Dairy farmers Jim and Barb Hitchcock farm in the Rotorua Lakes catchment which has been under scrutiny for nitrogen leaching for more than a decade. The Bay of Plenty Regional Council has set a target to reduce nitrogen loading in the catchment and is set to enforce a nitrogen discharge allowance on farmers, who will soon have to apply for a resource consent.
The fallout for farmers in the catchment had been a decrease in farm values. The rules made it difficult for farmers to sell or to make capital investment decisions, Hitchcock said.
Farm values in every catchment in New Zealand will soon have to factor in environmental regulations to a higher degree, he said.
“Our farms in the catchment are definitely worth less than farms outside the catchment and you are limited to the people prepared to take the plunge and buy one. Lots of lawyers advise their clients not to go near it.”
Environmental rules and regulations were already taken into consideration for farmers buying in any location, ASB senior rural manager Trevor Hurley said.
The rules needed to be fully understood and sensitivity analysis was completed to ensure both financial and environmental targets were able to be met.
Rural environmental council regulations were challenging the certainty around the security of payback periods.
The Hitchcocks, who have been farming at Mamaku in the Rotorua Lakes catchment for 20 years, still rate it as an excellent farming location.
“We still love the area. It was still a good decision to come here. We’ve never had a drought since we’ve shifted here, which makes grass production easier than in some areas. Facial eczema is not a problem. So there are a lot of things going for this place.”
In Canterbury, Property Advisory director and valuer Paul Mills said it was still too early to see any definitive impact on sales data from new zone classifications but some trends were starting to emerge. Farms within irrigation schemes were being viewed more favourably because the scheme’s management was tackling regulation details.
“The schemes are viewed as being easier to operate within in terms of being able to navigate a pathway through the regulatory environment,” he said.
“For individual irrigators it’s pretty daunting and they feel like they’re bobbing around in the ocean.”
Well-converted farms were more sought-after than land for conversion because of the regulatory high jumps farmers might have to get over. Mills said there was considerable uncertainty in the market as the matrix of good management nitrogen and phosphorus loss numbers were keenly awaited and requirements for advanced mitigation were still to be settled on.
Due diligence in the future would have to include a deeper look into soil types and leaching limits. It would also have to look carefully at where the farm was operating at compared to the conditions it was likely to have to meet and the affects those conditions could have on profitability and productivity.
“There’s a shift in thinking towards optimisation rather than maximisation,” he said.
Value per productive output – $/kg milksolids– would become more important.
Where advanced mitigation was required farm working expenses might be higher. If the mitigation hadn’t been carried out yet there could be a requirement for capital spend. If it had been, then time will tell how the market values that extra capital investment.
