Skip to main content Skip to footer

Rural and Agribusiness Annual Roundup December 2022


Pastoral: 
As farm gate commodity prices continue to strongly rise this season due to increases in global food prices, we are seeing a very different set of market drivers heading into 2023 compared with the same time last year. Availability of supply and emerging caution in response to increases in interest rates, plus the need for sizeable deposits are all factors impacting on the wider marketplace.

While interest rates and on-farm inflation are increasing, strong farming returns are resulting in good levels of profitability. However, potential borrowers are being heavily impacted as banks are focused on the levels of equity, cash flow and serviceability. Competition for grain-fed meat is expected to decrease as the Ukrainian conflict impacts the global grain trade.

We are seeing some contradictory indicators. The REINZ All Farm Price Index, which adjusts for differences in the mix of farms sold each month by size, type and location, was down 1.6% over the three months to October this year compared to the same period of last year, while the median price of lifestyle blocks sold rose by 7.7%. The rural property market has slowed with sales of farms and lifestyle blocks remaining at  low levels. However the number of listings coming to market are now comparable to 2021 and rural property prices have not been as badly affected as residential property throughout the regions.

The Real Estate Institute of New Zealand recorded 1,501 farms sold in the year to October 2022, 284 fewer than in the year to October 2021. There were 7.2% fewer dairy farms, 20.4% fewer dairy support, 16% fewer grazing farms, 13.2% fewer finishing farms and the same number of arable farms sold over the same period.

 

Farm Graph

Market sentiment remains steady despite the significant on farm cost escalation throughout 2022 together with the rapidly rising interest rates. After a period of strong market activity, storm clouds are appearing on the horizon with Fonterra's mid year Farmgate Milk Price forecast of $8.50 - $10.00 per kgMS downgraded to $8.50 - $9.50 on 8 December after a succession of lower Global Dairy Trade auction results. 

Whilst a series of Reserve Bank revision to the Official Cash rate have clearly hit the residential property market, the market for dairy farm properties remains active. Rural sales volumes compared to the previous period 12 and 24 months earlier are down within New Zealand, however as a comparison Canterbury dairy farm volumes are slightly above last year but this appears to be counteracted by reduced volumes in other markets including the Waikato. We are now at a point where interest rates rises together with rising farm costs are starting and will continue to influence buyers purchasing decisions. 
 

There is strong interest in traditional breeding country areas across New Zealand, which is providing a backstop for land values, particularly for steeper and marginal land. Most sales involve traditional pastoral farmers. Decisions are often influenced by considerations around farming systems, risk mitigation and exploring synergies between arable and pastoral land. However confidence and uncertainty in the shared national commitment to reduce greenhouse gases (GHG) and policies in relation to He Waka Eke Noa (HWEN) is having a major impact on current potential land transaction decisions. REINZ says tension in the farming sector is at least partially responsible for a drop in farm sales. Discontent with central Government policies is intense; frustration regarding inexorable cost increases is a dark cloud, and given the recent profits recently announced by the banking sector followed by spiralling interest rates, accusations of price-gouging by the trading banks are now emerging.

 

The labour market remains tight, with farmers seeking to retain experienced staff by increasing salaries. Similarly, labour challenges in associated shearing and meat processing industries are impacting day-to-day farming operations. With the border closed for a significant part of the year, the shortage of labour was a major concern, forcing many businesses to re-think how they resourced these time-critical tasks. Labour supply costs escalated, and pruning took longer than ever in many regions. Positively, the cap on the number of RSE workers who could come into the country in the year ahead was lifted to 19,000. 


Viticulture & Horticulture: 
Underlying viticulture industry confidence remains positive with strong grower and winery relationships at present. The export success has given rise to a heightened level of corporate and investor activity in the market. However, both the viticulture and horticulture industries continue to face challenges including shipping costs, labour shortages, increased operating expenses, climate change, biosecurity, and uncertainty around water regulations. The war in Ukraine has resulted in the New Zealand government sanctioning Russia, meaning New Zealand wine is now a prohibited export, cutting off a market estimated to be worth close to $50m a year.

