Afloat but Drifting Backwards: A Look at Dairy Land Values Over the Next Five Years
Following a phenomenal boom after the turn of the century and a partial correction during the global financial crisis, the value of New Zealand dairy land has been stuck in neutral since 2010.
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Rabobank expects that macro settings will exert downward pressure on land prices in the next five years. “On farm, we expect the average farmgate milk price to soften somewhat, production growth to stabilise, and costs to rise, as farmers invest to meet more stringent environmental regulations,” according to Emma Higgins, dairy analyst.
Pending environmental changes, in combination with an upcoming election campaign, will continue to cast uncertainty and throw shade over land values for the next 12 to 18 months in particular. Foreign capital flows will remain lower unless the current policy settings are revised, and tighter credit availability will add downside pressure to dairy land values over the coming five years.
“A declining land market will have implications for all industry participants. Investors will need a higher level of competency to attract capital and succeed in a declining market with increased regulatory complexity and uncertainty. Banks will need a clear strategy for dealing with the increased environmental regulations – understanding the application of potential and existing regulations.”