Dairy farm values have been declining now for well over a year and there is no sign they will stabilise. The key issue is a lack of buyers with the necessary finance. The implications are starting to get serious.
There are multiple reasons why there is a lack of buyers. The biggest one is a change in bank lending policies. Those policies are set in Melbourne and Sydney where the big banks are headquartered.
None of the Big Four banks are interested in new dairy lending unless the investor has high equity. The related policy is that all banks now want repayments of principal whereas interest-only loans were the norm for many years. At least two of the Big Four banks are actively trying to reduce their exposure to New Zealand dairying.
The reason that things are now getting serious is that reducing land values are causing a large number of farms to fail the loan coverage criteria that banks now require and an increasing number of dairy farms are moving towards negative equity. As banks get increasingly nervous about their lack of cover, values can spiral downwards very quickly. It is a situation that feeds on itself.
The word from within the real estate industry is that there are not many dairy farms on the market. However, to the extent that this is true it is only because farmers know that it is a waste of time putting the farm on the market unless they are desperate to sell at any price. Down my way in Canterbury, all recent sales of which I have direct knowledge have had a strong element of bank pressure.
Getting an accurate picture of the extent of the market decline is difficult. This is because there is no reliable published data. The REINZ have their own data but their analysis lacks sophistication and they have put the shutters up on publication of detailed information. DairyNZ has published data but the latest data in their Economic Survey is 18 months old.
I have data from one of the South Island valuation firms through to mid-2019. Until then, Canterbury values were holding up to within ten percent of the 2014/15 peak. However, Southland sale prices were already down by about 20 percent but with few sales, and Westland prices were down by considerably more than this.
Since then, South Island values appear to have declined considerably. There were several dreadful forced sales in Canterbury and North Otago in the middle of 2019 with one particular bank cracking the whip. There have also been schemes of arrangements with some corporate-type farmers where the banks have agreed to restructuring and with the bank taking a loss. These arrangements are always confidential.
My assessment is that values in Canterbury are now down around 20 percent from the peak, or perhaps a little more, but still trending down from there.
In Southland, there have been minimal recent sales although I do know of one sale of a large high-quality farm. It has been sold to an existing farming group who have brought in additional external equity capital.
In Westland, at least half the farmers would get out if they could. My assessment is that values are now down by at least 50 percent from the 2014/15 peak but farms are still not selling.
The Westland situation is despite the greatly improved milk payments from Yili as compared to the weak recent payouts under Westland Co-operative. Dairying on the West Coast is always hard work, but a recent additional problem for the West Coast has been dreadful weather over the last nine months.
I have less information for the North Island but there is no doubt that values have also dropped there since the 2014/15 peak. A few farms have sold well in situations where kiwifruit or other horticulture is an option and this can mask the overall trend.
There are still a few situations where established families can finance the purchase of a small farm of say 80 hectares to add on to an existing farm. It seems that there almost no local buyers for farms of more than 100 hectares and carrying more than around 300 cows.
I said earlier that there were multiple factors at play beyond the change in bank lending policies. One obvious factor is buyer sentiment linked to uncertainties over future environmental standards. This uncertainty affects attitudes of both buyers and bankers. However, I am aware of situations where prospective buyers have taken an option on a property subject to bank finance, but then the prospective sale has fallen over owing to failure to get the finance. This tends to confirm that overall bank policies and sentiment are more important than farmer sentiment.
Another big factor is that in late 2017 the new Government in effect banned the purchase of dairy farms by overseas investors. There are still absentee investors from Europe, the United States and Canada who would like to buy large dairy farms, but such purchases are no longer possible. Any change in that policy by a future government would be highly controversial.
Below the radar, there is still some foreign investment money coming in, but limited to overseas investors purchasing a 24.9% equity stake in existing farming groups, with this not needing approval from the Overseas Investment Office. Hence, there is no public notification of the restructure, or the underlying land price. I know of multiple situations where this is occurring, and there will be many others that I am not aware of.
The big question going forward is where is this all going to end up? I wish I knew the answer. A key related issue is how will ownership concentration evolve. At some stage I expect to see new groups of urban investors emerge but that could be some way off.
The crunch will really come if dairy prices should ever decline below $6 per kg milksolids. Despite advocacy by some for a vegan and vegetarian future, global dairy demand is still increasing. Hence, a market crash seems unlikely in the short term. But in a volatile world there will still be periods of low prices.