The grape prices however, responded to the strong demand from wineries and jumped 11% to just over $2,250 per tonne. The recent lift in vineyard prices experienced was triggered by larger wineries looking to secure supply for their marketing programmes. This has now started to erode cash returns to a less comfortable level once again. Since 2012 we have seen the IRR continue to tighten from an average of 10.4% down to the current average of 5.33% for 2022. This is to do with the lift in vineyard prices.

The increased inflation rate is directly impacting wineries through indexation of excise. In parallel to the jump in CPI, on 1st July excise rates lifted by just under 22c per litre or $1.94 per case. This lifted the excise tax to $3.32 per litre, and took the estimated excise take on wine in the year ahead to $300m. The excise per hectare varies according to yield but can easily reach over $25,000 per hectare. Worryingly, the inflation outlook suggests there is another significant increase on the way, come 1 July 2023.

 

Horticultural export volumes are below mid-season forecasts. Poor fruit quality is shaving millions of dollars in profit off major New Zealand exporters this season. Exports were negatively affected by “a perfect storm of unfavourable weather conditions during the growing season, labour shortages, weak demand, inflation hitting consumer spending, shipping and logistics issues and reduced demand from European and UK markets”.

 

Recent changes to the Overseas Investment Office (OIO) rules have extended the timeframe from three years to ten years before leases to foreign owned entities require OIO approval. This may result in greater demand to lease vineyards and potential increases in rental values. Confidence in the horticulture industry is also back in positive territory based on recent bank surveys.

 

Forestry:
Our dedicated forestry team are seeing land for forestry purposes continue to be in high demand and we are seeing a solid level of sales activity across the country. This is being supported by upward pressure on carbon prices. Carbon farmers are purchasing greenfield land throughout the country with most transactions occurring in the more remote localities. We are of the opinion that the market will continue to strengthen with comparable carbon markets in Europe at a level commensurate of $NZ90 per NZU and log pricing coming back off recent highs.

 

Lifestyle:
What we will see in this particular market is an emerging caution in response to increases in interest rates, plus the need for sizeable deposits as all likely factors impacting on the wider marketplace. Our view is it will take a much longer period of time to sell these land parcels in 2023 than what we’ve been experiencing over the past 12 months.

 

In summary, the introduction of the Omicron strain impacted the rural sector throughout the year. Recent end of year reports such as the Ministry for Primary Industries said it expected food and fibre export revenue to reach record levels ($55.0 billion) with farm gate commodity prices strong throughout the majority of 2022. This export success has given rise to a heightened level of corporate and investor activity in the market. Although we’ve seen a recent pull back in highs recorded earlier in the year strong farm gate prices are holding the values of properties in each of our main sectors. It will be the regulations revolving around the governments aim of cutting emissions by 30 per cent by mid-2027, and a 10-year ambition of reaching net-zero carbon emissions which will continue to challenge the rural sector.

 

Lifestyle Graph

 

Lifestyle v resi

 In summary, the introduction of the Omicron strain impacted the rural sector throughout the year. Recent end of year reports such as the Ministry for Primary Industries said it expected food and fibre export revenue to reach record levels ($55.0 billion) with farm gate commodity prices strong throughout the majority of 2022. This export success has given rise to a heightened level of corporate and investor activity in the market. Although we’ve seen a recent pull back in highs recorded earlier in the year strong farm gate prices are holding the values of properties in each of our main sectors. It will be the regulations revolving around the governments aim of cutting emissions by 30 per cent by mid-2027, and a 10-year ambition of reaching net-zero carbon emissions which will continue to challenge the rural sector.

Get in touch with our National Rural and Agribusiness Director James Nilsson for further information.

Get in touch with our rural real estate experts to discuss your requirements

* Required Field
Consent Options