Farmer’s Role in Driving Rural Property Prices
Farmer’s Role in Driving Rural Property Prices
On the whole, it is New Zealand farmers rather than investors who drive farm prices. When considering the reasons for high rural prices in relation to farm profitability, it is important to understand the significance of the fact that most farms and to a lesser extent orchards within Hawkes Bay, are managed and occupied by their owners. Only in the wine industry is a large proportion of productive land owned by corporate interests (although an increasing proportion of the apple industry has also moved in this direction). Calculated over an extended period of time (averaging out the highs and lows of rural commodity prices), the financial return to the owners of most privately owned rural property would be unlikely to equal, let alone exceed, bank deposit interest rates and as such not be impressive to a commercial investor. This highlights the reality that most New Zealand farmers are not especially concerned with the capital value of their land (other than as equity for borrowing), or by low returns relative to the capital tied up in their land. Farmer’s attitudes are influenced by the more immediate fact that in recent years, after an extended rural depression, farming operations have generally achieved strong cash flows and become significantly profitable. For a great many farmers and their families the land is a highly desirable way of life and a lifestyle to pursue through to retirement. An alternate use of capital is usually not a consideration. The result is that when commodity prices are buoyant, competition from New Zealand farmers and farming families for the relatively few quality pastoral properties that become available from time to time is usually intense. This intensity is fuelled by a highly competitive New Zealand banking industry, with individual banks seeking to maintain or increase their market share of rural lending. Farmer attitudes are illustrated by a recent AC Nielson/Rabobank Rural Confidence survey which established that although more farmers expect the agricultural economy to worsen rather than improve (farmers are notorious grizzlers – perhaps with good reason), 60% of those surveyed expect buoyant conditions to continue for another 12 months and 90% plan to spend the same or more on their farming operation in the coming year.
Filed under: Hawkes Bay, Investment, Pastoral
