With the lift in the dairy milk forecast, the election result, and the All Blacks hard fought win over Ireland, for many on the land the week has gone pretty well.
With such highlights it has been difficult to dig up many juicy bits to delve into so one was forced to go back and look at what National and ACT in particular said prior to the last couple of elections which may have relevance to farming today. One area of interest is attitudes towards Pāmu, or LandCorp as it is still likely better known. This SOE is the last of the crown jewels that was not sold off post 1984 elections and subsequent sell offs and yet it has a high capital worth, somewhere around $2 bln but provides a very low rate of return (often a loss) and provides very little in the way of ‘public good’ to society in general.
When one looks at the speed the Auckland Council has downgraded its ownership of Auckland airport to help balance the books, I have always found it odd that now past government did not see fit to examine both the benefits and the funds that could be provided by a sell down of the LandCorp assets. Let’s face it, New Zealand has come through some pretty tough times recently and if any time could justify cashing in some of the jewels then now would be a good time.
ACT in particular has been vocal in the past about its belief that LandCorp. As far back as 2016 the then Primary Industries spokesman Mark Cameron was calling for its sale. “State-owned enterprises shouldn’t be competing with Kiwi businesses, and there’s no greater example of this than LandCorp”. This view was reinforced by Leader David Seymour both then and more recently (September) when talking about SOE’s Seymour said “but one state agency, the farming group LandCorp, or Pāmu, would be sold off entirely.”
So quite unequivocal about selling it off.
While the dust is still to settle on who takes up what portfolio’s in the new cabinet there is a reasonable chance, especially if the new government wishes to curry (more) favour with the farming sector that ex Feds leader and ACT MP Andrew Hoggard will have a role. While Federated Farmers appear to be agnostic over LandCorp Andrew Hoggard has accused LandCorp of “throwing other farmers under the bus”. Federated Farmers rejects these new tax proposals, Hoggard says. This was when LandCorp was suggesting to the then government in 2018 that they supported the idea of some “environmental taxes” (Hoggard is ranked fifth out of 11 MPs ACT has in the new Parliament). So, ACT maybe likely to be pushing for Land Corp’s sale especially if it means it can be seen to balance the books. Currently Simon Court (Te Atatu) is their agricultural spokesperson and is also likely to make it into parliament as he is currently on at eighth on their list.
National, based on their past comments should be receptive to the idea. Firstly the cashed-up assets will be attractive and secondly the principle of selling off an SOE should not be too unsettling (I could never understand why the left governments were averse to it). Their current agricultural spokesperson Todd McClay back in 2015 as Minister for SOE had considered the idea of LandCorp selling off some of its farms to “contain rising debt”. Closer to the present in 2017 then National primary industries spokesperson Nathan Guy said the government owned a large number of commercial farms through LandCorp, but there was no clear public good coming from Crown ownership and little financial return to taxpayers.
Closer to this election, National seem to have got cold feet about selling off saying “Improving LandCorp performance, productivity and financial return would be a focus for National if it becomes the government after the election". National’s agriculture spokesperson Todd McClay said "improved returns from LandCorp would provide another source of funding for the government to invest in New Zealand infrastructure”. While LandCorp has shown an improved 50% to $33 mln Net Operating Profit this year to June 2023 after tax it is a -$9 mln loss. Even Treasury are questioning the wisdom of keeping the SOE on the government books. In one section of a review (2021) they say:
• LandCorp has made fifteen Group EBITDAR forecasts across the last five years FY2016 to FY2020 (three years forecast in each), of which just five have been within 10% of actual EBITDAR. Historically, there appears to be a strong contextual bias from the year in which the forecast is made.
• The hypotheses that most of the forecast variance is attributable to volatility in the farming divisions is false. LandCorp has had several significant windfall gains over the period especially with $8.1m of carbon credit allocations in FY2016, and $7 million in FY2020 mainly from the sale of Westland shares. LandCorp has also suffered significant losses against forecast EBITDAR through its investment in off-farm activities with Pāmu Foods, Spring Sheep and FarmIQ all performing below forecast. Our analysis of those enterprises (see later sections) shows a general theme of over-estimating revenue growth and underestimating the risks involved.
One of the concerns some politicians appear to have with the selling option is the ‘risk’ of overseas ownership taking up the majority of the sales. How the land is divided up could depend upon the philosophical purpose behind the sales.
If getting out of (another SOE) and assisting young farmers into farming is a goal then leasing could be an option, the country retains ownership and returns must be more favourable than the current model given the overheads and pretty average performance being currently achieved.
