NZ First is not alone in worrying at the implications of a Westland Milk sale to Yili

Is   Westland  Milk   one of  NZ’s  “key  strategic assets”?

NZ  First  is adamant  it is and believes the government  should be a  applying a  “national interest test”   to the proposed  sale of the company  to the Chinese  dairy giant Yili.

Those  who  see  heavily indebted  companies  like Westland Milk struggling to  make a profit and  not  even  matching  Fonterra’s payout  to its suppliers might take a  cooler view  to  the proposed  sale.

Federated Farmers dairy chairman Chris Lewis said he had received “mixed” feedback from West Coast farmers on the deal, which will require 75% approval.

“West Coast farmers have had a tough time over the last five years with low milk prices, and other things, so the banks will be quite keen for farmers to cash in on some of this capital”.

Some Westland  farmers,  though,   will be  positively salivating  at  the Yili offer  which,  among other things  means the average West Coast farmer will receive $500,000 cash.  That  will  help  to   get  banks  demanding  faster repayment of  loans off  their backs.

The proposed $588m transaction follows a strategic review of Westland — NZ’s second biggest dairy co-op after Fonterra — by its board.

Westland  Milk’s chairman  Pete Morrison says the  main reason for the deal was Westland’s inability to deliver a competitive milk payout in recent years.  Under the deal, Yili will at least match Fonterra’s price for 10 seasons starting from August 1 this year.

The proposed sale to Hong Kong Jingang Trade Holding Co, a unit of Inner Mongolia Yili Industrial Group, is at $3.41 per share.  Using a back-of-the-envelope calculation, based on the average farm size representing 150,000kg of milksolids, Morrison estimated the deal to be worth $480,000 to the average farm.  Yili will also assume $342.5m of Westland’s debt and other liabilities.

“It will bring capital to the West Coast and a route to the market,” .

At  one  stage  the government –  through the  Provincial  Growth Fund – was  offering  $9m  to  Westland  Milk  as it seeks to add  more value to  its output.  But this has  been  withdrawn.

Now, through  its   primary  industries spokesman  Mark Patterson,  NZ  First has two strikes  against  Westland Milk  over  the proposed  sale.

Not only does it fail the  national  interest  test  but it is  “outrageous” that chief executive Toni Brendish has been offered $680,000 by Yili if the sale goes through.

“ How can we trust that the interests of our farmers are properly represented when top management are lured with big money?” Patterson  asks.

He  has a  point there.

And  it is  not only  NZ  First   that is  worried   about the  implications  of the sale.

Many  Fonterra  farmer-shareholders  believe  their  co-op  could be  challenged  by  Yili   which   already  has a  significant  foothold  in the NZ  dairy  industry  through  its ownership  of the Oceania.  The company acquired South Canterbury’s Oceania Dairy in 2013 and since that time it has invested $650m in establishing milk powder, infant formula and UHT production lines.

Those  fearful  of   Yili’s ambitions  believe  the  dairy  industry  in due  course  would become  mostly  foreign-owned,  rather  like the banking  industry  has  fallen largely  into  overseas  ownership.

That’s why  Mark Patterson  (undoubtedly  with the backing of  his leader   Winston Peters)  is saying we need to take the sale and retention of key strategic assets much more seriously.  For him  the  Westland situation shows the need for a national interest test as part of the overseas investment office process “so we can counter foreign companies forking out cash to get their way,”.

Agriculture   Minister and West Coast-Tasman MP Damien O’Connor has described the bonus deal as “outrageous and an insult to farmers”.

But where  he stands  on the  subject  of  a  national  interest test is  less  clear:  perhaps  that’s not surprising  since  Westland is his home territory.

If the sale is accepted by the co-operative’s shareholders, bonuses will be paid to other top management including $360,000 to its chief operating officer, $302,700 to its general sales manager and $100,000 to its chief financial officer.

Otago University senior accountancy lecturer Dr Helen Roberts has been  quoted  as saying it appears Yili is willing to pay the management to encourage farmers to sell their assets, raising a conflict of interest.

“If you were in that position would you say no?“

The vote to sell the century-old company is set for July 4.  It is the West Coast’s biggest industry and employer.

The proposed transaction requires High Court approval in accordance with the New Zealand Companies Act and consent under the Overseas Investment Act.

State-owned corporate farmer Landcorp, will receive $11 million for the 3.25m shares it holds.

Brendish is paid $1.1m a year and 16 further employees receive more than $200,000.

For years the co-op has struggled to make a profit, last year finally managing to run into the black with a $3.3m profit before tax.