The proposed sale of the Crafar farms to Chinese interests is an important national issue.

Such a sale will establish an important precedent because China has enormous savings and foreign exchange reserves that could be used to buy large tracts of New Zealand farmland.

Based on the experience of the forestry industry, which is now mostly overseas-owned, this would not be in New Zealand’s best economic interest.

The New Zealand forestry industry was considered to have excellent growth prospects in the 1970s and 1980s.

Two forestry development conferences, in 1969 and 1975, painted a glowing outlook for the industry, and at the end of 1984 Fletcher Challenge, which owned Tasman Pulp & Paper, was the country’s largest listed company.

The NZX’s third-largest company was NZ Forest Products, in ninth position was Carter Holt Harvey, which owned the Pan Pac pulp mill near Napier, and in 13th spot was Winstone, owner of the Karioi pulp mill.

Forestry analysts held the top position in the research departments of stockbroking firms as domestic investors wanted to hear the latest news on international newsprint, pulp, sawn timber and log markets.

Forestry dominated the NZX as companies expanded overseas as well as in New Zealand.

Fletcher Challenge bought large industry assets in Australia, Canada, the United States and the United Kingdom, and Carter Holt Harvey acquired a 50 per cent interest in one of Chile’s largest forest products groups.

Our forestry companies were also expanding domestically.

Brierley Investments acquired Winstone and sold it to Fletcher Challenge, and Carter Holt Harvey bought the Spencer family’s Caxton paper tissue operation and NZ Forest Products.

Chile also had a fast-growing forestry industry, but we held the view that our “number 8 fencing wire mentality” and “Kiwi ingenuity” would ensure we stayed well ahead of our South American competitor.

Indeed, the New Zealand sector gave considerable assistance to the emerging Chilean forestry industry, much of it on a pro-bono basis.

Another forestry study, published in 1992 and co-authored by current Deutsche Bank analyst Dennis Lee and National MP Paul Quinn, identified the industry as having significant potential to contribute to an export-led recovery.

But the report concluded that the industry’s outlook was not as good as it had been 20 years ago, for several reasons, including poor government policy settings, a lack of industry co-ordination and the shortage of equity capital.

The authors concluded: “The market opportunities for New Zealand require considerable development effort to achieve a successful outcome.

“A more focused, professional and effective marketing performance by New Zealand’s industry is required including an extended involvement further downstream in the distribution chain.”

They argued that this was more important than our “environmentally positive” or “clean green” image.

These comments could be applied to almost all New Zealand’s export industries as our business model is often based on “kiwi ingenuity” at the production stage and a “clean green” image at the marketing end in lieu of strong international distribution avenues.

Jim Delegat, of Delegat’s, and Stefan Lepionka, of Charlie’s, are chief executives of listed companies who realise that strong overseas distribution channels are far more important than a “clean green” image.

The big forestry companies and most of New Zealand’s large forest plantations were acquired by foreign interests or Graeme Hart in the 1990s.

It has been all downhill since then as far as forestry and its effect on the domestic economy are concerned.

The Chilean forestry has substantially outperformed us in terms of exports, particularly since 1970.

The South American country has increased its share of the world’s forest products from 0.32 per cent in 1970 to 1.96 per cent in 2009.

Our world share has increased from 0.58 per cent to 1.05 per cent over the same period – New Zealand was less affected by the global financial crisis because Asian markets held up better than North American and Latin American markets.

The most frustrating aspect of our forestry industry under foreign and Hart ownership is that there has been almost no new substantial investment, and low-value logs have become a higher and higher proportion of our total exports.

Between 1980 and 2009, log exports as a percentage of total forestry export values have risen from 13.1 per cent to 29.7 per cent in New Zealand whereas Chile’s log exports have plunged from 12.4 per cent to less than 1 per cent of industry exports.

This is not surprising because a high proportion of the export value is captured in the distribution chain and foreign owners are given incentives to export the basic raw material and capture the value of the product in overseas distribution channels.

The booming log trade to China is great for Port of Tauranga, but it is of far less economic benefit to New Zealand than value-added forestry products.

One of the fundamental problems with the New Zealand economy is that most of our companies do not have strong international distribution, and/or have poor corporate governance.

As a result their returns are inadequate and they often experience serious financial difficulties.

This is the perfect environment for corporate scavengers, who have included Ron Brierley in the past and now Graeme Hart. These corporate raiders make little contribution to the national interest.

Another problem is that when a company is sold to overseas interests, it creates a precedent for others in its industry to follow.

The Bank of New Zealand was sold to Australian interests and was quickly followed by ASB Bank. Dominion Breweries was followed by Lion Nathan and Wilson & Horton by Independent News.

Fletcher Paper fell to the Norwegian group Norske Skog and our forestry industry is now overseas dominated.

The Crafar farms are an important precedent for the farming industry, because if they are sold to the Chinese then the floodgates could open.

If one farm goes, others may quickly follow and our politicians are not giving serious consideration to the possible consequences.

Most of our politicians are enamoured with China and there is nothing wrong with this. But we don’t have to sell the farm to the Chinese to do more trade with them.

Two other points are worth noting.

As Fran O’Sullivan pointed out in her column on the partial takeover of PGG Wrightson by Agria, the controlling Chinese shareholders have become increasingly secretive since they gained majority control of New Zealand’s largest rural services company. Foreign ownership is usually less transparent than domestic ownership and the Chinese are no exception to this.

Fonterra’s farmer shareholders also have a role to play in this issue. One of the problems with most New Zealand exporters is that they don’t develop strong international distribution channels.

Fonterra has done better than most in this regard, but it is capital-constrained from going further because of its intransigent shareholder structure.

Fonterra can either raise fresh capital from outside investors, while leaving farmers with majority control, or continue to hamstring management by insisting on 100 per cent farmer ownership.

If farmers adopt the latter approach, and farm ownership is opened up to foreign interests, we could see a repeat of the forestry sector’s unfulfilled potential in which Chinese-owned farms would export low value product directly to China to the detriment of New Zealand’s dairy industry, our domestic farmers and, ultimately, farm values.



Forestry Exports – Chile is racing ahead of NZ


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                                                                 Source; FAO