In the meantime, with farmers under pressure to pay back capital as well as interest on their existing bank loans, there are no rainy-day funds controlled by farmers themselves to get them through the next downturn. How will the banks then respond?
As to how we got into this situation, with hindsight it is very obvious that bank lending policies were far too lax for far too long, compounded by weak oversight by Government. Throughout the first decade of this century, it was common for farmers to be propositioned by cold-calling rural bankers, who were themselves on incentive-base remuneration. The message was that farmers should be giving thought as to how they could ‘grow their business’.
The banks are now trying to figure out how they can get out of the mess they themselves helped to create. In the meantime, the banks are raising their interest margins on existing loans to compensate for the perceived increase in risk. There can be little doubt as to where the balance of power lies.
*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. Previous article on Fonterra’s challenges can be found at https://keithwoodford.wordpress.com/category/fonterra. You can contact him directly here.
86 Comments
“ As to how we got into this situation, with hindsight it is very obvious that bank lending policies were far too lax for far too long, compounded by weak oversight by Government.”
More like - banks are allowed to loan credit as opposed to money causing bubbles to be easily created and pricing mechanisms to be distorted.
It’s a stupid system as the higher that land values go, the more it advantages existing land owners from an equity perspective and we also get consolidation of assets and inequality.
I suggest it's a little more complicated than that. Farming is a business, but many farmers are just not good business managers and were/are unable to discern that their bank had a vested interest and should not be relied on to advise on running the business. So yes the banks are at the core of the issue and were significant in creating the mess, but farmers are right there with them. A part of this is that many farms were being bought at too high a price, so the fall in prices will help in the long run for the new buyers.
Break them up into smaller units. Maybe large corporate style farming with high debt loads is a model that only works under certain conditions. (Eg rising commodity prices, political protection plus credit boosting central banks.)
Some more specific detail would be nice. Which bank is the one that Keith is alluding to, ANZ, BNZ? I would very much like to know. My guess is the RBA took the Aussie bankers out to lunch and read them the riot act. For years they used to lend happily up to 60% on a commercial property, now that has gone down to 40%. That is a massive contraction that needs spreading over a couple of decades, not 3 years. Imagine if they did that for mortgages. There would be riots.
I agree and disagree. Yes farmers should not have taken on so much debt but where I disagree is what the debt is. Again, it’s credit. If banks were operated as a genuine middleman between depositors and borrowers then they would be much, much more selective on who and what they loaned to/on and farmers would be more restricted with their overindulgences. It would be more self regulating (not completely) and we wouldn’t have these inflated land values as we do currently.
After buying into a farm last year and seeing the ins and outs, I’m really worried for future generations of farmers as it is only getting harder to own a farm and the odds are in general sliding further away. I don’t want to see NZ only owned by a few behemoths.
If banks were operated as a genuine middleman between depositors and borrowers then they would be much, much more selective on who and what they loaned to/on and farmers would be more restricted with their overindulgences. It would be more self regulating (not completely) and we wouldn’t have these inflated land values as we do currently.
There’s absolutely no sign of anything minimally like the next Great Inflation.
Instead, even Economists admit that our biggest problems globally are the lack of nominal income growth and capital investment. They don’t know why, falling back on that supply side R* thingy, but the channel from bond buying into inflation and higher rates isn’t behaving at all in the manner of money printing.
Again, go back to Friedman: “low interest rates are a sign that monetary policy has been tight.” The reason interest rates aren’t being pressured higher is that there have been no inflationary pressures because there hasn’t been rising nominal incomes nor capital investment which would’ve been stimulated if money had actually been printed at some point. The great non-inflation fallacy of our time is different than what it had been in Friedman’s; and interest rates are telling us exactly that.
Central bankers today aren’t trying to peg interest rates to a low level, the bond market is doing that for them and they are actually trying to make the case that the resulting low interest rates are somehow good. And because it really isn’t, they keep doing the same things over and over and over. No radical rethinking of the process deep down to the fundamental intellectual level.
In that view there is also the one about how the world is stuck in a low rate environment because there’s too much debt. When in fact the yields on those debt instruments are stuck at high prices because there’s too little money. Keynes had first talked about liquidity preferences which play a huge role in the paradigm. It’s only too much debt in light of too little growth.
