Real Estate Institute of New Zealand (REINZ) figures released in April show there were 104 fewer farm sales (-32.3%) for the three months ended February 2024 than for the three months ended February 2023, traditionally the peak sales period for rural property.

Rising farm costs, expected farm income and current interest rates are contributing to buyers’ caution. However, market commentators have observed a “flight to quality” as buyers show they are prepared to pay for well-presented properties that meet production and environmental requirements. As a result, a well-documented approach to land use consents, winter grazing areas, compliant effluent systems, good irrigation water sources and a clear nutrient management plan have been shown to support rural land sale prices.

Investing in compliance provides a clear indicator to the market that the property can sustain its current farming practices well into the future, which gives potential buyers certainty.

These observations validate the strategy adopted by New Zealand Rural Land Company (NZL) to protect and enhance the value of our assets.

NZL is a rural land investor that has acquired more than 16,063 hectares of pastoral, forestry and horticultural land since listing on NZX in December 2020. We lease this high-quality rural land to farmers, food producers and foresters – but NZL is not involved in day-to-day operations.

We aim to make smart decisions about how we care for our properties, by setting exacting standards in our approach to sustainable land management, animal welfare, human resources, and governance.

Our goal is to enable “enduring land for life,” a commitment to protecting and enhancing the land we own today for the producers of tomorrow.

We are committed to this approach because it is the right thing to do as stewards of some of the world’s most productive agricultural land. It is also the right thing to do as stewards of our shareholders’ investment because enduring land has enduring value.

Enduring value

NZL generates shareholder value through a combination of asset value appreciation and cash flows from long-term leases.

New Zealand’s rural land is the source of most of our food and underpins half our export earnings, supporting families, iwi, jobs, companies and communities. Yet productive land for agriculture is shrinking. In just two years, from 2017 - 2019, the land used for agriculture and horticulture in New Zealand decreased by 208,000 hectares, a decline nearly equivalent to the size of the Western Bay of Plenty.

The impact of inflation and late-summer cyclones had a knock-on impact on farm sales volumes in 2023.

The fact that quality farms are holding their value in the face of these headwinds is consistent with long-term trends. Over almost thirty years, New Zealand farm values have risen at a +5.9% compound annual growth rate.

That is why our enduring land commitment sits at the core of our business approach.

It is binding, it is written into our contractual relationship with our partners, and it ensures we become a positive, market-leading force for exceptional land stewardship and sustainability.

Committed action

Sitting behind our enduring land commitments are actions that will – over time – improve the quality and value of NZL’s properties.

Each of our pastoral farms has a Farm Environmental Plan with initiatives that protect and enhance soil health, water quality and biodiversity, while reducing greenhouse gas emissions.

1. Farm effluent is one of the primary sources of nutrients leeching into soils and run off into waterways. Following a recent audit of NZL’s farms, we identified two properties in Otago and Canterbury that would benefit from improved effluent storage systems. This will ensure the ponds are impermeable and do not leak, while also enhancing the soil’s capacity to store effluent and reduce runoff. The end result will be water quality and soil health improvement.

2. Last year NZL purchased forestry in Manawatu - Wanganui. These properties are intended to be owned as permanent forests for the purpose of sequestering carbon, aiding in New Zealand’s fight against climate change.

   Both forests are planted in Pinus radiata (pine trees). Recognising that pine is an exotic species, NZL and our tenant NZ Forest Leasing Limited (NZFL) have agreed to use the forests as nurseries to aid in the regeneration of native forest. With succession and the right environmental attributes, these native forests will ultimately comprise many species of native flora and fauna.

   This year we also plan to conduct afforestation on two Canterbury pastoral properties, aiming to sequester carbon by planting trees on marginal unproductive land. This initiative also includes enhancing waterway cleanliness by reducing sediment runoff and erosion.

3. Another enduring land project of ours involves two of our farms - Toi Puke (Otago) and Browns (Southland) - participating in a research initiative led by Manaaki Whenua – Landcare Research to establish a national soil carbon benchmarking and monitoring system.

   NZL’s participation in this project will provide insights on the impact of on-farm practices on carbon stocks and enable NZL to make appropriate changes to ensure the long-term sustainability of our land, reduce carbon in the atmosphere and inspire positive change across the agricultural sector.

Recognising the value of enduring land

We are not alone in recognising the enduring value of responsible land stewardship for today’s investors, as well as tomorrow’s generation.

New Zealand’s largest agricultural advisory firm argues the sector can weather the storm of economic volatility in part through investment in sustainability initiatives and technological advancements.

The sector’s proactive response to environmental issues will be pivotal in shaping its long-term viability, with the firm noting “the resilience and ingenuity of New Zealand’s farmers and growers will continue to be our greatest asset.”

Conclusion

Making smart decisions now about the ways in which we use and care for NZL’s land will secure our company’s and tenants’ long-term sustainability and success.

It will also positively influence New Zealand’s efforts to mitigate climate change and protect the health of our land today for the producers of tomorrow.

And it will benefit NZL’s investors by contributing to the enduring value of our assets.