Rural debt levels continue to consolidate, underlying earnings at the farm gate continue to improve, and overall, there is better public awareness of our primary sector’s role in NZ’s economic recovery. Our primary sector export receipts are forecast to hit $49b this season, $8b up on five years ago.Nationally, farm sales equalled $3.5b, up $1.5b on 12-months ago. This is a big positive swing, and while dairyis off a low base, horticulture, too at $516m, is up 145% on last season.
This staggering recovery is not simply a pay-out story; dairy pay-outs have been tracking up since 2017.
Confidence again in Fonterra, is having a big impact on farmers’ view of the future, and indirectly too, as Fonterra sets the market for many of the smaller processor pay-outs. While uncertainties remain as to whether this upward trend in commodity prices is signalling a new price cycle, there is no question that food prices continue to soar internationally. The UN Food & Agriculture Organisation (FAO) cost of food index is up at its highest level since 2011 and has been on the rise for 12 straight months, up 31% on 12-months ago.
Economic and social themes impacting producers this season include the availability of seasonal labour, the uncertainty with the Emissions Trading Scheme (ETS) and associated carbon pricing, and environmental planning. These issues are not confined to New Zealand. Food producers worldwide are grappling with similar challenges, particularly mitigation strategies for methane emissions arising from food production.
Ultimately, it’s our reputation with consumers, as we innovate our way through these headwinds, that will set our primary sector apart from the rest. Our country has always had proud history internationally for primary sector innovation, and the 21st century will be no different. We must back our next generation as they step up to the science and provide the passion needed to bridge the gap. The payback this century will be much bigger than simply export receipts.
Right here and now, one of the most obvious policy impacts is the influence of the carbon price on land-use change, as emitters seek to offset their ETS liabilities. Across all land-uses, Property Brokers sold 40,000 ha of rural land last season; we feel certain this season will see another step change on that result given the demand we already have for post-1990 pastoral land for forestry planting.
Last season, sheep and beef producers were competing and winning a significant share of the listings as they came head-to-head with forestry associated interests, while the carbon price tracked between $25-$35 per tonne. This season, the carbon price looks set to be double that of last season, with predictions that it could even hit $100+ per tonne. Our preference is to take productive farmland to the open market; however, pastoral farmers will struggle this season to compete for land at these projected ETS levels.
Current central government regulatory settings are heavily skewed in favour of fueling carbon farming (permanent forests) at the expense of traditional pastoral production. The economics of managed forest estates will come under pressure, too, as bare land prices ramp.
Long term, less available farmland and increasing international demand for our food will translate into higher asset values for those intergenerational pastoral farmers that stay the course.
Short term, however; to quote Professor Keith Woodford, “The government never foresaw the land-use forces they were unleashing with the ETS,” which has created something of a carbon goldmine for those looking to exit farming with qualifying land.
Our view is the current carbon window will not last, but the ETS will stay. Farmers wanting to exit the industry, and take advantage of inflated land values, should be looking at their options this season, not next.
The government has a range of policy options available to moderate/regulate demand for rural land, everything from regional land-use policy to overseas investor criteria for rural land, right through to the actual ETS settings themselves and the associated credits available to investors from afforestation.
The ETS and carbon pricing is here to stay and left unchecked has national implications for our primary sector exports. Our view is that the Baker Ag report is much closer to the actual land-use change than MPI officials are currently prepared to accept.
A lot can change in 12-months, as we have already seen. So, before those little green trees become a lot more obvious to Central Government, now would be a good time to have that family conference, particularly if the family is considering an exit from the business of sheep and beef farming.
Regulators will inevitably look to moderate the current level of carbon offsetting associated with rural land afforestation; we just don’t know when. Then it’s likely to be quite a long wait before land values attributed to the actual business of earning export receipts catches up with today’s carbon windfall.
For rural and lifestyle property advice from a national team of committed salespeople, supported by our expert marketing team, right across New Zealand, be sure to get in touch with us today.
We'd like to take this opportunity to thank all our vendors for their support for the coming season; we take enormous pride in bringing your property to the market, getting you great results and assisting you with achieving your goals.
Property Brokers' leadership position in the NZ rural real estate market has been built around trusted advice and our True Team approach up and down the country. Our success in connecting vendors with purchasers through disciplined marketing campaigns is something we take considerable pride in.
For rural and lifestyle property advice from a national team of committed salespeople, supported by our expert marketing team, right across New Zealand, call 0800 367 5263 or visit pb.co.nz.
Conrad Wilkshire, GM Rural for Property Brokers Ltd, conrad@pb.co.nz