And, if you haven’t noticed, that’s exactly how the Fed is acting right now. Monetary officials aren’t close to solving the issue, of course, but in first ending QT long before they had intended then the sudden reaction of repo auctions (which aren’t repo) whose caps have been raised substantially just this week, and now a small-scale asset purchase (don’t call it QE) on top, Jay Powell is telling you he’s pretty sure there’s a monetary shortage, too.
He doesn’t know why or where, but it doesn’t take a genius to properly interpret current money market signals. The real crux of the matter, though, is that he only needed bond market yields to warn him the system had been heading toward this state (again) for quite some time. They had signaled throughout 2017 and 2018 that globally synchronized growth was a farce, the inflationary pressures he envisioned that comported with Milton Friedman’s view of them just never materialized – all because no money had ever been printed. Link
Maybe that’s all a little over my head but as for this part - “ The reason interest rates aren’t being pressured higher is that there have been no inflationary pressures because there hasn’t been rising nominal incomes nor capital investment which would’ve been stimulated if money had actually been printed at some point.”
We have had inflation, just concentrated particularly in housing and land - the stuff that banks create credit/money to loan on. Measures like the CPI have for a long time been very deceptive. As per the RBNZ, since 1980 housing has increased by 2019% and the cpi 414% (Incomes 546%). This is how certain assets can be inflated without everything else following in lock step. Money isn’t being printed carte Blanche, it’s being directed to specific sectors due to our banking system.
Yeah nay. House price inflation is not primarily a function of interest rates or bank lending. Interest rates has a relatively minor effect on demand for housing. There are a lot more supply and demand factors which are more significant. Such as urban planning rules. Infrastructure provision. Urban employment growth...
House price inflation has been driven by a number of factors, and I would suggest interest rates are the single biggest influence on price.
The universal printing of money by the central banksters has played a major part, as they is now more money than there are investments available. This has been reflected in the low returns people are now accepting for bonds, shares and property.
In the end, wider house prices are driven by affordability however. The low interest rates have helped the current prices from collapsing, however with the removal of non residents from buying, the only way house inflation will continue is increased wages.
Hi Brendon. Yes it’s a multi faceted issue (like everything) however our banking system and interest rates are the single biggest factor in house price inflation. What do you think prices would look like if banks couldn’t create money/credit to loan? If interest rates hadn’t been dropping for the last 20 ish years do you think prices would be where they are now?
Other factors absolutely play a part but not anywhere near to the same extent.
Does anyone remember the Ad on TV 30 years ago when a farmer was interviewed, might have been a lotto ad, perhaps BNZ, cant remember, but the cocky, when asked what would he do if he won lotto, replied, probably keep farming till I lost the lot.
Modern farmers are way better than that, they are businessmen first and farmers second, that's why they are still in business. There are plenty of good farmers who have been through the ups and downs of prices and weather, and are waiting for a land price correction, its been coming for quite a while, some will loose, some will gain, that's business.
That is due to the smoke and mirrors of central banking, whereby a loan to a householder only attracts a 30% (or thereabouts) loading, whereas a loan to a business is 100% loading. So the banks can lend their capital 30 times over for housing, but only 10 times over for business. Dopey as. Who came up with this stuff?
That is due to the smoke and mirrors of central banking, whereby a loan to a householder only attracts a 30% (or thereabouts) loading, whereas a loan to a business is 100% loading. So the banks can lend their capital 30 times over for housing, but only 10 times over for business. Dopey as. Who came up with this stuff?
Wonderfully expressed
Thanks for the encouragement. I am convinced that the destructive ideas that are fashionable in New Zealand are really quite simple to put right, if only a little light can be shed on them. I think the bureaucracy might be exquisitely sensitive to ridicule, but I need to make it funnier....
Yes as I was reading this article I was thinking that this contraction in lending could have occurred in the residential markets to a much greater degree than it has. As it is in the dairying sector.
If banks really pulled back on residential lending there'd be a real sh*tstorm.
"If banks really pulled back on residential lending there'd be a real sh*tstorm"
Exactly. Many residential property investors are unaware of this linkage. Many have been told to believe that residential property prices will continue to double every 10 years, or that there is a housing shortage (esp in Auckland) which leads to rising property prices, which leads to an expectation that property prices cannot fall by much.
This is how effective demand can fall significantly (apply these comments from the above article to residential housing)
1) There are multiple reasons why there is a lack of buyers. The biggest one is a change in bank lending policies.
