Simeon Brown has told various Government-owned companies they must explain why they are failing to deliver their cost of equity and how they will improve their return to the Crown.
The Minister for State Owned Enterprises (SOEs) told several of the SOEs – including NZ Post and Landcorp – that the Government was “disappointed and concerned” by their performance and they must deliver a “bold and challenging turnaround plan”. . .
These companies have assets worth billions of dollars and their return on those assets is dismal.
In total, letters from responsible ministers were sent to 30 various entities within the Government’s commercial portfolio.
Some of the most scathing came from Brown (on behalf of shareholding ministers), who has responsibility for SOEs. These are companies owned by the Crown that are expected to be as profitable and efficient as comparable businesses not owned by the Crown. . .
If Landcorp farms were private they’d have bankers questioning their performance in good years and putting them out of business in the bad ones.
Landcorp Farming is an SOE which manages more than 100 farms, forests and horticultural operations. Its brand name is Pāmu.
According to the letter from Brown to chair John Rae, Landcorp’s five-year average total shareholder return is 2.6% and its operating return on equity is 0.4%.
“Its returns have not met its cost of equity for at least 10 years,” Brown wrote.
“We are disappointed and concerned about Landcorp’s failure to make progress in improving its performance and expect an explanation why, and how and when the company will deliver its cost of equity”.
Brown said ministers expect the company to “deliver a bold and challenging turnaround plan to improve value and return to the Crown”.
Its plan should show how Landcorp will “manage farms as efficiently as those owned by non-Crown organisations” with a focus on core business and existing land, and no expansion of land holdings, Brown said.
The SOE should also dispose of any non-land assets, business units and ventures “that do not generate a return equal to or greater than their cost of equity”, he said.
The minister also wanted a reduction in corporate overhead spend, costs which had “increased significantly in recent years”. . .
Prime Minister Christopher Luxon is ruling out the sale of any state owned assets this term, but could National put it on the agenda for the next one?
This would definitely have Act’s support. Persuading New Zealand First to agree will be challenging but even the most ardent nationalist must see that the money tied up in these assets has far too high an opportunity cost and it would do far more for the country and its people if it was used to reduce debt and be invested in much-needed infrastructure.
Landcorp couldn’t be sold as a single entity and it wouldn’t be sensible to put all the farms on the market at once.
The company has started using sharemilkers on some of its dairy farms, it could do that on more and bring them in as equity partners. It could also start lease to buy arrangements with some of its properties and sell others outright.
It would be financial madness to have $2 billion in assets making so little money in the best of times, it’s even worse when government debt is so high and there are so many urgent needs for public investment.
The idea of selling Landcorp will result in rabid opposition from the left, but that is no reason not to do it.
The company produces far too little from far too much. Selling the farms would inject much-needed money into government coffers upfront and the new owners running them better would improve the tax take in the medium to longer term.
The country can’t afford to keep accepting the poor return on assets, we’d all be better off if they were sold.
Ele Ludemann is a North Otago farmer and journalist, who blogs HERE - where this article was sourced.
5 comments:
Sat next to a manager from landcorp on a provincial flight once. They proudly told me how they were traveling the country finding out how indigenous practices could improve the way they farmed. I pointed out, apart from burning the country down, there wasn't a lot of indigenous farming to study. Oh my, the head went into the shiny laptop and not another word was uttered.
Oh come on Ele, everyone knows bureaucrats are much more efficient operators than real farmers. Every MP will tell you that.
Pam continues to impress embarking on projects such as avocado production after the industry has collapsed into labour intensive blueberry production where there is already a worker shortage. It providing free accommodation etc that private producers can’t compete with
Accountant types always revert to the old hoary chestnut about return on investment. "Return on what" investment should be the discussion . A $150.00 Pamu ewe has two lambs from a father whose value is imperceptible while flaunting himself around the paddock to others . Therefore the initial ewe has doubled her value and created a work cycle that ends up in export receipts. Not bad and next year does the same thing without her initial cost being a factor , and the year after as well.
Dairy is similar however her offspring are fostered out and production is entirely consumables and NZ exports . Not bad either.
The return on investment on land is more difficult to ascertain because the land purchase price or value is subject to when it was willing buyer - willing seller , not on a computer screen. Pamu land has been NZ owned for centuries in fact the return would be astonomical if calculated on the original cost . Just like family farms the operator is often assett rich and cashflow poor, but are absolute kings in NZ because every season they diligently ensure that millions in NZ have employment and the tax created is everyones legacy.
Wouldn’t Maori challenge the Government’s right to sell off Crown Land? After all, Māori get first dibs on Crown Land for Treaty Settlements. Be careful what you wish for. Non-Māori NZers’ are already disadvantaged by giving Māori huge swathes of land once owned by all.
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