The viticulture industry is crying foul over new overseas investment rules, claiming it’s unfair forestry is being given special treatment
Grape growers claim new rules on overseas ownership will lead to reduced investment in viticulture, and the apparent carve-out secured for forestry rubs salt into the wound.
Under the current rules it is possible for foreign businesses to purchase the right use land to harvest things like trees and grapes under what is known as a profit à prendre right.
Profit à prendre gives businesses the right to take a resource without actually owning the land it sits on, and the sale of these rights is not currently covered by the Overseas Investment Act (OIA).
Labour campaigned on a policy of requiring the sale of logging rights on land over 50 hectares to be approved by the Overseas Investment Office (OIO). The Government rushed out a supplementary order paper in March to this effect.
But the new regime places all profits à prendre under the OIA regime, not just forestry rights. To make matters worse, special rules applying only to the forestry sector have been included in the legislation. Other industries are not given these exemptions.
Exemptions for trees
The new rules will mean that any profits à prendre on land over five hectares will be subject to OIO approval, unless the right is related to forestry. The threshold for the forestry sector is 200 times higher, kicking in at 1000ha.
Simon Towns, managing director of Constellation Brands, the US-owned company which owns Kim Crawford and Selaks wines, says the new rules would apply to all of the company’s current profits à prendre rights.
“Anything that’s less than 60 hectares just doesn’t make sense to farm,” Towns told Newsroom.
He said that putting the sale of profits à prendre rights through the OIO would make foreign companies less preferred purchasers.
This would potentially cut the New Zealand wine industry off from foreign investment and have the unintended consequence of placing more land into foreign hands as wine companies chose to purchase outright instead.
“If we’re going through all the effort of the OIO, we might as well buy it,” Towns said.
The National party’s new spokesperson for viticulture, Stuart Smith, said that it was a “double standard”.
He said the carve-out for forestry was a capitulation to Forestry Minister Shane Jones, who has famously promised to plant one billion trees over the next 10 years, something he acknowledges will require significant foreign investment.
But Smith says this is unfair.
“It’s a Henry VIII clause,” Smith said.
“The law applies to everyone else but not to one minister,” he said.
Law made on the hoof
Labour needed to act fast to include forestry in the Overseas Investment Act.
A Treasury paper taken to the Cabinet Economic Development Committee on February 28 noted that the proposed change would need to be made before the CPTPP came into effect as placing profits à prendre under the scrutiny of the OIO would “likely” violate the terms of the agreement.
A supplementary order paper was then drawn up implementing the change and motioned on March 20.
Economic Development Minister David Parker told Newsroom that it was essential forestry and other industries be incorporated into the OIA before the CPTPP came into effect.
“If you don’t have a mechanism in law to screen for that sort of investment, then that sort of investment can ever be screened in the future,” he said.
Parker said the special rules pertaining to forestry were a signal to the industry that New Zealand wanted to see more foreign direct investment in that area.
“It’s a deliberate signal that we’re trying to send that we want more foreign direct investment in forestry but we don’t have the same view in terms of pastoral or horticultural land.”
He said that it was important for consistency that profits à prendre were subject to the same scrutiny as any other asset class.
The changes are being considered alongside another controversial amendment to the OIA, which aims to ban the sale of houses to foreign buyers.