Landcorp has plans to double the six dairy farms it currently operates on WPL Central Plateau land to the north of the Wairakei geothermal area.
At $3-$4/tonne for international carbon credits, land owner Wairakei Pastoral has decided to push ahead with farm development over clear-felled forest land, some of which has lain fallow during the first Kyoto commitment period.
Landcorp is contractually bound to develop farming infrastructure on this deforested land and expects to do so on about 4500 hectares between 2012 and 2015.
Some 6000ha was developed before the programme was halted at the end of 2007 and the partners want to do another 6000ha in short order.
Landcorp chief executive Chris Kelly said smaller areas out of forest adjacent to the existing farms would be done first, so as milk production could be expanded through existing facilities.
Then larger areas would be tackled, requiring new farm dairies.
The difference between 6000ha in total and 4500ha in farmland represents some tree replanting, he said.
When the Kyoto Protocol on Climate Change came into effect in 2008 and New Zealand developed an Emissions Trading Scheme (ETS) to assist our obligations, the price of carbon credits was around $20/tonne.
As around 1000 tonnes of credits are required for each hectare of mature forest which is not replanted, the dairy farm development cost was prohibitive, at $20,000/ha, Kelly said.
The actual work requires around $10,000/ha, for the stump clearing, land shaping, fencing, irrigation and pasture sowing, while building races, yards, dairy and housing also.
Landcorp and WPL are waiting on the Government to introduce “offsetting” to the ETS and Kyoto, which would mean that new tree plantings elsewhere could substitute for clear-felled and redeveloped land.
However, the price of internationally traded carbon credits has fallen so low as to prompt WPL to purchase credits and finish what it started.
Digger work, land shaping, fertilising and sowing takes about 10 to 12 months from trash to pasture, Kelly said.
Sometimes the stumps can be taken away for burning in kilns, but mostly they are burned in windrows.
Kelly said the WPL directors – Trevor Farmer, Ross Green and Mark Wyborn – have taken an “intergenerational view” of the land use, going for the higher, better use for dairying.
Landcorp has a 45-year lease on the farms, which shows it will be a long-term farmer in that region.
Kelly said Landcorp would actually prefer to lease dairy farms (currently 10 out of its 52 dairy units nationally) because of the earning potential.
As the value of its land holdings (the lion’s share of Landcorp’s $1.5 billion assets) go up and down, the Crown cannot use that wealth elsewhere.
Larger annual dividends to the Crown come from operating dairy farms, not necessarily owning them, he said.
The Central Plateau is home to around 7000 dairy cows on the six existing farms, out of Landcorp’s 35,000 cows nationwide.
Another six milking platforms could carry a minimum of 11,500 cows, Landcorp said in its statement of corporate intent 2012-15, published recently.
That means when the former Crafar farms owned by Shanghai Pengxin also come under Landcorp management it could nearly double the number of dairy cows nationwide to 60,000.
In July Landcorp said it had produced 13.2 million kilograms of milksolids in the 2011-12 season, which made a major contribution to the forecast $27 million operating profit, of which $20m would go to the government as dividend.
So as to illustrate Kelly’s point about cash flow from leased dairy farms versus capital tied up, the Landcorp directors in July warned that total shareholder return (which brings in land and stock valuations) was now expected to be $8 million, $85m below budget.
They attributed that huge fall to static farmland values and declining livestock values.