Strong dairy farm sales activity in the second half of last year indicates there is renewed confidence in the national dairy market as the sector moves into 2022.
James Nilsson, national director of rural and agribusiness at Colliers, says good quality dairy farms with sound nutrient outlook and equality, and efficient infrastructure, continue to receive strong interest and shape as a sound banking proposition.
“One of the major shifts in the rural sector we expect to see this year will be the adoption of ‘regenerative farming’, which refers to a set of techniques that try to boost soil health and biodiversity while using less added fertiliser,” Nilsson says.
“As pressure grows for livestock farming to cut its pollution, the regenerative movement is gaining momentum and fans as it gathers ‘proof on the hoof’. More farmers are looking at these methods of farming practices for longer term gain in the value of their farm.”
Start your property search
Nilsson says a strong export market and record milk prices due to the increase in global food prices have provided further confidence to the dairy sector.
“The industry is the big mover in terms of export returns – predicted to be up almost $2 billion on the previous year to $20.9 billion.
“The realisation of a record high farm gate milk price – the current Fonterra milk price forecast sits between $8.90 and $9.50 – together with a favourable outlook in the medium term has given the market renewed impetus. Although interest rates are now starting to climb, they remain low by historic levels and the positive outlook is now being reflected in a noticeable uptick in prices.”
In 2021, farm sales totalled $3.5 billion, up $1.5 billion on the previous 12 months, which was a record for pre-Covid-19 times. The improved dairy commodity prices and farmer sentiment contributed to the rise in sales.
One potential issue for the pastoral farming industry in 2022 is greenhouse gas emissions and possible additional costs to farming businesses but the sector is prepared to navigate the challenges this may present.
A sharp rise in the cost of carbon credits in New Zealand was a major development in the forestry sector in 2021.
In late 2020, the price of carbon credits, known as New Zealand Units (NZUs), sat steady at $25 per unit but from August 2021 that price has sky-rocketed to more than $70 per unit.
One NZU equates to one metric tonne of carbon dioxide or other equivalent greenhouse gasses and companies buy carbon credits to offset their carbon emissions as part of the New Zealand Government’s Emissions Trading Scheme.
Warwick Searle, director of forestry at Colliers, says the increased value of carbon credits is an opportunity for sellers to have a significant spike in investment interest for both established forestry blocks and greenfield areas, which is bare land that can be converted into forestry and generate NZUs for several years.
“The emissions trading market is growing fast globally and the dramatic rise in carbon credits reflects market demand and speculation,” Searle says.
“Carbon farmers are purchasing greenfield land throughout the country with most transactions occurring in the more remote localities.
“The increase in NZU price now makes forestry sales a competitive option for land-based investment. Previously, forestry hasn’t been able to compete with farmland in terms of returns; however, now forestry returns are often better than farmland, and it opens up further investment opportunities.
“With the rise in carbon price, there is an increasing amount of farmland where the most profitable use of that land is forestry.”
In the horticulture sector, the kiwifruit industry is still going strong and despite the challenging environment presented by Covid-19, the sentiment in the industry is positive. Finding and retaining workers has remained a challenge but the industry has performed well in the face of adversity.
“The cost of licences has been on an upward trajectory as the fundamentals and returns to the grower have improved in recent years,” Nilsson says.
“Land values have risen over time reflecting the improving performance of the industry driving greenfield orchard development and demand.”
- Article supplied by Colliers
