Special forestry test under the Overseas Investment Act 2005 to end for overseas investors planning to convert farm to forest

The Government is seeking to reintroduce the benefits test for overseas investment in pasture to plantation forestry conversion.

On 24 February 2022 Associate Minister of Finance David Parker announced the Government will be seeking to end the streamlined special forestry test for overseas persons where the proposed investment relates to converting pasture / farm land into forestry.  The changes to the Overseas Investment Act 2005 (OIA), approved by Cabinet, mean that proposals by overseas persons to acquire land for conversion to production forestry will be considered under the standard benefits to New Zealand test, rather than under the streamlined special forestry test.

What is the special forestry test?

In 2018, the Government introduced a streamlined special forestry test for overseas persons who wanted to purchase land to plant a forest on, or buy existing forestry land.

In order to use the special forestry test, the following requirements need to be satisfied:

• the application cannot include any residential land or land that is likely to be used for residential land in the future, however the inclusion of insignificant amounts of residential land may be acceptable where such land is used in connection with forestry activities such as huts or woodsheds with accommodation for onsite workers;
• following harvest, the applicant must have plans to replant a new crop of trees (subject to the applicant having rights to replant where the interest being acquired is a forestry right or lease);
• the applicant must maintain any existing arrangements relating to public access, protection of habitat for indigenous plants and animals, and historic places and log supply. Generally, the applicant will (upon the granting of consent) need to implement and maintain any existing arrangements, unless the applicant does not have sufficient control to maintain an existing obligation. The OIO takes quite a broad view in terms of what is considered an existing arrangement.

If an applicant is able to demonstrate that the above requirements are/will be satisfied, then the applicant does not need to otherwise demonstrate benefit to New Zealand (as required under the usual benefits test).

Since the special forestry test was introduced in late 2018, the OIO has approved, as at the date of writing this article, a total of 23,402 hectares of pasture for forest conversion pursuant to 40 applications.

Standard benefits to New Zealand test

Under the standard benefits test, an investment in sensitive land must be likely to result in benefit to New Zealand, measured against 7 benefit factors:

• economic benefits;
• benefits to the natural environment;
• public access;
• protection of historic heritage;
• advancing a significant Government policy;
• oversight or participation by New Zealanders; and
• consequential benefits.

Benefits of the investment are compared to the current state of investment (and not to a hypothetical New Zealand purchaser as was previously the case).

When will this change occur?

The Bill is expected to be introduced to Parliament in a few months. At the same time, some minor and technical improvements will be proposed to the OIA to help with the operation and effectiveness of 2018 forestry-related changes.

Why is the Government making this change?

There had been concerns, particularly from the farming sector, that sales of productive farm land to overseas investors for blanket conversion to forestry have been increasing. The sales have raised the ire of farming communities in Wairarapa, Hawke’s Bay and the East Cape, who fear population decline and losing rural services and jobs if farms are converted to forestry.

Associate Minister of Finance David Parker has said high quality foreign investment in forestry, and a strong forestry sector, remain important and the Government continues to welcome this investment. However, as economic and regulatory contexts change, it is important to consider the impact of particular kinds of investment in forestry to ensure that all stakeholders continue to benefit.

Response from the Forestry Owners Association

Forest Owners Association President Phil Taylor has said he hopes that this will not lead to a protracted and cumbersome process that kills off interest in New Zealand by overseas investors, and also noted that the Climate Change Commission had recommended the government plant 380,000 hectares of production forest by 2035 to meet New Zealand’s greenhouse gas reduction targets, therefore the forestry sector needs expanding, and there is a risk the planting rate will fall short if marginal farm land is not able to be converted to forestry due to barriers to foreign investment.

Want to know more?

Anderson Lloyd’s specialist forestry team will be keeping a close watch on developments with these proposed changes.

If you have any questions about the special forestry test, applying for consent to invest in forestry in New Zealand, or you wish to explore forestry investment options in general, please contact our Specialist Forestry Team who can assist with forestry acquisitions and disposals, OIA applications, advice on the emissions trading scheme and carbon projects.

PDF version: here.

This article was included in Edition 5 of our rural newsletter – Rural. which you can read here.