If a complete sale is the preferred option and utilise the capital for more urgent social needs etc. then I’m sure over time with a trickle out process most farms (112) could be disposed of profitably, especially if government puts in some strict OIO clauses around them.
However, I’m not holding my breath to see anything happen. Politicians are long on rhetoric but make surprisingly few actions (in my view), but ACT may bring some fresh activity to this this topic. As usual time will tell.
21 Comments
Pamu is actually a fantastic way to upskill young employees, experiment in farming techniques (most farm experiments outside the universities occur on Pamu farms).
I unironically want to purchase/confiscate and redistribute land (after training/courses to learn how to farm + farm experience) from the aristocratic landowners as it is. Provide low interest, no deposit loans for qualified farmers. It is literally what the Labour government did in the 30s and after the land was taken off the huge forestry land owners of the late 19th and early 20th century.
If you want a free market society, look at Lebanon or any other third world state where everyone is an 'entrepreneur' because no one has secure work. The market is a product of the state and appropriate regulation facilitates the market, not the other way around.
About 25 yrs ago a quite Snr manager at Landcorp told me the farms were being held as a reserve pool for Maori land claims.
I like to see them swapped out for the Kaimanawa Maori blocks (and other special areas) rather than sold off to the foreigners - which will be the Nat/Act idea.
Break up Landcorp and sell most of it off.
Keep some in tandem with the Universities for trials and experimentation.
Sell the rest.
It doesn't make an economic return and doesn't seem ever likely to.
It changes direction and focus so often you get giddy just watching it spin - left to deer, right to dairy cows, left to sheep milk, right to pine trees and back again.
It advocates on behalf of farmers when the board has no idea what our lives are like in the real world. Take its' public utterances on emissions.
Don.t fear overseas buyers as they will not meet the new/old criteria for NZ benefit.
Break it up into bite size blocks and sell to young NZ farmers - plenty of creative funding options, lease, lease to buy, equity partnerships.
Te Kooti - Have you been over Landcorp farms recently?
'Incubator for agritech' suggests research and innovation and importantly the ability to transfer that knowledge to the farming community. We already have agencies including Universities and bodies such as Dairy NZ for that sort of work. Others such as Craigmore with a strong social and environmental focus are doing a much better job.
Landcorp has become a corporate entity with muddled goals, mixed messaging and no need to deliver financial performance. That is not a role model for a successful NZ farming future.
In comparison NZs' National Parks role is to protect our most famous natural landscapes and flora and fauna while giving the general public access to use and enjoy their cultural, historic and scenic value. They do a great job.
Landcorp, on a whole are a financial disaster. Very poorly run in a financial sense in general. Farming sucessfully is based on having a clear goal and working hard towards that goal. This is where Landcorp fails. Farming sucessfully is not achieved in a 40hour working week per person. To work well beyond 40 hours per week, requires true passion, sustained over many years. True passion is what is required to succeed in farming, and platforms such as Landcorp fail to deliver this across the board. These requirements are what set farming apart from most other buisinesses. You are dealing with a land assett, that derives income from a living and breathing biological system. This is what makes a government, trying to run a farm properly almost impossible....way too many variables for a clunky Landcorp type SOE to run properly in a financial sense.
There is no reason why privately held assets cannot be an incubator for agritech. Many landowners seek innovative ways to improve efficiency and output and to diversify into new commercial initiatives. I don't look at it as being about a return to government (or not) - it's more a matter of any non-resident owner (be it government or business) is likely to be less concerned with generational stewardship.
The problem is once an asset is sold its gone look at all the hydro power stations still making good money. And if sold off and the money balances the books who is to say in 10 yrs we ain't back in this predicament yet again. What Nat and Act should do is look at Air New Zealand 51 percent owned by govt rest owned by shareholders but ANZ is runned as a corporate and accountable Land Corp could be set up that way but alot of the land is set up in areas that are harder to farm that is what Lands and Survey was originally set up for to take on large swaths of Land then clear and develope them but usually were large Land holdings in remote areas. Alot around Taupo was Lands and Survey because in the 50s they didn't realise that because of pumice Land stock weren't getting selenium and B12 so were dropping dead. So only sheep were run and eventually pines as that grew well in pumice only after the discovery of B12 did beef then dairy take off. Thanks thou to Landcorp for originally developing this Land.
Landcorps production in kg of product per ha is laughable when compared to private farms.
However I don’t think a wholesale sell off is a great idea, as it will just be bought by large corporates, forestry and overseas buyers looking to make a dollar.
Better to lease to keen innovative young farmers with the option to buy the land once they’ve proven they can make it work.