2) The reason that things are now getting serious is that reducing land values are causing a large number of farms to fail the loan coverage criteria that banks now require and an increasing number of dairy farms are moving towards negative equity. As banks get increasingly nervous about their lack of cover, values can spiral downwards very quickly. It is a situation that feeds on itself.
So now what do you think happens in a recession?
1) businesses revenues fall,
2) businesses cut costs
3) businesses cut staff and people lose their jobs
4) these people who lose their jobs and who are highly leveraged and have large debt service ratios may then be forced to downsize ...
5) banks tighten credit lending policies
6) some businesses will fail and go into bankruptcy
Expect more of this in a recession - this guy had ownership interests in 8 houses
https://www.stuff.co.nz/business/property/116378021/ecohouse-businesses…
"Tremewan said he had tried to protect staff by putting about $600,000 of his own money and from another company he owned into Welhaus.
He had sold his family home at Redcliffs and his family would be renting from the settlement date in January, he said.
According to Terranet Advance Web and Ahei Ltd, companies owned by Dan Tremewan and his brother Colin, and directed by Dan Tremewan, own seven properties in Christchurch and one in Akaroa.
Tremewan said some of the properties had since been sold and the remainder were being put on the market "to keep financiers happy".
They would be used to pay first and second mortgages and he did not expect there to be any extra money."
So allowing the Chinese government in the guise of a 'private" company Shanghai Pengxin to purchase (or land grab) the Crafar farms at an inflated price, led to further local speculation that all rural land prices could only increase , particularly dairy , when plainly economics did not support such an outcome.
Roger,
China can indeed create its own currency (CNY) but NZ farms cannot be bought in that currency. To buy farms n NZ they need to purchase USD, and then convert those to NZD. There is nothing free about that. The more CNY they were to create, then the more the value of the CNY would decline, and then a lot more CNY would be required to buy the USD.
KeithW
Cowpat, Shanghai Pengxin, now restructured as Milk New Zealand, purchased the Crafar farms in 2012 by which stage the surge in land prices was largely over. Milk New Zealand is itself now owned by Alibaba which is a public company listed in Hong Kong and the New York Stock Exchange.
KeithW
Keith, the structure is somewhat more complex. Alibaba only became a strategic investor in 2017, investing circa US 50 million in Hunan Dakang's e commerce unit . Hunan Dakang (now Hunan Dakang International food and agricultural unit ) with a 10.1 billion market cap and ultimately Shanghai Pengxin remain. Hunan Dakang is listed on the Shenzhen exchange. http://www.dkifa.com/
Interest .co have a median price chart for dairy land
Cowpat,
Alibalba (40%) and an associated companyof Alibaba (17%) have control over Milk New Zealand through their 57% shareholding. Hunan Dakang holds 33% and minority shareholders hold 10%. Shanghai Penxgin retains a 55% shareholding within Hunan Dakang which effectively flows through to an 18% shareholding in Milk New Zealand
KeithW
'overall bank policies and sentiment are more important than farmer sentiment"
That is the heart of the matter.
We are in a contrary situation with beef,lamb and dairy at cyclical highs and yet without bank support farms are falling in value unless suitable for pine trees.
We are now sitting on the fence, having expanded in recent years but at lower values and with good bank support although it has been made clear now is not the time to test that support. There are a number of good farms on the market around here but have vendors with unrealistic expectations.
Your plan is what keeps the people at the local council in work. RMA forms to fill in, fees to hand over. The fees are the income of the planning staff, more questions, more income. They look after their tribe. You pay for their privilege. It's not bribery as such, in many ways it is worse. A small bribe (say at 1/10 of the cost of an RMA application) would get approval straight away in another, supposedly more corrupt, country.
This has been coming for years. A majority of farms have relied on capital gain for profit. Make no cash yield on the way through and sell for tax free capital gain at the end. It’s worked well for decades but in the end it’s really a ponzi scheme unless you have inflation driving values along. All parties have been caught up in this and with the money supply now restricted farms will have to run on yield with the allocated risk factor. Add in succession and demographic change, a lack of young people who want to go farming as they have other options, and there will be some big changes in the next 10 to 15 years. Don’t even think about what will happen when interest rates go up again.
Merely an anecdote: I had a look at one dismaying dairying future recently, visiting a corporate farm composed of three previously family-owned farms. Two of the houses were abandoned, gardens and orchards overgrown, out-buildings in ruin. The manager, in his mid-to-late-twenties, had the assistance of two Indian immigrant workers, both in their thirties, apparently with little English, and both called 'boy'. As we left, my host pointed to a pile of farming magazines, commenting - perhaps unfairly - that, unlike the properties he was aware of, there wouldn't be a non-European face in any of them. Was it profitable? That was the only aim.
