English raises farming doubts

Minister of Finance Bill English has doubts about the long-term future of China’s Shanghai Pengxin.

‘‘My own personal view is in the long run — this applies to Kiwi as well as offshore — corporate farming entities don’t survive. And I know that sort of runs against the trend but I’ve seen the cycle two or three times,’’ English said.

The Chinese firm is seeking approval from the Overseas Investment Office to buy the 13,800 hectare Lochinver Station in the central North Island. Farming is a ‘‘low return on assets’’ business, English told a group of business people during a visit to Hamilton Not including capital gain, returns were about 1 or 2 per cent, he said.

‘‘Prices peak. When they start falling the syndicates and the shareholders want to sell out. And If I was them I would too, because if you don’t live it and love it you’ll end up asset rich and cash poor.

‘‘We’ve seen Tasman come and go, New Zealand Dairy Farms come and go, the Hubbard empire come and go, Solid Energy’s empire has just been sold off without anyone noticing, but the locals, in the last few months. These guys [Pengxin], as much as they might not be saying it, they’ll come and go. The owner-operator works..’’

Federated Farmers’ national president Dr William Rolleston said ‘‘I think that he’s probably got a point. You know, it’s certainly seen over time that it’s the family farmer who can trim the costs, trim the fat when he or she needs to.’’

Many family farms were intergenerational. ‘‘You don’t see many corporates holding farms on an intergenerational scale.

‘‘But that doesn’t mean Shanghai Pengxin wouldn’t be one of those. You can’t be completely complacent about it.’’

Labour leader David Cunliffe said the prospect of Pengxin liquidating its assets was not a suf- ficient excuse for the Government, considering it has approved a total over a million hectares of land to overseas buyers.‘‘Second issue is it’s not a very good way to treat international investors to say ‘You’re welcome here because we know you’re going to go bust’ .’’

The balance in the industry was shifting towards corporate farming, Cunliffe said.. ‘‘An issue to be considered is whether the tax structure is currently a push factor there, the lack of a capital gains tax means in the dairy industry a lot of people have been buying up the farm down the road and offsetting the interest costs of that borrowing against the cash income that they would otherwise have to declare . . . What that means is that people are farming essentially for capital gain instead of profit.’’

Rabobank’s director of dairy research Hayley Moynihan said she did not expect a lot of corporate farming firms to fall over next time things got tough. This is the story of $50 I was paid about 20 years ago, when I lived in Wellington and was bumping along happily in a relatively low paid hand-to-mouth kind of existence.

I was paid by cheque in those days, and I’d go straight to the National Bank branch in Courtenay Place to cash it.

My pay, as is often the case for young men, was largely spent on rent, food, and booze.

Generally, after pay-day, I had cash, and then throughout the week, my cash store would diminish until I was hanging out for pay day again.

During this period, I clearly had a less-than-healthy respect for money, so much so, I used one $50 note for a bookmark.

I found it again the other day, when going through old books stored in boxes under the stairs.

The note was pre-1999 and was made of the old paper and cotton mix that came before the tough polymer notes we use now. What to do with it? The obvious choice is to send it to the Reserve Bank and get it swapped for $50 spendable dollars.

That involves either walking into the Reserve Bank in Wellington, or sending it in, together with the correct form, and asking The Reserve Bank to pop $50 into my bank account.

The central bank will swap old money (of which there is a surprisingly large amount still out there) for new at face value.

Roughly 20 years spent sandwiched in that book didn’t do my $50 much good. It got musty. It also lost value.

The spending power of my $50 back then was roughly the equivalent of $78.50 today, according to the Reserve Bank’s inflation calculator.

My note lost more than a third of its spending power. That’s the corrosive power inflation exerts on money. No wonder the Reserve Bank has dubbed it ‘‘the thief in your wallet’’.

My $50 was also denied the chance to earn a return. It could have been in the bank, invested in the sharemarket, or saving me money on a mortgage.

Had I stuck it in the bank, and left it there for 20 years earning a 1.5 per cent ‘‘real’’ rate of return after inflation and tax, my $50 would have grown to a value that would buy me around a third more today than the original money would have bought me all those years ago.

I’d have got the better of inflation.

Now imagine I’d sunk that $50 into equity in a house. It would