By Andrew Watters, chief executive of MyFarm Investments
Land use change is an emotive topic. Change brings disruption as neighbours leave, workforce requirements alter, and local communities adjust.
The change in front of us is the conversion of Class 6 and 7 hill country to forestry, particularly in the lower North Island, parts of the King Country, east coast and Northland. It’s likely that within 10 to 20 years there will be perhaps 400,000-700,000 hectares of additional land in native and exotic forests with the corresponding drop in pastureland.
There have been two large-scale land use changes in my lifetime. The first was the conversion of marginal land to sheep farming, supported by Muldoon government subsidies. Sheep numbers increased from 55 million ewes in 1975 to 70 million by 1982 in a failed strategy to boost exports. Ewe numbers are now back to a much more productive 25 million.
The second was the growth of dairy from 1990 to 2014, with cow numbers lifting from 2.4 million to 5 million. Dairy on the right land class efficiently converts grass to product and responds to management intensification. This bought investment and more people into local communities, but also bought nutrient loss.
Land use change occurs when there is a better use for the land than the old use. On less versatile sheep and beef properties, costs of labour and inputs have risen, interest rates have doubled and, with a supply and demand imbalance, product prices are down.
Farmers considering succession or securing their capital should be “gathering information”.
Why trees? Climate change and the Emissions Trading Scheme (ETS) are at the forefront of new tree plantings. Trees sequester carbon and generate NZUs that can be sold for profit. A tree crop with some cashflow through to maturity makes a material difference to the level and quality of investment returns.
There is much to debate. Is it right to plant trees to offset emissions? What of the exports forgone? Might regulations change? Won’t technology solve our climate change problems? What about slash?
Irrespective of views, enough of our customers, including Chinese brands, believe in climate change. And we are at the start of the journey to reduce New Zealand’s petrochemical-based emissions. To meet commitments, NZ needs carbon removals via forests and a substantially bigger forestry estate to support a fibre rather than a petrochemical based economy.
Rather than operating in information silos, my mentor in business always had the saying “gather more information”. A key piece of information is “what could my farm be best used for?”. Knowledge about what land uses are economically viable would seem important.
The answer to “what are my options?” will depend on location, access, land stability, microclimate and scale. Property close to port or mill, with good access and stable soils could well be suited to full afforestation. Perhaps the money from a C class property could go toward buying a B+ property.
For other farms, the back part of the property may be worth planting. A sheep and beef farm we operate retired the worst 10% of the farm. Revenue was reduced 5%, but profits only 2.5%. They now have a rapidly growing forest registered in the ETS producing annual cashflow, and a harvest income in 25 or so years.
Other farmers may prefer an agro-forestry route using 15m x 15m poplar plantings registered in the ETS. At MyFarm we started planting mānuka forests in the lower North Island in 2019 and we have been pleased with the results. Both carbon income and our mānuka honey partnership with Comvita continue to outperform expectations. Mānuka better suits farms on papa or slipping soils, and where the port and mill are distant, and may revert to a biodiverse native canopy in the long run.
MyFarm is addressing the drivers for this change, along with the strategies and tactics for landowners and investors to profit from this transformation, at a free seminar taking place in Palmerston North on November 28.
The principal focus of the event is to consider the mosaic of profitable land uses in addition to sheep and beef production. Pāmu’s chief investment officer, Andrew Sliper, will talk about the state-owned farms’ approach to maximising the value and productivity of their landscapes. Afforestation Partner’s Andrew Buswell will note the factors that determine forest profitability. Tracy Brown, chief operating officer for Comvita, will discuss their growing successes in the high-value mānuka honey market and the potential of mānuka honey forests. Scott Pollard from NZ Carbon Farming will talk about its leasehold partnerships, allowing farmers and investors to benefit from carbon market developments with less risk.
MyFarm is opening the doors for interested farmers and service providers to gather information. With any large sector changes, it’s best to understand what’s happening early and how it applies to you or your clients. You then have the greatest opportunity to make informed decisions.
In Focus: Fonterra farmers the focus of emissions plan
Fonterra has revealed its plan to reduce on-farm emissions by 30% by 2030. Bryan unpacks the plan with Federated Farmers dairy chair Richard McIntyre (skip to the 20:10 minute mark).
In this episode’s feature interview, MyFarm boss Andrew Watters talks about what he calls the third wave of land-use change and the options available to farmers looking to diversify their income (skip to the 8:50 minute mark).
And Richard Rennie reflects on his day on farm with a Bay of Plenty catchment group and talks about how Sir John might be the key Zespri is looking for as it deals with unlicensed SunGold fruit being grown in China (skip to the 1:20 minute mark).