John Burke estimates a 10% land restoration project across all NZ farms could be expected to cost on average $14,000 per hectare restored.
An ex-rural banker and farm environment group trustee is calling on banks to dig deeper to support their farmer clients needing funding to help meet government freshwater standards and offset their farm’s carbon footprint.
Wai Kōkopu Catchment Project Bay of Plenty trustee John Burke said as farmers sought advice across a range of expertise, including forestry and ecology, banks also needed to come to the party, giving clients greater capital horsepower to make the changes.
The catchment project near Maketu is based around one of the country’s most degraded estuaries.
It has secured $2.7 million funding to improve the catchment’s environment and communicate land management changes to local landowners.
“You can look at restoration including trees for carbon as exotics, where the cost to plant is about $5000 a hectare. These projects can prove their business case. What banks could be doing more here is aligning loan repayments to timber and carbon flows,” Burke said.
Typically, with exotic plantings, carbon credits can be claimed from year five, ramping up to peak at about year 10 and ending at year 16, still 12 years short of harvest.
While exotic plantings do at least provide a relatively early cashflow, it is when native plantings and wetland establishments are undertaken that pressure on farmers’ capital starts to really bite.
Based on the Wai Kōkopu catchment experience, Burke and his colleagues have calculated the costs for land retirement and ecological restoration can be up to $23,000 a hectare, including fencing, weed and pest control and native seedling plantings.
He estimates a 10% land restoration project across all NZ farms could be expected to cost on average $14,000 per hectare restored.
“That means farms can face a high level of funding needs to achieve that. You could be looking at between $400,000 to $800,000 per 400ha farm,” he said.
Those figures tally closely with Federated Farmer figures in 2016 on the cost of meeting regulations. This put fencing costs alone on a western Waikato hill country as ranging from zero to $500,000 a property.
Wetland restoration projects are significantly greater in cost than trees alone, sometimes requiring land reforming and can mount to $20,000-plus a hectare.
Burke acknowledged there were some early efforts in play from banks. This included the ASB’s farm sustainability loans released at Mystery Creek last year.
ASB general manager for rural Ben Speedy said the bank has acknowledged the value of forestry and carbon planting on farms by allowing clients to incorporate carbon income into budgets.
Alternatively, the bank’s environmental and social policy will not allow lending for projects where pines are to be planted across viable farmland.
The bank’s sustainability loan product has so far lent $12m of its $100m allocation, but Speedy is confident more farmers will engage with it, particularly with He Waka Eke Noa (HWEN) carbon sequestration options emerging.
BNZ has also undertaken a three-year $50m sustainability linked farm loan to Southern Pastures dairy farm owner. This has the company receiving financial incentives for achieving water and biodiversity targets and emission reductions.
ANZ managing director for business Lorraine Mapu said discussion between bankers and farmer clients about carbon and land use change was occurring more often.
She said there was no “one size fits all” to help farmers adjust, and the bank wanted to take a long-term approach to debt funding new initiatives.
Rabobank’s head of sustainable business development Blake Holgate said the bank was putting the finishing touches on a new carbon loan product planned for farm clients.
While still under wraps, he said Rabobank recognises carbon farming will play an increasingly important role in farming clients’ business.
The loan would only be available to farmers whose core business was food production.
“The loan clearly demonstrates to the market that Rabobank is willing and able to finance carbon farming where food producers are able to integrate carbon into their broader farming operation, therefore enabling food producers to better utilise less productive land to capitalise on carbon income without having to convert their whole farms to forestry,” Holgate said.
Burke maintains banks risk being behind the eight ball on helping farmers with the heavy lifting, given the immediacy of policies like HWEN that kick in from 2025.
“It may even just be a case of guaranteeing 50% of a project where the regional council may be paying the other half,” Burke said.
But Speedy said there is also a risk for farmer clients being too far ahead in investment in environmental projects, only to have the regulations shift early in the project’s life as has happened with effluent management system rules in the past.
Gas reduction options under HWEN are expected to shave on average 5% off pastoral net farm profits nationally by 2030.