No surprise.its the reality of our financial system . The price of most assets isn't dictated by the buyer nor the seller nor even the wealth generating capacity of the asset.
It's value has become dictated by what a financial institution will lend on it. This goes all the way to things that the likes of Payday target.
Had to end eventually, just wait till it bites other asset. Some will have made fortunes, some lost them, the rest of us will be left to work picking up the sad pieces putting it back together.
Having visited rural canterbury over xmas it is quite clear that upcoming changes to environmental regs are the whole of the matter. As proposed it means up to 2/3rds of farms will be shut down. Farmers have ceased investing, confidence is non-existent, support industries are retrenching and there is huge anger at capricious vindictive urban ignorati driving this. Proposed nitrate limits, an order of magnitude lower than in other western countries, are simply impossible for dairy or arable farms to meet. Some un-farmed high country rivers exceed the proposed limits! It will destroy farming in much of the country and lead to a massive recession if implemented by the idiotic zealots of this coalition - and will never be tested in parliament as it only requires agreement of caucus to install these regulations.
It is utterly terrifying that the coalition, comprised of individuals who should be smart enough to understand that NZ's relative prosperity derives almost entirely from it's agricultural industry (by providing the majority of seeding foreign income that props up and circulates through the wider economy) are willing to destroy it on a whim - are they truly that stupid or are they maliciously disposed towards rural NZ where they don't know anyone? Our current Environment David Parker prior to last election warned farmers he would punish them if they didn't shut up about Labour's intent to charge them for water - seems they hate the productive sector.
Hi Foyle
Sorry, but that is utter rubbish. Environmental regs via the LWRP have been in play since 2014, with each zone (13 zones) then proceeding through a phase to determine each zone specific rules within the Plan Change framework. There are zones in which the rules will, over time, require land use change. However, a number of my clients are already compliant with zone rules and 1 - 2 tranches of N reductions. This requires investment or system moderation, which, where not achievable, is more specifically related to the debt level associated with the business as Keith has alluded to.
The zone rules are variant, the measurement tool is far from perfect and there are a number of businesses locked into high cost / high debt scenarios that are effectively inescapable in the current form, which is all feeding into the above. The environmental rules have a definite effect but make no mistake, the access to capital issue is far more detrimental in the short to medium term.
Statements like what you've made there are as detrimental to the discourse of discussion and dealing with the issue as someone who has the opposite point of view in the extreme
Oh for goodness sake ...........ever heard of IRRATIONAL EXUBERANCE ?
All this hand wringing is nonsense , we have known for ages that there has been a disconnect between dairy land prices, levels of farm debt , and reality .
We have had a combination of greed and a speculative bubble in the sector over a sustained period
We also know that the sector got ahead of itself paying way over the odds for even wet soggy waterlogged land .
Ten , 20 or 30 years ago if you over-paid for a piece of land, inflation would take care of it , that is no more .
We have had cheap easy money , no inflation to speak of , and level or declining commodity prices , a rampantly strong currency , and optimism among the farming community that can only be described as IRRATIONAL EXUBERANCE
And that exuberance extended right up and into Fonterra who embarked on speculative investments that were simply gambling with other peoples money . Often borrowed money too . It was simple greed that drove some of these investment decisions
We saw levels of farm debt getting way out of sync with reality in the past decade , and we all know that one bad season can sink any farmer , and more so , if he has a big bank debt .
Much like Auckland house prices , (where there is a disconnect) , we have allowed it to get out of hand .
Banks have until recently thrown money around like drunken sailors on shore leave .
Interest -only loans are almost as bad as a reverse mortgage , you never get on top of the debt ...just ask any Indian about bonded labour in India , and you will understand haw soul destroying it is to be indebted for life .
Interest rates on carry trade inflows are so low as to be a joke , and Banks used this money to throw at farmers
When markets over-reach they always adjust , its cyclical and a known trend, and the cycle has not even changed ..............yet .
"Getting an accurate picture of the extent of the market decline is difficult. This is because there is no reliable published data"
"DairyNZ has published data but the latest data in their Economic Survey is 18 months old."
