize the loss.

I can understand why you Roger as the executive director of the NZ Business Roundtable love foreign investment. For me though I hate it because I hate debt and I believe that NZ should derive our standards of living from the output of production / not the means of production.

The factual position is that farmland sales approved since 2005 amount to 0.6% of total farmland and foreign investment in agriculture is just 1.6% of total foreign investment.

So New Zealand should wait until it is a problem?

It augments the supply of domestic capital available for investment and often brings with it managerial expertise, technology and links to markets. Foreign investors employ New Zealanders and pay taxes. All these benefits may apply to overseas investment in farmland.

Short term gain for long term loss. Profits go off shore. FI are not investing in a new capital industry which employs more NZers, net employment benefits are nil. Buying over an existing business which already employs people does nothing. If Toshiba wants to set up a semiconductor manufacturing plant thats a different story altogether....

If NZ doesn't have the managerial expertise and technology to run farms the entire country should be shut down and the population evacuated. The issue  facing domestic  farms is COST not technology or expertise. This is being exacerbated by the open door FDI policy on farms.

In an era of globalisation, any country that restricts capital movements pays an economic penalty.

Nonsense. This is about the sale land and national assets, not capital or trade. Don't confuse the issue.

... many, including Germany, France, the United Kingdom, Portugal, the Netherlands and Belgium, have no restrictions at all – they treat foreigners on the same basis as nationals.

Perhaps their GDP is not so heavily reliant on agriculture? If it was do you think they would allow sale of assets to offshore nationals? 

AND many countries including the US do intervene in the sale of privately held assets to foreigners. Read up on the China CNOOC and Dubai Port World investment attempts that were scuppered by the US government.

If NZ strikes an oil/gas/mineral boom then agriculture would be less relevant to the economy. Right now there is nothing else.

Try buying land for Palm/Rubber/Timber in Malaysia or Indonesia. Please let us know how you get on....

Some countries restrict trade in agricultural products too, but it makes no sense for New Zealand to adopt their policies.

It is not about trade, stop confusing the issue.

The spokesman also said that “once land is gone it’s gone.” This is also incorrect. Some years ago a New Zealand company owned Land’s End and John O’Groats in the United Kingdom: iconic sites par excellence. Then it sold them to an English buyer.

You're saying that farms "could be", "possibly", "maybe" sold back to NZ owners - and this is based on an offshore example. You have listed your own example further on which proves this not the case:

 New Zealand Farming Systems owned farms in Uruguay (now being onsold to Singaporean interests).

You can’t physically take land away, nor can you force any owner to sell to foreigners.

You CAN stop the sale of farmland selling to non-residents very easily.

Should other countries ban such New Zealand investment?

That's up to them to decide. NZ does not dictate domestic economic policies of other nations, nor should the reverse be true.

If foreign investors are excluded, farmers wishing to sell may see their assets significantly devalued. As prime minister John Key has noted, this could push some highly indebted dairy farmers into negative equity positions.

If they overpaid, then it's their problem. They bought it  domestically, they can lose it domestically. Why the need to add foreign buyers to the equation? 

... there is an arguable case that landowners should be compensated for their losses by the government acting on behalf of the public.

No there is not! Governments intervene on the sale of key private assets all of the time. CNOOC China purchase of US gas UNOCAL was opposed, as was Dubai Ports World purhase of P&O operations in the US.

The economic arguments for a liberal overseas investment regime, including for land, are strong in today’s global economy. 

You mean the political need for external bailout to prevent land prices plummeting is strong.

Nevertheless, New Zealand governments are entirely at liberty to impose tighter restrictions for non-economic reasons.

Stop making false absolute statements. The reasons are entirely economic. 

If they do, however, the community should understand that they come at an economic cost.

Not doing so comes at an even higher long term cost.

New Zealand cannot make a practice of adopting policies that are not in its best economic interests...

That was the only part of your article that made any sense.

Whatever. Farming (and perhaps forestry) is the single worst productive use of land by every measure. Income and GDP generated, wages paid, wage rates, pollution, cost of infrastructure per dollar of income. Mining beats it hands down, and industry beats that hands down again.

International terms of trade have been going against exporters of agricultural products for decades. We are thinking about this all wrong. There have seldom been "good times" for agricultural producing nations, however fondly we might remember them.  Mostly, we are helpless price takers on international markets, and there are numerous countries around the world that potentially could produce a LOT more than they do. Brazil alone could knock international prices down yet another few notches. And if Africa sorted their cultural issues out.......

The most logical use of agricultural products is to feed your own "value added production" workforce as cheaply as possible. All we are doing is feeding Japan's "value added production" workforce as cheaply as possible so we can buy their value added products - which is where all the wealth generation and income growth in the world economy has been for the last half a century.

