Debate over Chinese investment in New Zealand agriculture has re-emerged following Shanghai Maling’s acquisition of 50 percent of New Zealand’s largest meat processor, Silver Fern Farms (SFF). Despite Ministers blocking Shanghai Pengxin’s application to buy Lochinver Station in September, New Zealand remains open to foreign investment provided it is likely to deliver greater benefits for New Zealand than comparative local investment. With Shanghai Maling’s $261 million bid significantly stronger than its $90 million late challenger, SFF shareholders will probably vote in favour of the partnership when they meet on 16 October. From there, Overseas Investment Office (OIO) approval is expected to take six to nine months.
As the Lochinver decision demonstrates, Ministers do not need to follow an OIO recommendation. However, SFF’s weak financial position, Shanghai Maling’s connections in China, the joint partnership structure of the deal and the fact the transaction does not involve any significant amount of land all point towards the sale getting the statutory and political green light. Furthermore, following concern over the Lochinver decision by high-ranking Chinese officials the Government will be keen to show it hasn’t soured to Chinese investment.
The problem with this argument is that it is not unique to Shanghai Maling. It applies to any company with distribution channels and extensive retail presence overseas, characteristics that make Shanghai Maling attractive to begin with. The question is not therefore whether New Zealand businesses will ‘lose control’ by partnering with overseas companies, but whether they can afford not to. The scale of most New Zealand businesses means they cannot afford to acquire controlling stakes in large distributors or retailers overseas. The alternatives of setting up from scratch or entering supply contracts with retail chains simply replicate the same types of concerns. New Zealand businesses have to be willing to dance with bigger partners if they want to dance at all.
It’s important to address concerns about the long-term implications for New Zealand’s meat industry. It’s been suggested that the SFF sale could end up pushing the country’s second-largest meat processor, Alliance, out of business. Alliance, for their part, would fight hard to keep their suppliers on board, and farmers who prefer a 100% New Zealand-owned model are free to switch over. Regardless, the real issue is not whether one processor eventually comes to dominate the market, but whether competition is fairly managed. Anti-competitive behaviour is illegal, but paying suppliers more for premium products is not. Shanghai Maling’s 38 per cent stakeholder Bright Foods already offers a premium for grassfed milk through its subsidiary milk processor Synlait.
An argument that takes a slightly different tack is that New Zealand should endeavour to keep ‘iconic’ brands in New Zealand ownership. This argument could have merit but lacks articulation and is inconsistently raised. Much less public attention was generated by the sale of snack-maker Griffins to a Philippines-based company last year for $750 million. Admittedly, Griffins has a long history of foreign ownership, but there was no campaign for New Zealand bidders to band together and ‘retake’ the brand as SFF is currently experiencing. There is also low public awareness around existing levels of foreign ownership in agriculture. For example, French beverage giant Pernod Ricard counts New Zealand wine labels Brancott Estate, Corbans, Montana, Saints and Stoneleigh among its vast stable of brands and uses its vertically integrated structure to more efficiently export New Zealand wine overseas.
One final concern to be addressed is that the SFF deal could promote excessive reliance on the Chinese market. The Government is aware of a public perception of a ‘China dependency’ problem and has become increasingly vocal about its efforts to diversify New Zealand’s economy, both in terms of the products New Zealand exports and the export destinations. On a recent visit to Malaysia, Trade Minister Groser described the NZ-ASEAN free trade agreement as New Zealand’s “number one insurance policy if things go the wrong way in China.” As long as alternative markets for New Zealand meat remain viable - and with the recent signing of the TPP this is certain to be the case - the China dependency problem will remain insignificant.
Shanghai Maling may not end up making SFF as famous as Coca-Cola but it shouldn’t have to in order to be considered a good business partner. SFF made a $31 million loss in 2012, a $29 million loss in 2013, and a $500,000 profit last year. Not much to write home about for a company with $2 billion in annual revenue. SFF’s outlook may be improving, but that doesn’t mean it should be business as usual for the co-operative. Shanghai Maling’s facilties, expertise and stores could be exactly what SFF needs to lift its performance and in the absence of a good reason why this investment is more objectionable than what New Zealand has arranged with others it should be allowed to proceed on its merits.
Photo credit: Deborah Macleod / Fairfax