The Government has, for the second time, approved Shanghai Pengxin Group’s purchase of 16 dairy farms, known as the Crafar farms. This follows the High Court decision setting aside the original approval.

For a second time also, a legal challenge to the consent is looming. The Crafar Farms Independent Purchaser Group (CFIPG), including interests associated with Sir Michael Fay, has announced it will seek a judicial review of the second approval.  

In the meantime, the Overseas Investment Office (OIO) has released its report recommending the second approval. This report provides some useful guidance on how investments in “sensitive land” will be treated in light of the litigation so far. In this article, we briefly comment on the decision to grant consent and consider what lessons investors can take from this decision and the OIO’s report. The key points are:

  • The OIO will generally apply the “with and without” test in considering the benefits flowing from an overseas investment. It will test what will happen with the investment against a “counterfactual” of what would happen anyway.  
  • The OIO will determine the appropriate counterfactual and will not just rely on submissions from competing bidders like CFIPG.
  • Investors do not need to quantify the benefits of their investment, but they must persuade the OIO that claimed benefits will occur.
  • The “with and without” test may be less relevant for assessing certain factors relevant to consent, because different counterfactuals may be used for assessing different factors.
  • Non-economic factors are important to the consent decision - it is not just about economic benefits.
  • The OIO is likely to impose more stringent conditions when granting consents, to ensure that overseas investments deliver benefits.  


When the original approval was overturned in February, the High Court held that the OIO had applied the wrong test. The OIO had applied a “before and after” test of economic benefits, looking at what the investment would bring incrementally, in isolation. Instead the OIO should have applied a “with and without” test, which took into account what would happen anyway, without the relevant investment (ie a “counterfactual”), and tested the difference between what would happen with the investment as against the counterfactual. See our article on the Court’s decision here).  


When announcing the second consent, Land Information Minister Maurice Williamson commented that, on even the most conservative approach, the application met the relevant statutory criteria and was consistent with the High Court’s judgment.


The OIO’s report provides some insight into how investors should determine an appropriate “counterfactual”. It indicates what an applicant must do to demonstrate that its investment would be more beneficial to New Zealand than a counterfactual.  

The OIO considered that the appropriate counterfactual in this case was “what would likely happen under the ownership of an alternative New Zealand purchaser, who would operate and invest in the farms in a manner that could be expected of a reasonably competent dairy farmer (Alternative New Zealand Purchaser)”. Notably, the OIO did not treat an investment by the consortium of rival bidders for the farms, CFIPG, as the counterfactual. This shows that the OIO will not simply accept submissions from opponents to an overseas investment as the counterfactual.  

A concern of some following the High Court decision was that the “with and without” test might result in an unworkable consent process (where complex analysis of alternative counterfactual scenarios and quantification of respective benefits would be needed).  

In this case, the counterfactual information was provided by Shanghai Pengxin and Landcorp (hired to manage the farms). For example, Landcorp provided detailed information about what an average New Zealand farmer might spend on developments in order to demonstrate that Shangahi Pengxin would spend more.  

Landcorp’s submissions appear to have been based largely on Landcorp’s “significant experience”. The OIO’s view was that it would be costly, time consuming and unhelpful to have the “average farmer spend” figures reviewed by an independent consultant. The OIO was comfortable with how those figures were calculated.  

In reaching this conclusion, the OIO was probably conscious of Miller J’s statement in the High Court review of the first decision that: “the Act does not require that benefits be quantified, however, only that the Ministers be satisfied, for farm land, that substantial and identifiable benefits are likely to flow from the overseas investment”.  

Many overseas investors will not have an experienced business partner like Landcorp to rely on and so may find it difficult to provide convincing counterfactual information without spending time and money on a consultant.  


The OIO’s report demonstrates that different counterfactuals may be used for assessing different factors relevant to consent. The “with and without” counterfactual may be less relevant for certain factors.

  • Economic Factors: The Court held that the proper counterfactual for economic factors (such as new jobs and increased exports) would be a “with and without” test. Economic factors only make up six of the total 21 factors under the Act.
  • Non-Economic Factors: For non-economic factors (such as protection of flora, offering of walking access), the Court considered that the “before and after” test (ie what will happen if the status quo continues) could still be appropriate. In this case, however, the OIO decided to use the “with and without” test, as the counterfactual for both economic factors and non-economic factors. The OIO considered that using the status quo as the counterfactual may have overstated the non-economic benefits of the investment.
  • Regulation Factors: The OIO adopted the Court’s view that the strategic factors listed in the Overseas Investment Regulations (such as consequential benefits and advancing government policy) do not require a counterfactual analysis.  


Another useful lesson to emerge from this decision is that OIO consent is not just about economic factors – non-economic factors are very important too. The table below summarises how the OIO assessed Shanghai Pengxin’s application against the various statutory factors.

Click here to view table.

The Ministers must consider all of the factors listed under the Act and determine which of the factors are relevant for the investment. The Ministers in carrying out their overall evaluation will decide what weight to give to each factor. The Act does not require economic factors to be given more weight than non-economic factors, and vice versa.  


Overseas investors should note the highly conditional nature of the consent granted to Shanghai Pengxin and take this as a sign of things to come. Consent was granted subject to 27 conditions, more than 20 of which were special conditions, including conditions to invest $16 million for development purposes and to give scholarships to farming students.  

These conditions have been imposed to ensure that the investment delivers the substantial and identifiable benefits to New Zealand that Shanghai Pengxin promised it would. Given recent criticism in the media of the OIO’s approach to post-consent monitoring of investors, we expect this approach of requiring more specific conditions will become the norm.


Future applicants for OIO consent for sensitive land now have some guidance on how to determine an appropriate counterfactual and how to demonstrate that the benefits from their investment will exceed the benefits from a counterfactual. It is to be hoped that the further litigation of this case will not remove the level of clarity which has now been achieved.