The introduction of Fonterra's Trading Among Farmers (TAF) share trading scheme has added a new dynamic to the market for dairy farms, and has potential to put downward pressure on farm values, Real Estate Institute of NZ rural market spokesman Brian Peacocke said.

The introduction TAF last November has been a spectacular success and probably far greater than Fonterra could ever have have anticipated, according to market participants.

The units, which do not carry voting rights and which can be owned by the public, last traded at $7.45 - a 35.5 per cent premium their $5.50 issue price. The success of the units has rubbed off on the value of Fonterra shares, which can only be traded by farmers. The shares last traded at $7.42 compared with a pre-TAF "fair value" share price - set by Fonterra - of $4.52.

REINZ's Peacocke said TAF had introduced an aberration to the farm real estate market that could take six months to work its way through.


Before TAF, Fonterra farmers sold their shares and their farms as one, but now some farmers were opting to retain their shares.

"There is a trend emerging where some farmers will retain their shares when they sell their farms, so that will probably create a bit more uncertainty as to where the values are," Peacocke told APNZ.

"If the value of the shares increases, in our view that does not make the value of the whole asset increase in value," he said. "It simply puts downward pressure on the land value," he said.

"So what we are going to see, as the season progresses, is more farms being sold without the shareholding, which is going to put another spin on where the value per hectare is," he said.

Prospective Fonterra farmers need to buy Fonterra shares in order to supply the cooperative. Farmers also need to buy more shares, or "share up" if they want to increase their production.

Other cooperatives have similar structures but Fonterra's closest competitor, Westland Milk Products, has a set share price of just $1.50.

In a statement, REINZ said its All Farm Price Price Index - which it has developed with the Reserve Bank - rose by 0.4 per cent in the December quarter of last year, compared with the same quarter of 2011.

A total of 1,454 farms were sold in the year to December 2012, 21.9 per cent more than were sold in 2011. The median price per hectare for all farms sold in the three months to December 2012 was $23,070 a 12.8 per cent increase on the $20,445 recorded for three months ended December 2011.


REINZ said the median dairy farm price fell to $34,483 a hectare in the three months to December compared with $37,166 for the three months ended in November and $37,045 in the December quarter of 2011.

The REINZ Dairy Farm Price Index fell by 1.9 per cent in the three months to December compared to the three months to November, from 1,799.35 to 1,765.90. Compared to December 2011 quarter, the REINZ Dairy Farm Price Index fell by 10.3 per cent.

Peacocke said the decline in dairy farm prices in the latest release of data was most likely the result of factors outside TAF, and probably reflected a high number of sales in the Waikato that were "not at top end of the market".

Overall, farm prices are still around 25 per cent down from their historical highs recorded over 2007-8.