"The REINZ have their own data but their analysis lacks sophistication and they have put the shutters up on publication of detailed information"
"I have data from one of the South Island valuation firms through to mid-2019. Until then, Canterbury values were holding up to within ten percent of the 2014/15 peak"
So where do you get your data from to extrapolate value drops of 20% or even 50% ?
Yvil, I use a combination of keeping my ear to the ground when I am out and around in the rural community, using whatever statistics I can get hold of, and then interpreting the evidence. If you have additional empirical information, then feel free to provide it. The specifics of around 50% relate to the West Coast ( I believe I made that clear) and I am comfortable with that figure in comparison to values of approximtely five years ago.
KeithW
They really are the problem, as they are dreamt up and installed by zealots in pursuit of imagined Arcadian ideals without reference to their real world impacts in terms of genuine beneficial improvement to environment or economic consequence. In the real world only prosperous countries care about and maintain environmental standards so beggaring communities in pursuit of unattainable goals leads to worse outcomes.
Hi Keith.
I am in Finland on holiday. I had a thought that to help tranisition to carbon zero it would be helpful if an area moved much more rapidly as a experimental innovative project that would give a lot of valuable practical information for the farming community.
My thought was that a 10 × 10km area could be fertilizer and fossil fuel free. That this area could have 100 farms of 100 hectares and one central township/village.
This area could be given tax advantages such as a flat 10% tax for all transactions (trade, employment etc) between residents, with the tax going to a local municipal government to provide carbon free infrastructure.
A question I was wondering is what would this do to land prices?
If land prices have fallen a lot in the West Coast would that be a good area for such a experiment?
The reason West Coast land value is low is because the majority of it is unsuited to farming due to terrain and heavy rainfall. The rainfall strips nutrients from the soil up to 3 times faster than the average farmland. Soils tend to be heavy and prone to erosion. Less sunshine also means less growth.
The coast is a beautiful place but I would think a lot of future challenges for dairy farms there. In many places there are long narrow valleys that limit scale with difficult farm shape. Sheds mostly not in the centre of farms and most have feed systems. A look on google earth shows the stipping indicating a reliance on urea. So you have an industry heavily reliant on imported feed and fertiliser with long difficult and unreliable transport links. Not really the ideal situation heading into a zero carbon future. Of course there are plenty of exceptions to these generalisations....
Re my original comment. If canterbury was so well suited to dairy, there wouldn't be a need for farmers to rely on irrigation. I never said there was a shortage. However, the more water that is diverted, the greater the chance of adverse effects to the existing environment
But, but, but, these bright, well connected and dynamic new citizens are the new engine of the productivity of the future. Not a burden, but a bright and glorious future economy based on knowledge and ideas. That is why Auckland houses are so desired, and the profitability of their endeavours so high that it supports the high prices they command.
Er, I think that's right, isn't it? I'll have to check the MBIE website, I'm sure they will know.
Pre-european the canterbury plains were an arid treeless expanse with little animal life and life-threatening winds that blew people away. Is that your preference? Canterbury is ideally suited to agriculture _because_ it has high sunshine, low rainfall, fantastic access to large quantities of fresh water flowing down to the sea under the plains, and great drainage to sea just a few 10's of km away. 40% of world seed crops are grown in mid-canterbury - arable farming is worth more than dairy there, but is destined to be ended by proposed nitrate regulations that make irrigated farming impossible.
So the Europeans managed to turn of the life threatening winds that were blowing people away? Interesting.
In what school of agriculture is low rainfall good? The californian one? How does that go with crop yields?
Drainage is the issue - polluted drainage. The sea shouldn't just be our dumping ground because its out of sight and convenient
Um, it's a little more complex, and much sadder. Pre-humans, the east coast of the South Island was forest from beach to mountains, north to south, only excepting Central Otago. There's a map in 'Tangata Whenua' of precisely this - P88. The earliest arrivals promptly burnt most of this cover in the pursuit of moa and other edibles, and this penetrated right to the head of lakes like Wakatipu, where lake sediments show human faeces dated back to 1350 or so, amongst the ash layers of that burning. So the 'aridity' is caused by vegetative cover changes.....definitely a case of Anthropogenic Climate Change.....
Keith, i am not sure the issue is lack of buyers, its more farm prices are still too high. Regardless of what people have paid previously, i think farmers, but more so banks, are coming to the realization that borrowing money at 6% and getting a return of 3 or 4% is not good business. Farmers relied on capital gain, the banks relied on a budget that many farmers had no idea of how to achieve. Don't get me wrong there are some very good farmers which include managing all aspects of their business, these farmers can operate in most economic conditions. But there is also alot who are not quite as focused on the numbers.
