By Trudi Baird
Charlton Farm Consultant Peter Hook believes the dairying boom in Southland may have reached a plateau for conversion properties for sustainability and financial reasons.
From a sustainability perspective, Mr Hook said one area of concern is water supply which is not always adequate to cope with the required demands of dairying. But from the financial perspective, it is basically a matter of the cost of conversion which he said has increased dramatically.
Mr Hook said people are now starting to talk $12,500 – $15,000 per hectare for land suitable for conversion and then there is the price of shares and conversion costs on top of this, which means the full cost is coming up to the level of buying a converted property.
He puts the current costs of conversion at about $18 – $20 a kg/ms and compares this with what was earlier $8 – $10. Increased costs also need to be weighed up against the two to three years it takes to get production up.
“Land prices are up due to demand… sheep farming is more profitable… (there are) no weak sellers,” Mr Hook said referring to all aspects of agriculture in Southland which are currently strong.
“I get the impression people are looking (at buying land for dairy conversion) and not buying.”
It’s a matter of equilibrium as things come into balance, he said.
Mr Hook believes there is still a lot of opportunity and he is seeing this as an increasing number of existing dairy farmers are looking to add to their existing operation rather than converting.
Gore Real Estate agent David Briggs agreed that the current price of land is an issue for conversion properties as is the water situation. He believes there is still a strong demand but that everybody is waiting to see what the new share standard will be.
In the meantime, some land is being sold for dairy grazing with the view to conversion later on and there is also an increasing trend whereby existing dairy farmers are extending their current farms. It is this trend which has taken the real estate industry by surprise as it was not expected to happen so quickly, he said.
He believes it has come about through a combination of factors including the aggressive lending policies of banks and increasing wintering costs.
Mr Briggs also said there is less land for sale now for dairying than there has ever been as farming is on a roll in general. But a lot of farmers will still sell out to dairying if they get the big cheque, he said.