Friday, February 23, 2024

It’s not just trees scaring the sheep away

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Slide in drystock numbers shows bigger wheels are turning.
The sector is facing a generational and succession dilemma that existed well before carbon farming became a thing, and it is only exacerbated by demographics.
Reading Time: 4 minutes

After the government’s announcement on what it wants to keep and what it doesn’t in He Waka Eke Noa, the shouting has, predictably, begun. Foresters, farmers and government ministers have all taken to the stage, with the media to amplify what is starting to sound like an unholy, fatiguing din as the world burns.

Initially much of the ire emanated from the sheep and beef sector, caught in the modelled 20% decline in production and threats of guts being ripped. 

Dairying appeared relatively sanguine and relaxed about most key changes, barely mentioning the loss of sequestration allowances that hits its drystock cousins hard. 

Possibly this is because ultimately the options open to dairy farmers outnumber those facing drystock. 

Cows bred from low methane genetics will graze on alternative pasture types while receiving a daily ration of some version of a mitigator. Urine patches will be treated, emissions from effluent ponds will be extracted.

But the vexed challenge remains for drystock, a sector where the government’s own modelling predicts production could take a 20% hit. For all its flaws, carbon offsetting –  whether through the Emissions Trading Scheme or He Waka Eke Noa (HWEN) – appears the most likely go-to option, with genetics on a longer-term horizon to help partially deal with gross emissions.

But offsetting has pine trees as the scapegoat to a current carbon policy that encourages farmland to be planted in trees, arguably dumping urban carbon in a rural landscape.

However, looking through the modelled numbers, and past the argumentative din of the past month, some real figures suggest the challenges to drystock numbers now and in the future extend beyond the creep of pine trees and carbon farming.

The latest Beef + Lamb NZ (BLNZ) livestock numbers highlight a slide in sheep numbers over the past decade that continued from the decade before, and the decade before that. From 2012 to 2021, breeding ewes have seeped away by 20%, appearing to only (just) stabilise at this year’s estimate of 16.1 million.

Over that same period exotic afforestation barely moved on the dial, going from 1.721 million hectares in 2012 to 1.740 million in 2021, a mere 1.1% lift. 

Today it still sits well below our most forested period, in 2003, when 1.827 million hectares of exotics swathed the landscape – a time when sheep numbers totalled 40 million. 

From 2012 to 2021, breeding ewes have seeped away by 20%, appearing to only (just) stabilise at this year’s estimate of 16.1 million. Over that same period exotic afforestation barely moved on the dial.

A full 108,000ha of exotic forest disappeared between then and 2011, and barely rates a mention in the annuals of New Zealand land-use change. There was little debate then or now on the wisdom or otherwise of moving that land often to higher-emitting, nitrogen-leaching dairying.

In short, there is a disconnect between sheep’s slide and trees’ surge. The correlation is hardly strong, and in some years negative. In the past decade that slide in sheep has continued, even over years like 2014-2019, when exotic forest area declined too.

One of those other drivers is a switch to cattle, with numbers up 6% between 2012 and 2021. At a ratio of 6:1 sheep to cattle, that accounts for almost 700,000 of the past decade’s 4 million lost ewes. 

The enviable productivity gains of the past 20 years in sheep farming are slowing and also increasingly being challenged by the sector’s rising costs, with on-farm inflation up 15% in  five years now outstripping the CPI and adding to the appeal of running cattle over sheep. 

Then there is the issue of farm affordability. Much is made of the prices being offered to farm owners for land to put into pines, with anecdotal real estate estimates at $5000/ha more than sheep and beef offers in some areas. 

But even without that alluring value premium, buying a medium-to-harder hill country farm is a tough proposition without stacks of equity, and poses a challenge for succession and the next young, keen generation to step into. 

Based off BLNZ farm survey data, a 940ha North Island Western “hard” hill country farm is servicing about $1 million in debt, to generate an average net profit before tax and debt repayment for the past four years of $245,000. 

The farm’s approximate land value at $15,000 a hectare, plus livestock, would give it a total value of about $15 million. 

But any younger farmer wanting to borrow for such a farm would likely need considerably more than the $1 million it is on average servicing now.

The farm’s profitability, even in these good times, is such that servicing much more than this would be tough – leaving a need to be able to offer up at least 80% equity for a $15 million business. 

This is the succession barrier the sector faces, regardless of what tree offers are on the table. The carbon values simply highlight the generational dilemma facing the sector that existed well before carbon farming became a thing.

This is exacerbated by demographics. 

Going back to 1996, the farm buying cohort of 25- to 44-year-olds formed 30% of the population in rural areas. 

Today they are only 22%, a full quarter less. 

Meantime the proportion of aging farmers in the 65-plus age group looking to offload their farms has almost doubled, from 10% of rural communities’ populations to 20%.

Put another way, for every 10 25- to 45-year-old potential farm buyers, there are now eight 65-plus likely wanting to sell. 

That compares to back in the mid-nineties when there were only two 60-plus per 10 25- to 45-year-olds.

It has become easy in this clamorous debate, made worse by social media, to blame the trees. 

But the slide in drystock sector stock numbers has been happening for years, revealing the turning of bigger wheels: slower productivity gains, cost rises, demographics and rural depopulation.

The likelihood this will continue is strong, based on past years, and regardless of what happens with carbon. 

But if rural New Zealand does not agree on how to manage emissions and carbon, the demise may be hastened not by more trees, but by the high-value markets we cherish deleting NZ red meat because no zero-carbon pathway can be proven to them.

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