Our single worst insanity on economic grounds is not a question of who owns farmland; it is our refusal to convert farmland as rapidly as possible to more productive uses, and using urban planning and zoning to force the most valuable producers (and their workforces) to pay dozens or hundreds of times as much for land as farmers do. This is just plain nuts. Especially stupid, is that the possibilities for young entrepreneurs like Bill Gates to get themselves a cheap half acre and a tin building straight out of school, in which to do their experiments - like Bill did - have been closed shut with a bang. DUH, New Zealand, DUH, DUH, DUH.

Look, the amount of land necessary for industry to provide ten times as much income for the country as farming does, would be about one tenth of the land currently used for farming. We could do this and STILL export almost as much farm produce - but the figures would hardly rate compared to what the newly expanded industrial sector would be doing. We could actually have around 80 million people, and be a serious competitor to Japan and Taiwan and Korea, and STILL be self sufficient in agriculture.

The crowning hypocrisy in all our conservation mania, is that if the alarmists are right and the world is running out of land and resources, guess what happens one day to an underpopulated and undefended land mass like NZ? It's not our descendants we're leaving the resources in the ground for, it's whoever invades us. So where is our consistency regarding defence and alliance issues?

Gotcha Phil : I will stop ferret farming for fur , and will teach the little guys to manufacture pick axes , and then I'll  send the furry feckers down to the basement to start digging for oil .

Being a capitalist is so easy peasy ............ if someone else does all the actual work !

Spot on Roger.  Good on you for extolling the positives of foreign direct investment even if the simpletons on this website can't understand it.

We may worry about foreign ownership but what about the ownership rights in our own back yard. I just got this in my email box from the coastal coalition.

If the Marine and Coastal Area Bill goes through by the end of summer, the public will no longer have the guarantee of free access to any area controlled by Maori. John Key has dropped that fundamental guarantee from his new Bill. That means iwi will have the right to charge fees for fishing, surfing, boating, swimming and all beach related activities in claimed areas.

www.CoastalCoalition.co.nz <http://www.CoastalCoalition.co.nz> .  

Great reply.

This classic mantra from the neo-liberal toolkit (used by Roger above) always puzzles me:

A competitive sale process open to those who value them most is the best mechanism for allocating resources to their most productive uses. 

A bucket of water is for sale.  There are two bidders.  A man dying of thirst and a man with a rose garden.

The man dying of thirst cannot afford to outbid the man with the rose garden.  The water is sold to the man with the rose garden.

I wonder if Roger Kerr can defend the notion that the rose garden was a more productive use of the scarce resource?

Would it be as simple as non gummy Roger would have it, swapping "one asset for another" except that one of them is one thing, and one thing only, debt.

"You can’t physically take land away"

but you may have hoped to retire in a nice area and be unable to afford it as Harcourts agents have scouted the globe with their "products". You are stuck with the traffic, neighbours looking in and rate increases to pay for the sewage upgrade.

"The benefits of foreign investment are well understood. It augments the supply of domestic capital available for investment and often brings with it managerial expertise, technology and links to markets. Foreign investors employ New Zealanders and pay taxes. All these benefits may apply to overseas investment in farmland."

You could apply that to the Taiwanese company growing tea in the Wairarapa, however Chinese are clannish and there are many Chinese working that operation (I think).

"In an era of globalisation, any country that restricts capital movements pays an economic penalty."

Except when a country is in a distressed state and the capital is coming after key assets?

"The Save the Farms lobby appears misinformed on some issues. A spokesman has suggested other countries restrict foreign ownership of land. But many, including Germany, France, the United Kingdom, Portugal, the Netherlands and Belgium, have no restrictions at all – they treat foreigners on the same basis as nationals."

They wouldn't need restrictions as they are in densly populated countries and their prices would be at the top.  When they sell up and come here they can afford the best land and up goes a new house silos etc.

"The spokesman also said that “once land is gone it’s gone.” This is also incorrect. Some years ago a New Zealand company owned Land’s End and John O’Groats in the United Kingdom: iconic sites par excellence. Then it sold them to an English buyer."

In this case however people are thinking food shortage & water shortage due growing consumption in China (and other places) and climate change- melting glaciers in the Himalaya. There are also energy concerns on the horizon according to the IEA.

"

Some of the recent debate surrounds possible Chinese investment in the failed Crafar dairy farms and sales of farms owned by South Canterbury Finance.

These were poor owners of valuable assets – scarce capital was wasted."

I'm not sure SCF farms were badly run??? AH says New Zealnders aren't savers and foriegners have money we can only dream of, so lets not pretend this is the economic system ticking along like clockwork, somepeople have thrived in the big party prior to the crash; if they have lost it is only in a relative sense. What did the business Roundtable have to say about asset inflation? The Property Council (6 $B in assets and 24 Corporate members)?

"A competitive sale process open to those who value them most is the best mechanism for allocating resources to their most productive uses."

Except that the bidders have different sized pockets coming from different countries.

Sore-loser, you should rename yourself 'chip-on-the-shoulder'.