Easier to pay off farm than 50 years ago
Contrary to perception, it is easier to pay off a dairy farm today than 50 years ago, says Myfarm executive director Andrew Watters.
But it is more difficult for aspiring young farmers to buy farms because many modern ones are so large that they cost millions of dollars.
Quoting a Dairy New Zealand economist, Watters said that between 1964 and 1986 it took 29 years of operating profits off one hectare of land to buy one hectare of farmland. This could vary by three years depending on a best and worst case scenario.
Between 1988 and today this figure had dropped to 22 years (plus or minus two years).
Even though farmland values had risen by 4.8 per cent a year since 1988, both milk prices (5.6 per cent a year) and rising production (2.6 per cent a year) had offset the rising farmland values.
Cows are producing more milk today than ever thanks to better feeding, improved genetics and technology.
Watters said while the ability to pay for the farm had improved, farm sizes had become so large it was difficult for new entrants to buy them.
"Quite often it's about the price tag. A 1000-cow dairy farm in Canterbury costs $20 million, and the amount you need to put down as a deposit is getting bigger and bigger.
"In the past, people used the pathway of sharemilking into farm ownership; there is less opportunity to do that today. And they used to go to small farms in places like Eketahuna or Featherston where the owners would milk cows for a good portion of their lives," Watters said.
Even family farms were tending towards corporatisation. Watters said it was also incorrect to say that dairy farm investments generated low cash yields. At current milk prices, a 250ha dairy farm should return between 4 per cent and 7 per cent yield.
The average dairy farm investment outperformed the New Zealand sharemarket by a significant margin between 1992 and 2012, and returns were less variable.
Watters said the industry faced environmental "challenges" such as finding ways of reducing nitrogen loss. He said that buying quality farms in resilient regions, a scientific approach to farm management and science-led innovation would help care for the environment while allowing growth.
Productivity growth 1978-2012 – 2.6 per cent*
Land price trend 1996-2014 – 4.8 per cent+
* Statistics NZ +REINZ Dairy Land Price Statistics