Farm values shrink with footprint

Phil Journeaux wanted to quantify how environmental legislation affected rural property values.

Farmax 2015 Dairy Consultant of the Year Phil Journeaux has just completed a study that shows reducing farming's environmental footprint in New Zealand will likely hinder land values in the future.

Mr Journeaux is an AgFirst farm consultant based in the Waikato and part of his prize package for winning the Farmax 2015 Dairy Consultant of the Year title last August was 40 paid hours to carry out a study that could benefit New Zealand's agriculture sector.

Journeaux chose to research the impact of environmental constraints such as reducing nitrogen, phosphorous, sediment and microbe discharges on land values because he had a personal interest in the topic.

"As part of my work on agri-environmental issues, I was aware that a negative impact was acknowledged but that there was little work to quantify it," he said.

"The price of land is often a key component in determining the entry into a farming career because farming traditionally requires ownership of land, and is a major aspect of farm profitability, as it is the price of land which usually determines the level of debt being carried by the farming business.

"Currently New Zealand farmers, particularly dairy farmers, are carrying high levels of debt and factors that have the potential to reduce land prices are generally regarded with concern."

The study considered the impact environmental constraints had on the three main drivers of land value: productive, consumptive, and speculative values.

It found that the relationship between the profitability of the farming operation and land value is not that strong - the other factors also have a direct influence.

Working on the assumption that dairying is currently the highest use of pastoral farming in New Zealand, Mr Journeaux found that dairy land values will be mostly impacted by environmental constraints that affect profitability.

These include reducing diffuse discharges to water with the cost of improving effluent systems, fencing off streams, developing riparian margins and wetlands, putting in feedpads and wintering barns, as well as implementing a range of farm management practice changes.

"The increased cost for farmers to mitigate the discharges and also reduce the flexibility of future land use change both have the potential to impact the price of land significantly."

Journeaux said it was probably also only a matter of time before the Emissions Trading Scheme covered agriculture, meaning that carbon charges in the future were going to be inevitable and costly for farmers.

The impact on farm profitability could therefore be significant over time, which would feed through to reduced land values.

Journeaux also found in his report that the effect on forestry, under-developed land and sheep and beef land values will also be felt keenly for a number of reasons; the main one being a reduced ability to intensify and/or for conversion to dairy.

"At a national level, the implication of the impact of environmental constraints on land values is that the credit risk of farming, and the credit risk of banks, would be significantly increased," he said.

"However, this will likely be a transitional effect with current landowners bearing the brunt of the impact before a new level of stability is reached."

Journeaux has been a member of the New Zealand Agricultural and Resource Economics Society for 23 years and on the executive team for 10 years, most recently as Treasurer.

He has two Masters' degrees: MAgSc (Hons) and an MBA. Mr Journeaux's specific areas of skill are economic analysis, risk management/disaster recovery, technology transfer, and water quality issues.

The Farmax Consultant of the Year Awards will be held in 2016, with nominations open in May.