March 2018Rural Report | Colliers International Rural & Agribusiness

RURAL REPORT

Rural property market update - CANTERBURY March 2018

COLLIERS INTERNATIONAL RURAL & AGRIBUSINESS

COLLIERS CANTERBURY DAIRY FARM NOMINAL INDEX SUMMARY

The current market for Canterbury dairy farms can be best described as two-tiered. There have been a number of strong sales of well-located, small to moderate scale dairy farms within Central and Mid Canterbury, however the market is currently experiencing a lack of liquidity for larger scale properties and weak demand for properties in South Canterbury and further afield.

To illustrate the market movements, Colliers International Rural & Agribusiness division has developed a Dairy Farm Index for Canterbury based upon the changes to the market value of an irrigated representative Canterbury dairy farm over time.

Our representative Canterbury dairy farm is has a total area of 186 hectares with an effective irrigated dairy platform of 173 hectares. The property has centre pivot spray irrigation sourced from reliable groundwater at a moderate depth. Infrastructure includes all necessary buildings required to operate; including three modern staff dwellings, a good

40-aside herringbone dairy shed and a calf shed.

The representative farm is assessed to produce approximately 1,400 kgMS per hectare under average efficient management. The average efficient concept is used to assess a property on the level of production that a competent efficient manager can produce off the land using standardised levels of inputs. This allows us to make comparisons between properties on the basis of their physical resources rather than production attributed to the skill of their current management or from brought in supplementary feed.

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As you can see from the graph, our representative Canterbury Dairy Farm has been gradually increasing in value on the back of the improvement in the farmgate milksolid price since the 2015/16 season. Having said that, as at February 2018, it is still 5.4% below the market peak experienced in the 2014/15 season. Whilst the market for dairy farms did decline as a result of the reduced returns, the level of decline was somewhat less than what many commentators were predicting.

Confirmed dairy farm sales are also shown on the graph as blue dots. The tightening of the sales band illustrates that the properties that are selling are typically of a good standard and for genuine reasons characterised by a bona fide transaction between a willing buyer and a willing seller. A number of the purchasers have been local farming families, diversifying their farming operations, adding to their existing dairy operations or purchasing a property that fitted their investment criteria.

With the emergence of a two-tier market, it is important to note that our representative farm provides a good indication of the value movements of the core segment of the market. The market dynamics for larger scale operations are currently quite different. Rural real estate agents have reported few offers and limited demand for larger scale dairy units typically in excess of 250 hectares, 850 cows or above $12 million. We understand demand for these types of properties has weakened due to proposed tightening of the Overseas Investment Office (OIO) rules following the change in Government, meaning overseas buyers are less active in the market in the interim and limited liquidity from

the local buyer pool for properties of this scale.

We have observed a number of dairy farm properties being offered for sale in less desirable locations or with other detracting features e.g. less reliable irrigation water, poor production history, challenging contour. These properties have typically spent longer on the market and have received little interest from prospective purchasers.

The impact of the Canterbury Regional Council Land and Water Regional Plan and zone-specific rules has also been identified by market commentators and advisors becoming more noticeable, with those properties with uncertain future production struggling to sell. Rules and regulations associated with environmental compliance and possible changes to farming systems due to limits imposed by zone-specific rule changes are considered to be factors contributing to an increase in the number of dairy farms for sale.

The number of dairy farm transactions is expected to tail off as we approach the end of the dairy season. Next spring, once calving is concluded we anticipate that the current strength in the market will continue for Mid and Central Canterbury and that price adjustments may be required for properties which have struggled to sell due to size, environmental concerns or location. The value of larger scale properties will be determined to some extent by the direction of the new Government and the guidance provided by Overseas Investment Office decisions.

FOR MORE INFORMATION OR WITH ANY ENQUIRIES, PLEASE CONTACT:

GREG PETERSENAssociate Director +64 21 991 348Greg.Petersen@colliers.com

Contributed to this report:

JACK POWELLValuer +64 27 485 6562Jack.Powell@colliers.com

This document has been prepared by Colliers International for advertising and general information only. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct.

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March 2018Rural Report | Colliers International Rural & Agribusiness