Joanna Cuttance

Sheep and beef farmers with marginal farmland have an opportunity to sell, with forestry companies seeing the value in buying these farms. This is a direct response to the Emission Trading Scheme (ETS) and trading of carbon credits.

Marginal farms are the tough farms to keep productive and were never considered as a buying option for dairy conversions or dairy heifer grazing blocks. Now owners of these farms have an opportunity to cash up.

One farm under contract with a forestry company has been on the market for more than three years. Twice the farm has been under contract, twice the sale has fallen through because despite the buyers believing they had the finance, the banks decided otherwise.

Banks have tight rules when lending to buyers of sheep and beef farms. Generally, they will lend up to 65% of the farm’s value. However, it was the ability to service that loan on the bank’s calculated sheep and beef returns, which was not meeting criteria, resulting in sales falling through.

The above farmer is ready to get out of farming, describing his farm as marginal for any type of farming. With areas up to 520 metres above sea level, steep hills, summer dry, high winds and plenty of snow, it made for tough farming.

It was the ability to service that loan on the bank’s calculated sheep and beef returns, which was not meeting criteria, resulting in sales falling through.

Ngai Tahu was an early forestry company to look at the farm but only wanted to buy the lower areas. The second forestry company’s offer came via a real estate agent with two options. The first, to buy the whole farm with the option of leasing it back until the forestry company was ready to plant, and option two, to subdivide the house with 60ha – the minimum allowable under the local council rules.

With the land being difficult, having only 60ha would be hopeless, so the first option was chosen. The farmer, with one reconstructed knee and on the wait list for the other, said working on the farm was painful. He worked hard to buy this farm, starting out in the dairy industry, saving to buy his first farm, then selling, buying and selling dairy farms until he could afford a sheep and beef farm.

The farmer did not know what the company planned to do with the farm’s infrastructure and house. The deal was not finalised with approval from the Overseas Investment Office needed. The OIO decision was expected by Christmas, and the farmer was not sure if it would be approved. He noted the Government was not keen on overseas buyers investing in New Zealand farms to farm but those restrictions did not appear to apply to overseas forestry companies wanting to buy farms to plant.

Another farmer has been telling real estate agents for more than a decade he would sell directly to a forestry company. This was to wind-up the agents who had started calling in. The agents would always reply “this farm is much too good to go into trees”. Now, 15 years later, the agents are calling to say they have forestry companies who want his land.

The farmer has considered selling. He felt with a lot of land going into trees it could be a complete disaster for the region because the land will be locked up for 30 years. But he was philosophical about selling saying once you have sold it was nothing to do with you anymore. You had to go with the market, it was just like converting to dairy, now it is planting, he said.

In the 1980s this same farmer was annoyed when a neighbour sold their farm to a forestry company – describing it as a really nice farm. What upset him was no one knew the farm was for sale and given no option to buy it. That farm was still in trees. The farmer also remembered what happened in the 1960s when trees were left to rot when no markets could be found. As he said nobody knows what it is going to be like in 30 years except that it was going to be very different.

When my husband and I heard forestry companies were looking for land, we phoned our back boundary neighbour City Forest, to find out what they would pay for part of our farm. It turned out not enough. For a few days, while waiting for a price, we dreamed of selling a third of the farm, significantly lowering the mortgage, reducing workload and achieving a better life balance. To be fair, the price discussed was good, (I was strongly advised not to disclose any figures). Until we went in depth with our farming figures and found it would not be wise to sell our best land area.

For those who have sold and with settlement day past, I can only assume they are enjoying a freedom they have never had, as each person I tried to contact was away on holiday.

Selling to a forestry company can take time as they are particular about due diligence. Although most forestry companies do not need bank approval, they are particular about areas that can be planted.

They also research local and regional council plans, and how easy it would be to put in roads to ensure they have a thorough understanding of the location and area.

Over-capitalisation is not viable for any company and this also applies to forestry.

Forestry companies are often happy to sell off homes and sheds with some land as it brings their price down, however local and regional council rules often have a say in this.

This article is free to view because it is a topic of high importance. This article was published in Country-Wide magazine. For less than $10/month, you can receive this detailed information to help improve performance within your business. 
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