From what I understand they have some good farms but some are tough and I would guess that anyone would struggle to make a profit in many. Some senior people have told me they would love to see the back of some farms that bleed money every year.
If they get sold it is incumbent on the crown to get the best price possible for all NZers.
Based on the reality that most farmers will struggle to even make wages this year who will fund them? (Talking to my farming friends, sheep and beef mainly, things are grim and looking at the aussie meat schedule it's not good - just saw a fresh leg of lamb at supermarket for $14 per kg already!!)
I believe we are in a new world and the easy times are over. China will not be as it was and cheap money is gone. All our primary products will be priced lower.
We may think Pamu makes nothing but so do over 50% plus of dryland farmers if you account for wages. Just look at BandL figures and take wages for the owner off. Pamu accounts for all wages, depreciation etc so in some years is way ahead of the majority of individual farms if you compare apples with apples.
Talking to a brick wall as people do not look at hard numbers I feel.
Jack Lumber - I agree with many of your points, my issue is not with the on farm staff but with Landcorp itself.
Your comment about some of the harder farms is no secret and an example of management either not making or being unable to make normal business decisions.
Landcorps' original reason for existing is no longer it's purpose.
It used to have a strong management and staff buy in to competitive on farm performance - I don't believe that is still the case. That included building over many many years some of the best beef genetics in NZ.
Landcorp has lost strategic direction and over recent years, has been "will o wisp" chasing the latest farming fad, and I emphasis chasing - not leading.
Landcorp's survival is solely a political decision or lack thereof.
On one issue I disagree, it is not a requirement to sell to the highest bidder, the sale process must take into account social obligations of selling such a large land area and the original intention to assist young farmers onto their first farm.
What are we giving up by its' sale?
I don't disagree on its purpose etc although I'm not sure everyone sees the social objective vs max price as ok. It would be seen as a gift to some.
My point is many of these farms could/would be a poision chalice to some young farmer as they are not economic - that's my point we have a lot of farms which aren't "profitable" in the true sense of profit. In effect a lot are lifestyle at best and the decline of drystock numbers over the past 30 years shows it dosnt work - in the end they close up. We seem incapable or just can't accept that what worked with subsidies and a captive UK market dosnt work anymore on a lot of land.
Having spent 3 months in Europe if we think all the things like ESG, animal welfare, emissions etc etc are going away we are dreaming. For the people with the money to pay what we need it's top of mind and their next generation even more so. If you tell them to sod off they will along with their wallets.
It's not getting easier or going back to what it was even pre covid - covid has fast forwarded the world by 10 years plus by my observation and discussions in Europe. They don't care if we sink into the ocean in reality.
Jack - Your views seem more critical of the survival of sheep and beef farming in NZ in general rather than whether we should retain Landcorp.
I agree with your comments about farming classes 5 to 8 country being a constant struggle. Never mind also trying to carry the corporate overheads of an organization such as Landcorp.
Trees allowed a lot of this country to be retired from farming, unfortunately there were no parameters on what country could be planted and concerned communities reacted to the speed of change. The government added uncertainty to the carbon market and now the participants are waiting on the sidelines.
As you predicted the farmers trying to sell now are the ones missing out financially as farm prices reset lower.
I’m certainly not anti farming. What I’m saying is I don’t disagree on asking what is the purpose of Pamu in todays world - that’s a very valid question. What to do with it is a harder question as all sorts of other things are involved.
My point is a lot of farming is not profitable - we need to try and improve this, but simply selling the poor parts of Pamu to a young farmer is a bad decision for all. It’s about being honest on what works and doesn’t. We are facing another big change in markets, population composition (here and overseas) and ongoing tech development etc etc.
The tree thing is interesting as it allowed many to exit when there where no buyers - this is happening again as I hear reports of farms where they can’t get any offer - all very well to not want change but if the current use isn’t working what will happen? That’s why we have seen rural areas dying for the last 30 years apart from where dairy has grown - there’s no money - nothing to do with trees. It’s going to be interesting.
With those levels of debt (8%), and still not being profitable, is crazy.
I dont buy into using the class of land as an excuse for profitability. At 8% debt, and not making profits shows big problems. There are plenty farms on tough country in the private sector that perform well. Landcorps structure prohibits even the good managers from being able to run things efficiently. There are some Landcorp blocks in this neck of the woods that perform very well from a physical viewpoint, and some on equally good land that are straight out poor.
I personally think Landcorp has deteriorated from what was a perfectly acceptable farming model at the time, to an outdated set up, that has not been able to keep up with change. I feel thier scale and just the fact that they operate under over regulated govt systems hinders thier performance.
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