By Gareth Vaughan
If New Zealand is to benefit fully from growing agricultural export opportunities in Asia, New Zealanders need to welcome international capital into the country and realise that their land isn't going anywhere even if foreigners buy it, or else sit back and watch other countries steal the opportunity, says ANZ Group CEO Mike Smith.
Speaking to interest.co.nz in a Double Shot interview, Smith said ANZ's recently released Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand report didn't make sufficiently clear how big New Zealand's need for equity investment is if it's to embrace the opportunity.
Smith outlined the findings from the report, commissioned by ANZ and done by Sydney-based consulting firm Port Jackson Partners, in a speech in Auckland in September. In this he said New Zealand could more than double the value of annual agricultural exports by 2050 and generate an additional NZ$550 billion of revenue, or potentially as much as NZ$1.3 trillion, as Asian demand for protein surges.
And speaking after the release of the report in October, Graham Turley, the managing director of ANZ NZ's commercial & agri banking, suggested a huge amount of capital would be required to obtain such a level of agricultural export growth with an estimated NZ$210 billion needed to drive growth and profitability and NZ$130 billion for farm turnover.
NZ 'perfectly positioned for exponential rise in demand'
Yesterday Smith said the rise in Asian demand for the type of agricultural products New Zealand produces was going to be "exponential" and New Zealand was perfectly positioned to capitalise.
"But the key is access to capital," Smith said. "Perhaps what that report didn't make sufficiently clear was that that is equity capital. You need to bring that in."
"New Zealand traditionally has relied upon international investment. And it will continue to have to rely on international investment because it can't generate that capital on its own from a domestic base, quite clearly, it's just too much," said Smith
"You're talking $300 billion, $400 billion. It's therefore very, very important to welcome international capital into the country and that's maybe where there's a bit of an issue."
Quizzed about the controversial topic, and hot political potato, of foreign ownership of New Zealand farms, Smith said this was an emotive issue rather than a rational or logical one.
"The land is going nowhere. It stays here. And if you think back through history, most of the (foreign) capital has come from the UK, or from Australia, or from the US. It's now coming from Asia so what's the problem?"
'Debate the elephant in the room'
Smith said the "hard choice" New Zealand faces is if we don't welcome Asian capital and investment, it'll go somewhere where it is welcome.
"And that's the hard choice. So as a farmer do you want that opportunity to be realised or are you willing to let it go to Argentina or to Brazil, or to the US or Ukraine, or wherever?"
"So I think that's the issue, that's the elephant in the room. It has to be debated. But as I say, I think it's an emotive issue because you can't take the land with you. It's always going to be here."
Smith's comments come after the long running push by China's Pengxin International Group to buy the central North Island Crafar farms out of receivership faced strident opposition but ultimately succeeded. Critics of asset sales to overseas interests such as Milford Asset Management's Brian Gaynor argue New Zealanders need to develop long-term investment thinking, realise there are good returns to be made in their own country, and stop selling all their assets to foreigners or resign themselves to being "serfs in their own country."
Meanwhile, in terms of tapping into the Asian opportunity, Smith suggested it was important for the Government, the agricultural sector, business - including producers and downstream operators looking to add value to agricultural commodities - to work together, with the education sector, to recognise this as New Zealand's opportunity for the future.
"On the doorstep there is this massive demand for protein and calories which is going to be virtually unsustainable, it's huge the growth," said Smith.
'Farms need to be properly structured in terms of equity & debt'
Asked about the Reserve Bank's recent highlighting of a worsening of the indebtedness at some of New Zealand's biggest dairy farms, Smith said any business - including farms - needed to be properly structured in terms of the amount of equity it has to debt.
"That goes without saying. And I think to become too highly leveraged in an agricultural business is quite dangerous in terms of the (economic) cycle being much longer of course than a normal business, so it is more vulnerable if it has high levels of debt," said Smith. "So I can understand where they (the Reserve Bank) are coming from."
ANZ New Zealand is the country's biggest rural lender.
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The ANZ report Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand has been serialised on this website in seven parts, which you can find here ».
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