News New Zealand
Poor sales figures for NZ dairy farmers
Milk production in New Zealand has been up for several months now steady courseafter it managed to pull itself out of a deep trough. With this in mind, you expect agricultural companies to be very popular. Nothing is less true. Despite the good milk prices, the sale of dairy farms is falling sharply.
In August already this year, the Real Estate Institute of New Zealand (REINZ) reported that sales of agricultural businesses had fallen by more than 3% in 25 months. It is now known that this trend has continued. The sale of dairy farms in particular scores poorly. In 2019, 55% fewer companies were sold than in 2018 and even 83% fewer than in 2017.
The median price per hectare has also gone through a deep trough in the past 12 months. The REINZ reports that the price has fallen by 22,1% in the past year. Around July these prices still seemed to be going in the right direction. Then there was an increase of 10% in the average hectare price. And that while most dairy areas experienced a favorable winter and spring.
Regulations, Labor and Credit
The favorable winter and the good spring have had little effect on prices. Even Fonterra's 4th best milk price ever ($7.30 per kilo) seems to have no influence. It is argued that the change in regulations and costs play a role, but the availability and quality of labor in dairy farming also keep a finger in the pie.
The main reason, however, is linked to the reluctance of banks to lend to the agricultural sector. The banks (mainly Australian owned) adhere to guidelines to reduce their exposure to the dairy sector. They have started to focus more on investing in the residential and commercial sector. This has put downward pressure on the availability of financial resources for the agricultural sector. The Reserve Bank's requirement to increase capital reserves also has a negative impact on lending.
All Farm Price Index
The other agricultural sectors are less affected by poor sales. This can be linked to the REINZ 'All Farm Price Index'. In fact, it rose by 1,3% in the 3 months to November in 2019, compared to the 3 months to October 2019. It is mainly the cautious dairy sector that is struggling with low selling prices.
Jorine Cosse
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