Foreign investment rules could have unintended consequences
Proposed restrictions to foreign investment could have unintended negative consequences.
While the new proposed Government restrictions and legislative changes on foreign investment are aimed at reducing the amount of foreign investment for New Zealand’s pristine assets, such as high-country stations and large tracts of land, it is having unintended consequences on more intensive and highly productive forms of horticulture and viticulture. Alistair King, Partner and Agribusiness specialist for Crowe Horwath, warns that if restrictions move ahead as planned, it could negatively affect these profitable industries.
“The New Zealand wine industry is a global success story, and foreign capital has played a significant role in that,” said King. “Cloudy Bay, owned by Louis Vuitton Moet Hennessy, is an example of how it helped lift the strong New Zealand Sauvignon Blanc story worldwide. The Cloudy Bay brand, based around its New Zealand wines, is now iconic throughout the world, and New Zealand has benefited from that success.” King continued.
The proposed Overseas Investment Office (OIO) changes want to limit the use of a profit a prendre in viticulture. A profit a prendre is non-exclusive and is used in the wine industry as another method of helping wine companies get access to fruit supply. Unlike ownership of vineyards or lease of vineyards, a profit a prendre allows the New Zealand owner to maintain ownership of the vineyard and land assets, while maintaining full security and entitlements over those assets.
King expands, “The profit a prendre enables a person to take part of the soil or produce of land under separate ownership. For example, it enables wine makers to take grapes from land they don’t directly own. The winery pays a fee to have access, it is not a change of ownership, so the land remains with the New Zealand owner. Essentially, it is similar to a grape supply agreement while the agreement also gives the winery control over how the vines are managed and ensures the grapes that are grown are of the desired quality and standard, while adhering to a predeveloped cost structure.”
“With profit a prendre facilitating extensive investment nationally while leaving the land locally owned, it is the perfect instrument to enable thriving industries to grow and remain profitable, while also ensuring the land remains New Zealand owned,” King explains. “Removing the exemption under the act will force foreign companies to go through the purchase process to get the right to farm through the OIO, to use a profit a prendre. If a wine company must jump through those hoops, they may as well purchase the vineyard or put a lease in place which then takes the rights away from New Zealanders and will put the land and vineyard assets into foreign hands. This clearly defeats what the Government is trying to achieve in terms of reducing foreign ownership of New Zealand land assets,” King summarises.
When the government is implementing legislation, they need to consider the impact the regulations could have on all sectors’ profitability. “In this case, if the government moves forward with the proposed changes to legislation, the horticulture and viticulture sector will likely take a huge hit. After working so hard for their continued profitability and growth over the last seven years, it would be sad to see the industries take a step back due to short sightedness in how a profit a prendre is used by the industry,” King concludes.