Setting the Scene
Since the change in government in NZ late last year, the process around overseas investment has been a very hot topic. The majority of our conversations in late 2017/early 2018 started with questions concerning this.
We do not have a definitive answer. What we do have, however, is a considered view.
This view is based on conversations with a number of relevant people and our interpretations of noises we are hearing from politicians and previously expressed policy positions.
What we think won’t happen
We do not think it means the end of all farmland sales to overseas entities and individuals.
Although given recent decisions it does look somewhat as if that could be the case.
A complete ban on overseas acquisitions of farmland is extremely unlikely despite all the pre-election rhetoric and the fear expressed by many of those from whom we have received phone calls.
Nor do we believe that overseas investors will be forced to exit their existing assets in NZ. Although given some of the less than ecologically pristine management approaches that are being applied, perhaps it wouldn’t be such a bad thing.
NZ is a country that is entirely dependent on trade, and in particular, the export of high quality food – dairy products, lamb, kiwifruit, wine, apples, venison etc. This, in our view, means it is not in a position to shut out investors whilst negotiating and seeking free trade deals. Big countries might be able to do that but small countries like NZ can’t.
We do not believe that the new government wishes to negatively impact New Zealand’s international trade relationships and economy.
What we think will happen
Where we do see definite impact, however, is in the test of ‘benefits to NZ’ aspect of the application process. The approach of acquiring a farm and essentially adopting a business as usual plus extra capital approach is unlikely to be successful. It will, at the very least, be considerably tougher and given this approach was already under pressure we believe it is likely go the way of the Moa.
In our opinion it will be important, if not essential, to be genuinely adding value, measurably contributing to NZ and creating improved results and outcomes for NZ as a whole. This is likely to cover environmental outcomes as well as product value. This will need to be well articulated and genuine as it will be measured and new owners accountable for the strategies they have outlined as part of their OIO application process.
The minister under whom OIO sits is a Green Party MP. The Green Party has been very vocal in expressing their concerns about, and indeed opposition to, intensive dairying and its measurably negative impact on water quality. Whilst they are not the major party in the government, the Labour party have also been seeking to address water quality as a major election issue. This is something the voters of NZ will expect them to take action on, even if their coalition partner refused to accept a water tax. The Greens have also been open advocates of more sustainable ecological and organic farm management approaches and we believe that the government will be (even if not overtly) supportive of more ecologically successful agriculture.
We believe that the environmental performance of a strategy will be of increased importance, and potentially critical, to securing approval. Such components of a strategy are likely to be more specifically and deliberately reviewed over time by the OIO to ensure rhetoric is backed up by actions.
Therefore, historical situations such as a wealthy individual who buys a farm and spends money on it but continues to farm as before (status quo farming) or intensive conventional farming with identified negative environmental performance (think intensive dairying and water pollution) are either out altogether or, at a minimum, struggling to achieve a successful application outcome.
It is almost certain that investors will be more accountable for delivering their strategies. This may also place ‘greenwash’ under pressure as a means to negotiate the OIO process. Authenticity, knowledge and the ability to implement an acceptable strategy, including recording and reporting back on the wider performance of that strategy will, in our view, be potential requirements for securing OIO approval.
Even conversion to organic alone may be insufficient to win OIO favour. Depth and authenticity of ecological strategy and management will in our view be critically important. This unlocks the means to actively demonstrate environmental, and therefore measurable, benefits to New Zealand; delivered as a result of genuinely sophisticated ecological systems design and management. Simply applying an organic ‘sticking plaster’ may not be enough.
We are also of the opinion that enforcement will become more active, aggressive and have a higher profile. There is likely to be a hunt for those who have failed to deliver on their application commitments. There will be pressure to do so in order to prove the OIO does have teeth and is catching out those who fail to deliver. This means we foresee investors being held to account for their strategies and being required to actually do what they say they will and to do so within specific time frames. This could even extend to forced sales where actions are not delivered on.
The In and Out Club
- Adding value
- Land use change to higher value enterprises.
- Changing production systems to those that generate higher value products and therefore stronger export receipts.
- Creating jobs.
- Environmental performance
- Articulating an authentically sustainable management approach.
- Recording environmental performance.
- Systems with a smaller ecological footprint.
- Identifiably lower nutrient input and therefore leaching systems.
- Measurably superior environmental outcomes as a result of more ecologically sophisticated strategies.
- Conscious and deliberate impact investment management strategy
- Being accountable for promises outlined in the application material.
- A hunt for failure to deliver on promises in order to prove the OIO is enforcing the actions required.
- Increased likelihood of forced sales where promises are not delivered upon.
- Acquiring land to farm as it has been with the addition of capital.
- Those conventional management strategies that have historically been approved by OIO but that are linked to poor environmental outcomes, e.g. intensive dairying.
- Commodity, input driven, undifferentiated ‘business/investment as usual’ agriculture.
- Lack of accountability for promised actions.
- Trophy properties without genuine value add and demonstrable, measurable environmental strategies.