It’s a great time to own North Island hill country; never have landowners had the range of land use options now available to them and that optionality is increasing the value of their land.
Farmers no longer need to see sheep and beef as the only land use. While there is a bright outlook for the red meat sector it is now possible to see bright future for Mānuka + carbon as well as forestry + carbon. The challenge is that we are entering a decade of afforestation and it’s disrupting local communities, particularly in less productive farming areas.
The big structural shift is land being converted to exotic trees. Simply put, on poorer quality hill country, typically growing 4 – 6 tonnes of pasture per ha, productivity isn’t sufficient to deliver reasonable profits. Farms can generate returns of $300 to $400 per ha but this needs to cover interest, tax, living and reinvestment in the property. This compares poorly to Mānuka + honey share farming which on favoured sites can generate $600 - $1000/ha and forestry + carbon at more than $1500/ha. Certainly, there are conversion costs involved and some time to wait, but the bulk of sales with these less productive properties are going to move to more profitable uses, probably involving trees of one form or another. These new options are charging land values with prices in some districts rising by up to $5,000 per ha.
Whilst we have built our local communities around sheep and beef farming, put yourself in a landowner’s shoes. Given the opportunity to trade out of a less productive farm into a better farm and district, who could blame them. Having a sustainable industry is more than the economics of farming, it’s also about the ability to grow wealth to provide for future family succession.
Whilst it’s never been that wise to invest based on the whim of government rules and regulations, some of the land going into trees was itself the subject of marginal land conversion subsidies provided by the Muldoon government. And as I consider the future, the science of climate change is proven and the need to decarbonise the global economy seems just about as certain as death and taxes. Anyone paying attention to the COP26 climate change conference would see the forecasts for global warming range from 1.7 degrees (optimistic) to 2.7 degrees (current policy and action settings). At these levels of warming, farming in many parts of New Zealand could become very difficult. We owe it to our mokopuna to take this extremely seriously.
Trees really are the ultimate renewable fibre resource. Look around you, products made from tree fibres are ubiquitous – from the paper you are reading to the walls of your home. New Zealand’s forestry sector generates nearly $6.8bn worth of foreign earnings each year (around 12% of total exports) and invests heavily in research and development. In the future expect to see cellulose fibre from trees being used in all sorts of textile, cosmetic, food, pharmaceutical and bio-based fuel/chemical applications currently unheard of.
From an economics perspective, investment in the forestry + carbon sector is compelling. Our hypothesis at MyFarm is that carbon will need to reach above $100/tonne domestically and globally to effect the change required to decarbonise the economy. At these price levels cashflow from carbon credits for forests which are still to be harvested could be 15% - 20% p.a. for most of the first rotation of forestry.
With emission reductions seemingly some way off, my conclusion is that for the foreseeable future planting trees will remain our most logical method to reduce net Carbon emissions.
Planting the right tree on the right hill for mixed use is a genuine option both for new and remaining New Zealand Hill Country owners.
Andrew Watters is the CEO of MyFarm Investments which is currently promoting a new forestry + carbon investment, CQuest Carbon and Forestation Fund. He is also the owner of a 500-cow southern Wairarapa dairy farm.
