Pathways for Foreign Investment in NZ Forestry

Forestry is a strategically important industry for New Zealand and one which has traditionally received substantial amounts of foreign investment.  In recent years, changes have been made to the overseas investment settings for forestry investments.  Our Forestry Team recaps on the key pathways for foreign participation in New Zealand’s forestry sector.

Overseas Investment in NZ forestry

Investment in the forestry sector can take many forms, but typically involves the acquisition of existing interests in land (whether freehold, leasehold or other forestry rights) or acquiring a company which holds those interests in land. 

In most cases, the land involved in forestry is of a size and designation that it is considered ‘sensitive land’ within the meaning of the Overseas Investment Act 2005.  In such circumstances, Overseas Investment Office (OIO) consent is required prior to giving effect to the transaction, unless the transaction falls within one of a limited number of exemptions (including where a foreign investor acquires less than 1000ha of forestry rights in one calendar year).

The three routes for forestry investment under the Overseas Investment Act 2005 are as follows:

1. Special Forestry Test 

The Special Forestry Test was introduced in 2018 as a streamlined approach to encourage foreign investment in the forestry sector, reflecting the Government’s ambitions for forestry at that time.  The Special Forestry Test facilitates the acquisition by foreign investors of existing forestry land, in circumstances where:

• Land is used exclusively or nearly exclusively for forestry activities;
• Replanting takes place after harvesting;
• The investor is not living on the land; and
• The investor implements and maintains certain arrangements relating to the land as required by the OIO (which may include access arrangements in respect of the land, protection of indigenous plants and animals or particular log supply arrangements). 

Assuming the investor can satisfy these requirements, there is no need to also meet the ‘benefit to New Zealand’ test. 

2. Benefit to New Zealand Test 

Where an overseas investor intends to convert farmland into forestry, or intends to use the land only for forestry activities but cannot satisfy all the criteria required under the Special Forestry Test (including situations where an investor does not want to harvest but rather wishes to acquire forestry for permanent carbon forestry purposes), the investor will need to apply under the ‘benefit to New Zealand’ test.

The specific seven benefit factors which the OIO will measure under this test are:

1. Economic benefits
2. Benefits to the natural environment
3. Public access
4. Protection of historic heritage
5. Advancing a significant Government policy
6. Oversight or participation of New Zealanders
7. Consequential benefits

The investor, in providing submissions under these benefit factors, must show that the investment is likely to result in a benefit to New Zealand in order to obtain consent. 

3. Standing Consents 

Investors with a proven track record may look to obtain a standing consent, which will allow them to enter into a number of transactions to acquire a maximum amount of land within a time period.  Standing consents are only available for acquisitions of existing forest. 

In order to obtain a standing consent, the investor will need to demonstrate to the OIO that the scale and nature of its investment in New Zealand forestry is such that a standing consent is justified instead of applying for OIO consent on an individual transaction basis. 

Participation under the Emissions Trading Scheme (ETS)

Ability to earn New Zealand Units (or NZUs) is another incentive for foreign investors looking to invest in New Zealand forestry.  One NZU represents one metric tonne of carbon dioxide and NZUs are able to be traded among businesses participating in the NZ ETS.

For an investor to become a registered participant in the ETS Scheme, the investor needs to hold an interest in the forestry land.  This may be by way of freehold interest, leasehold interest (10 years or more) or forestry right. 

It is worth noting that at present, the Government is actively consulting on possible changes to the ETS.  Please refer to our update for more information.

Hesketh Henry – Specialists in Overseas Investment and Forestry Matters

Hesketh Henry has considerable experience in assisting overseas investors navigate New Zealand forestry investments via the OIO.  If you would like further information about any of the matters discussed in this article please get in touch with our Forestry team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.