The banks, well yes they were lending, but be assured it was the farmers signing the loan agreements.
Having spent many years in the rural banking industry, it was highly sales orientated, with huge bonuses for those whom lent out the most$, funnily enough ( or not), generally it was these bankers customers who would end up in the deep end in a couple of years, and the banker buy this time had moved on to different pastures.
And yes banks criteria was pretty laxed, and there are many a farmer who has made alot of money from these laxed rules, being able to borrow with low equity and stretched cashflow. But has enjoyed a long period of increasing farm values.
Cash is king
Youareright,
One of my points is that as values decline so does the equity of prospective buyers decline. So the whole basis of the price-pumping model of the last 15 years breaks down. The question that I therefore ponder is where is the new 'equilibrium price' and what will the source of equity be sustain that price?
KeithW
Someone commented earlier that farmers are not businessmen and God knows this is the truth. In the past few months here are a few examples of what I've heard farming friends/associates say regarding the cost of rural land and farms:
" Economics and what you can make off the land have got nothing to do with it".
" It doesn't matter if you don't earn a cent off it for the next 10 years" (referring to capital gains).
" Don't worry, the govt will tell the banks they have to play the game again, you'll see".
" You don't understand, we're talking about money, the banks will start lending again".
The confidence with which these statements have been made is nothing less than astounding. Now, can you imagine being a head of one of the major dairy lenders in New Zealand and hearing this snapshot of the way the industry thinks, that you have lent 10's of billions of dollars to?
I am deeply sorry for the plight many farmers now find themselves in. The number of suicides is an all too stark indication of the many issues facing the industry, but I do find it hard to understand why anyone would take on an interest-only loan. Of course, a prudential banking system would have prohibited such loans from being offered, in all but exceptional circumstances.
linklater01,
Interest-only loans were perceived to work for both sides of the deal. For farmers it was fundamental to cash flow positivity. For bankers it kept the money 'out there' earning intererst. Unlike for house owners, farmers felt no need to get into a debt-free position by retirement ,and it allowed farmers to 'grow their business' in the environment of that time.
KeithW
Back when the dairy price crashed to 3.90 a couple years back, the Taranaki area alone lost around 30 in the month of May to suicide. One tanker driver turned up to the milking shed to find no lights on, no cows and no milk in the vat. He walked into the shed to investigate to find the farmer hanging from a rope.
Coalition's proposed environmental regulations are going to have a far bigger impact on vastly more people and industries than $3.9 milk price did. Certainly a large number of bankruptcies and suicides, but given strength of feeling of those I talked to in Canterbury (not farmers either, mostly support industries) over xmas I won't be at all surprised if there is political violence as a result too - because the blame can be laid entirely on a very few highly visible, sneeringly dismissive politicians.
Foyle, totally agree with your comments. In 2017, Environment Canterbury commissioned a study on the likely economic and social consequences of implementing nutrient discharge limits similar to what are proposed in David Parker's freshwater plan. The study focused on the Selwyn Waihora district, and found that annual GDP in the district could be expected to fall from $375m annually to $75m,with a consequent proportionate drop in employment. Given that Selwyn is probably the fastest growing district in NZ such a drop in employment would really put the cat amongst the pigeons on all fronts, especially housing. Needless to say, Ecan quietly shelved their proposal.
A worthwhile read: Lab-grown food will soon destroy farming – and save the planet;
https://www.theguardian.com/commentisfree/2020/jan/08/lab-grown-food-de…
Kate,
Monbiot at the Guardian appears to misunderstand the energy issue. The hydrogen is a storage mechanism for energy but it is not 'free energy'. The bacteria have to get their energy from somewhere and that place is called 'the sun'. So there has to be a way of getting the sun's energy to the big tanks in the labs where all of these bacteria are gong to live. It is possible using solar panels and wind turbines to create the necessary electricity and then transfer this to hydrogen (through electrolysis of water which uses energy to split the water into its compoonent parts) but it won't actually be a cheap way of producing food. It is going to be energy intensive. In the existing world, we use plant photosynthesis to do that job for us. Those plants, spread all over the world, are how we capture the suns energy, and turn it into carbohydrate-predominant products, and then we also use animals to take some of it through the food chain to produce higher density protein and fat foods to complement the carbohydrates.
KeithW
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