The myopia of 'Save our Farms'

New Zealand Herald | 24 August 2010

By Bernard Hickey

The creation this week of the 'Save our Farms' campaign to block foreign ownership of New Zealand farm land has fired up a debate that needs to be had.

Unfortunately, the campaign's proposal to immediately block the sale of Crafar Farms to foreign interests and urgently review the Overseas Investment Act is myopic and xenophobic.

However, that doesn't mean we should try to shut down the debate. This intervention by a bunch of Auckland property developers, lawyers and accountants should be congratulated for bringing out into the open a discussion that has consisted so far of mutterings and asides behind a veil of caution.

Let's be open about why so many are concerned about a 'Chinese invasion' of 'our farmland' and what could and should be done about it.

John Key hinted at these concerns when he said he was worried about New Zealanders becoming 'tenants in their own land' and ordered for a review of the foreign investment rules.

He knows better than anyone the forces at work in the global economy and the inevitable results of completely open borders for both trade and capital.

This is the Chinese century and there is now US$1.4 trillion worth of wealth hidden in the nooks and crannies of the world's second largest economy. Much of it is of questionable parentage and the controllers of much of it are trying to squirrel it out to buy hard assets anywhere but China.

In a nation where the banking system is distrusted and even government owned companies are looking to buy commodity producing assets in other countries, it is inevitable that some of that wealth will come looking to buy food-producing assets in politically stable countries like New Zealand.

But why is this a bad thing? And why is it worse than say the Australian banks owning 91 per cent of our financial system or an Australian retailer owning one of our two grocery chains, Progressive, or Australian media companies owning our three biggest media companies, APN, Fairfax and Mediaworks ?

Why is rural land so special?

Why is rural land more precious than say the intellectual capital of our iconic manufacturer? Fisher and Paykel Appliances, which is now controlled by China's biggest appliance company, Haier, and only yesterday announced a new deal to license more New Zealand technology to this Chinese company.

A Chinese company, Agria, recently bought a big stake in our biggest rural services company, PGG Wrightson, and NEXT Window, a touch screen technology company, has just been bought by a Canadian company SMART Technologies.

Why is rural land so much more vulnerable and worthy of protection?

After all, unlike these other more portable assets, land cannot be dug up and shipped offshore. It will always still be taxed here and legislated for here. Foreign owners are still subject to the same tax laws, the same Resource Management Act and the same employment laws as everyone else.

Sell high, buy low

Also, land can be bought back. That's what happened in America in the 1970s and the 1980s. Cashed-up Arab investors bought American land at inflated prices in the 1970s, only to sell it back to the locals in later years at lower prices. The same thing happened in the 1980s when Japanese investors bought American and Australian land. They eventually sold it back to locals too, often at lower prices.

This is one way to make money: selling high and buying low.

And are farmers and voters really ready for the inevitable drop in land prices if foreigners are banned from buying land here?

However, there are issues that need to be debated.

Let's be consistent and address the real issues.

New Zealanders do not earn enough and save enough to pay for the consumption and investment we seem to want to do. So we borrow the difference or sell our assets to foreigners to make up the gap.

There's a couple of ways to deal with this.

Either we leave the borders open and save more while also spending and investing less. That requires different tax laws and a reorientation of our economy away from consumption and housing to production and exporting. This may require things like a capital gains tax or tax breaks on term deposits or a higher GST.

Or we can physically close the borders to these capital flows.

That would mean blocking sales of residential land, rural land and local business assets. It would also mean blocking New Zealanders from buying assets overseas.

Is that what we really want?

This is the inevitable conclusion of going down this path proposed by 'Save the farms'

It is not necessarily the wrong path. Even the International Monetary Fund is musing about the legitimacy of capital controls for developing economies.

There may well be a case to slow and control the pace the globalisation of both trade and capital flows.

But let's debate that in a consistent way, rather than treating Chinese investment in rural land as somehow different.