Impacts of Land Use Change - Land Use Changes in Wairoa

6.0 LAND-USE CHANGES IN THE WAIROA DISTRICT

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Key points

Sixteen properties totalling 12 130 ha (23% of land sold) have been sold to forestry in the period 1989 to 1994, all since 1992 (48% of sales since 1992).

Purchases by forestry interests have been largely responsible for land prices rising from 70-75% of the national average hill-country land price to 119% of that price in 1994. Average land values have lifted from $72/LSU in 1991 to $195/LSU in 1994 ($665/ha to $1244/ha).

Evidence does not support claims that the size and Aquality@ of farm properties being bought by forestry interests is significantly different from those bought by farmers.

6.1 Statistical Database

Statistical data concerning the area and productivity of properties that have been sold over the past 5 years have been provided by Valuation New Zealand. Their assistance is gratefully acknowledged. Any errors in the use or interpretation of that data is the responsibility of the authors.

6.2 Farm Sales - 1989 to 1994

Sixty-eight properties have been sold during the period with a high of 16 in 1990, at the end of a long period of high interest rates and low product prices, leading to a low of 6 in 1991, a year that saw declining interest rates but continuing poor returns for lamb and mutton. The number of properties sold in the District has remained relatively constant at 6-10% of national hill-country sales. On average 8650 ha/annum of farm-land has changed hands. The most marked change has been in the purchasers of farm properties. No farms were sold to forestry purchasers in 1989 to 1991. Two sales to forestry interests in 1992 (20%) were followed by 6 in 1993 (50%) and 8 in 1994 (73%).

Table 6.1 Farm property sales, Wairoa District, 1989-1994

Year	Number of properties purchased
	Nationally	Wairoa	Farming	Forestry
1989	121	13	13	0
1990	153	16	16	0
1991	98	6	6	0
1992	135	10	8	2
1993	137	12	6	6
1994	97	11	3	8
Total	741	68	52	16

The total area of land sold to forestry since 1992 is 12 130 ha. Of this, 242 ha has been subdivided and resold as lifestyle holdings or intensive farm units with farm buildings. This area is expected to increase, as there is generally a lag between original purchase and subdivision, and none of the properties purchased in 1994 have been subdivided yet.

Table 6.2 Area of farm land sold, Wairoa District, 1989-1994

Year	Total area sold (ha)
	Wairoa	Farming	Forestry	Resold
1989	8627	8627	0	0
1990	15 051	15 051	0	0
1991	2764	2764	0	0
1992	4951	4330	621	32
1993	10 787	5341	5446	208
1994	9707	3644	6063	2
Total	51 887	39 757	12 130	242

The average size of properties purchased by forestry interests is 758 ha which is very similar to the average farm property sold to farming (765 ha). These averages hide some large variations with the forestry sales averaging only 415 ha if four large sales totalling 6146 ha are excluded. Forestry interests have been more successful in purchasing smaller rather than larger properties that come onto the market. This appears to be primarily because the smaller properties suit the scale of forestry investment partnerships (generally 200-300 ha per partnership). It is clear, however, that more recently both major forestry companies and some forestry partnerships that are experiencing strong demand look to larger purchases in order to benefit from economies of scale. This is achieved by planting close to existing forests or being able to establish multiple partnerships on one site. This trend is likely to continue.

Table 6.3 Average size of farm properties sold

Year	Average size of property sold (ha)
	Wairoa	Farming	Forestry
1989	664	664	0
1990	941	941	0
1991	461	461	0
1992	495	541	311
1993	899	890	908
1994	882	1215	758
Total	763	765	758

6.3 Impact of farm sales to forestry

Subsequent analysis in this study discusses the impact of land-use changes on employment and income in terms of gains/losses per 1000 livestock units lost from pastoral farming to commercial forestry. Valuation New Zealand maintain records of approximate livestock carrying capacity of farm properties as part of their valuation databases. This data has been used to calculate total stock losses from the District as a result of land-use change. On the basis of these estimates, a total of 86 150 stock units have been displaced to date from the 12 130 ha purchased. No adjustment for the small area returned to intensive farming has been made.

