An impact investment proposal new to New Zealand has been floated by the Waikato River Authority and has gathered considerable interest here and overseas, authority chief executive Bob Penter said.
Parties interested in investing in and running the farms have contacted the authority since the information memorandum was published in November, he said.
The proposal is for 12 to 18 existing dairy farms in the upper Waipa River catchment to convert to low-input organic dairying.
A hybrid bond amount of $100 million will be raised to buy the farms, reduce cow numbers by 20% and begin the three-year conversion process.
Bond holders will receive an underwritten 2.625% annual yield and a profit share after 10 years of half the land appreciation, hence the hybrid description.
The authority said some farmers in Te Kuiti and Waitomo districts to the south and west of Otorohanga have welcomed the chance to sell to what is being provisionally called the Waipa Agri-Impact Fund.
Penter said the real surprise of the scoping studies last year was the environmental benefits that would result from conversion to organics along with some mitigation like afforestation and riparian planting.
“Targeting land use change and low-impact farming in only 5% (6500ha) of the upper Waipa catchment would significantly reduce the environmental impacts on river water quality.”
Modelling showed 40%-plus improvements in environmental impacts of nutrient leaching, sediment loss, E coli contamination and greenhouse gas emissions.
“By converting a relatively small number of dairy farms we target the hot spots in the catchment and potentially achieve around half of the Healthy Rivers Plan target for 10% improvement in Waipa water quality.”
Sedimentary loss is the major problem, as evidenced by the confluence of cloudy Waipa water with the Waikato at Ngaruawahia.
Riparian planting of natives and some sedimentary traps plus no cropping of riverside paddocks will be included in the dairy farm management plans.
The authority put together an information memorandum, not a prospectus, and the next step is up to a potential fund manager and/or investor to run their own due diligence and commit to the fundraising, Penter said.
The central financial proposition is that higher prices for organic milk will offset the reduction in cow numbers. The premium ranges from $1 to $2/kg milksolids.
The information memorandum did not source its figures and budgets or name the advisers used.
Penter said he can’t disclose the names of interested investors at this stage.
“We used figures from Waipa farms that are already on the market plus real returns for organic milk.”
The authority had kept abreast of the Lake Taupo land use changes and farming retirements and it already provides contestable funds for remediation projects.
In eight years it has distributed $44m for 288 projects.
“That is all good but the Waipa dairy farm conversion achieves an impact scale and adequate returns for investors, giving them more than altruistic reasons to become involved.”
The quality of the underwriter would be important, whether it be a bank or another financier, to secure confidence in the hybrid bond idea.
There will be a dip in farm income during the conversion years and the annual yield to investors will be guaranteed by the underwriter in return for a priority payback from farm sales after 10 years.
Dairy processors are very keen on expanded organic milk supplies and sheep milkers and A2 milk producers have also indicated interest.
