Jeremy Tauri: Farmers focus on debt

Rural land prices have trebled since 2000.

We spend a lot of time worrying about the residential property market, if prices are out of control and how young people will get their first homes.

But although we have focused on the price of a house and section in the suburbs, many people have ignored what's been happening out of town.

The rural sector is the biggest driver of this country's economy and in the regions we feel the impact of farmers' fortunes even more acutely. But although we've been bemoaning that, nationwide, house prices have increased two-and-a-half times since 2000, rural land prices have trebled. Real Estate Institute statistics show the median price a hectare for farms sold in the three months to May 2014 was $25,017.

That's up from $20,499 at the same time last year and up 1.8 per cent compared with the three months to April.

That's good news for farmers who are hoping to cash-up soon and retire.

It may also provide a "wealth effect" boost to regional economies as farmers see their farm values increase.

But there's a downside - farmers buying land have to make sure they can get adequate returns from the land they're paying for to ensure their businesses remain profitable.

If land prices get out of control and commodity prices aren't keeping up to make the investment worthwhile, rural land will stop changing hands.

Dairy farmers bear the brunt of the debt burden at the moment.

They have 73 per cent of the debt in the livestock sector. Half that dairying debt is held by 20 per cent of farmers, which means many people have a lot riding on things going well.

An ANZ survey shows land prices seem to be changing the way farmers think about their businesses, too. Instead of buying more land they're looking at improving their financial performance through making farms more productive, reducing their costs and paying down debt.

If you're a farmer, or thinking about investing in rural land, it pays to get expert advice to ensure the deal will pay off.