<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=275984476158575&amp;ev=PageView&amp;noscript=1">

Why would we not back our Hill Country farmers to make the best long-term choices?

Rural

Property Brokers 17 Jun 2022

Conrad-blog-image_Ideal-sizeAs a company, Property Brokers has stood back from the debate on forestry, carbon, and pastoral farming; when it comes to selling rural real estate, it always pays to stay on task with the job at hand.

Currently, however, concern in rural communities continues to ramp that unless the government policymakers
intervene, vast tracts of rural land will be lost to pine trees and foreign interests, noting foreign interests are, in fact, excluded from carbon-only sales (permanent forests).

This year has been a significant season for hill country sales; many stations have been selling at 2-3 times their value on five years ago, particularly on the East Coast of the North Island.

Our company alone has sold over 50,000 hectares of rural real estate this last season, and over 10,000 hectares of that has gone to alternative land use, including carbon farming in the North Island specifically.

The policy debate has morphed now into permanent forests vs production forests, with exotics and specifically Pinus Radiata being singled out to be excluded from future ETS registration under the definition of a permanent forest.

Many in our farming community will see this as a win, should this be confirmed, and certainly meantime, “carbon only” buying interest for large stations has all but evaporated ahead of pending Central Government announcements. Potentially problem solved.

We’d agree a permanent exotic forest that includes Radiata in the first instance is flawed and that the focus on Radiata should be on production forestry.

However, the definition of a “production forest” in the NZ psyche is very much influenced by the short rotation nature of our production forestry of the last 30 years. This is quite unique to NZ, given our latitude and coastal climate. We can grow Radiata in half the time compared to most other regions across the globe.

The option to harvest has typically been influenced by the market for wood and the economics of extraction; however, Radiata doesn’t stop growing in value at 30 years. In fact, future NZ production forestry, combined with potential windfall gains from the ETS and seemingly unlimited access to foreign capital, may well extend some production rotation lengths out to 50 years. It’s hard to see the reign of production forestry winding down anytime soon. This is where the real debate around land use needs to focus.

NZ Hill Country is almost by definition LUC 6 and 7 land, and this land use classification dominates the descriptions noted in published Overseas Investment Office (OIO) decisions, favouring foreign-owned production forestry. The East Coast of the North Island enjoys the strongest production forestry demand for post-1989 clear pastoral land of anywhere in the country.

This demand has far more to do with the proximity to the port and coastal altitude than the favourable slope. The East Coast has endured decades of weather, wreaking erosion havoc. Clearly, any notion that production forestry
can’t operate on steep classes of land use is not reflected in current sales or OIO decisions.

Long story short, NZ production forestry is a $6b dollar export earner and stands to benefit significantly from current and future ETS settings. NZ production forests have an exceptional international competitive advantage in
growing timber. Pinus Radiata can sequester carbon faster than just about any other species, and NZ has been learning how to grow it for over 100 years.

Many farmers have already started to look at options to integrate forestry with their pastoral farming enterprises. Looking back 30 years, forestry rewards for farmers have been mixed, given production log prices never lived up to the hype of the early 1990s.

Today, however, the ability to generate carbon returns early in the production cycle is a significant hedge compared to times past. This probably explains the 47,000 ha of land registered for planting within existing farms, between 2018 and December 2020, under various government schemes. Of this area, 12,000 ha was identified for manuka/indigenous planting (Beef & Lamb August 2021). 

Our forestry sector has underpinned hill country land values for the last 30 years, and while carbon-only interests in recent seasons have paid the premiums, production forestry, by contrast, is no plant and run scheme and
continues to offer real options for many farmers. There is nothing stopping production forestry from being harvested in 50 years, particularly given our ETS has the potential to offset establishment costs and generate a revenue stream.

Current arguments about the distance to port and extraction costs need to be balanced against the reality that we could be talking about many, many decades from today, before harvest. Not to mention the option of it becoming a future renewable energy source.

The opportunity for farmers to create an asset within an asset has never been more real, enabling options to hedge environmental emissions whilst at the same time creating an intergenerational asset.

Production forests have the scope to potentially create opportunities to deal with family farm succession challenges through a combination of cutting rights long term and carbon assets in the short term.

If there was one take-home message for our hill country farmers, it would be that sequestering carbon on their land is currently a significant property right, and to have no plan for it or, worse still, have a legitimate property right legislated away is selling our pastoral sector short.

Exotic production forests integrated within farm systems owned by NZ farmers should be the current policy focus. This would mitigate the current policy reliance on OIO decisions that drive whole farm sales to foreign buyers; production Forestry will continue to accelerate with or without farmer involvement.

Permanent forests are a policy illusion and unlikely to run the intended course, particularly when carbon values revert to zero in the decades ahead. For our part, we continue to see a partnership between farming and production forestry as the best hedge for a world desperately seeking renewable construction materials. Hill Country has been on the wrong side of land-use change for a long time now; we actively support policy and conversation that drive better outcomes for farmers, their land and the associated property rights that go with it.