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Farmers claim Chinese bid an 'acid test' of new OIO

Friday 15th April 2011

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The bid by a Shanghai property tycoon for the 16 farms owned by four financially-troubled Crafar family companies will be an "acid test" for the Government's revised Overseas Investment Office (OIO) rules on sensitive land deals, farmers say.

Finance Minister Bill English last year sent a new ministerial directive to the OIO to provide extra clarity about the Government's general approach to foreign investment in sensitive assets.

It included two new measures under the benefit test used to assess investments in sensitive land, and a new "economic interests" factor allowing ministers to consider whether New Zealand's economic interests were adequately safeguarded and promoted.

Today Federated Farmers' dairy section chairman Lachlan McKenzie, claimed there was "strong evidence" those revisions had "materially changed" the thrust of the application, which was initially announced about the same time. A formal OIO application was lodged this week

The farming lobby had won the changes it wanted on foreign ownership of farmland "so we now need to let the officials determine the application on the merits of those rules", McKenzie said.

It seemed that the Shanghai Pengxin International Group Ltd's $200 million investment to buy the 16 farms - about 8000ha - and upgrade them over two years, could see the farms returned to full production.

Other commentators have said that milkflows on the farms have fallen as management under the receivers has ensured the farms comply with environmental and animal welfare rules.

McKenzie said that the lobby would have preferred to see the 16 farms sold individually when UBNZ, a company buying for another Chinese investor, Natural Dairy, had its bid blocked by cabinet ministers because of concerns over the character of some of the people involved.

If the OIO approved the Pengxin bid - estimated to cost its Hong Kong subsidiary, Milk New Zealand Holding Ltd $200 million over two years to buy the farms, rehabilitate them and build production - Federated Farmers wanted see sharemilkers run the properties.

"This provides an opportunity for sharemilkers to build equity in an international environment while speeding these farms to full production," he said.

Pengxin Group had said it would initially continue supplying Fonterra, but the farm lobby hoped there could be a joint venture with Fonterra, Westland or Tatua cooperatives to export.

"Partnering with a local cooperative would help 'Kiwi-ise' Milk New Zealand Holding Ltd, while building a partnership in China with Pengxin Group," McKenzie said.

Milk New Zealand Holding said it wanted to boost milk production from the properties, and export infant formula, cheese and icecream to China: it would upgrade the farms, and employ more New Zealanders, the company said yesterday.

"We can be a strong ally for New Zealand dairy industries through our international trade connections, and, in particular, our networks of influence within China and Asia," said the head of Penxin, Jiang Zhaobai, who is reported to worth - with his brother Jiang Lei - US$670 million.



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