Table 6.4 Livestock displaced by conversion to forestry, 1989 to 1994

Year	Total carrying capacity of farms sold
	Wairoa	Farming	Forestry
1989	57 600	57 600	0
1990	70 550	70 550	0
1991	22 050	22 050	0
1992	35 300	29 300	6000
1993	65 900	25 600	40 300
1994	63 050	23 200	39 850
Total	314 450	228 300	86 150

6.4 Measures of land quality sold

Two measures of the quality of pastoral farms being sold have been assessed. The commonly used assessment of pastoral farm productivity for comparative purposes is livestock carrying capacity per unit area (stock units per ha, SU/ha). Analysis of sales for the past five years suggests that purchases by forestry interests have generally been of "better-quality" or more intensively managed properties (7.1 SU/ha cf. 5.7 SU/ha). Caution should be used in relying on this estimate, however, because the data suggests that, on average, the carrying capacity of farms sold is well below the district average (7.6 SU/ha). Assessment of properties sold on the basis of stage of development suggests that this was not the case.

Table 6.5 Livestock carrying capacity for farms sold

Year	Average stock carrying capacity
	Wairoa	Farming	Forestry
1989	6.7	6.7
1990	4.7	4.7
1991	8.0	8.0
1992	7.1	6.8	9.7
1993	6.7	4.8	9.1
1994	6.8	6.4	7.1
Total	6.2	5.7	8.1

A description for all farms sold by type (grassed area, undeveloped grazed area, exotic forestry, retired and unproductive areas) was extracted from the Valuation New Zealand database. An analysis by grassed area suggests that, on average, farms sold to farming and to forestry were of a similar stage of development, with properties going to forestry having slightly less grassed area than those going to farming. This criterion also has deficiencies, however, as it takes no account of fertility or fertiliser history.

Table 6.6 Proportion of grassed area of properties sold

Year	Average area in pasture
	Wairoa	Farming	Forestry
1989
1990
1991	0.88	0.88	0
1992	0.72	0.74	0.61
1993	0.80	0.80	0.80
1994	0.80	0.87	0.77
Total	0.79	0.82	0.77

The two measures are also inconsistent in that the first suggests that the average productivity of farms being purchased by forest companies is declining, while the second indicates a slight increase in the proportion of farms developed that have been bought for forestry. The rapid increase in the number of properties bought for forestry and the dominance of forestry buyers in the market also suggests that it is unlikely a particular preference or targeting of particular properties is occurring. Rather, forestry purchasers are active bidders for all properties that come up for sale, generally regardless of relative productivity or development. These latter factors are expressed in the price paid rather than the saleability of the property.

An analysis of the land-use capability suites on which the plantation forests stand (Map 5) shows a change over time in the suites being planted. In the 1970s and 1980s, as a result of Government policy and local body land-use constraints, forestry was confined to the areas considered poorer for pastoral agriculture. These are largely the less fertile but more stable and easier contour tephra-covered sites and the lower-fertility sandstone sites. In recent years under the operation of the free market, forest buyers have been purchasing farms on the more fertile but more erosion-susceptible siltstone and mudstone-based soils. It is this terrain that has traditionally been regarded as strong pastoral hill country, despite high incidence of land slipping. This terrain supports higher growth rates for radiata pine, but it is also more expensive to harvest.

6.5 Pastoral property price trends - 1989 to 1994

Prices paid for pastoral farms in the Wairoa District have been driven up significantly by forestry buyers in the period 1992-1994. Data from 1989 to 1992 suggests that sale prices were relatively constant at 70-75% of the national average for hill-country pastoral farms. Wairoa has traditionally been less attractive to pastoral farmers because of its relative isolation and susceptibility to erosion and pasture reversion. Since 1992, when forestry buyers entered the District paying prices consistent with the national average, prices have increased dramatically to current levels at approximately 119% of national average.

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Table 6.7 Pastoral farm sale prices ($/SU), 1989 to 1994

Year	Sale price ($/SU)
	Nationally	Wairoa	Farming	Forestry
1989	103	71	71	0
1990	103	76	76	0
1991	98	72	72	0
1992	122	101	83	121
1993	146	130	114	145
1994	164	195	164	206

Prices paid by farmers at present lag substantially behind those paid by forestry interests, but are expected to respond quickly. Although forestry remains a relatively small sector in Wairoa (<10% of area), prices continue to rise as forestry demand remains firm. Although there is some indication that the domestic forest investor market is easing, there appears to be continued demand from corporate forest investors.The price per unit area paid by forestry interests also continues to rise. Forest growers tend to purchase on a price per plantable hectare basis with less emphasis on price per stock unit. There was a 19% increase in gross price per hectare paid by foresters in 1994, as against a 42% increase in price paid per SU carrying capacity.

Table 6.8 Pastoral farm sale prices ($/ha), 1989 to 1994

Year	Sale price ($/ha)
	Wairoa	Farming	Forestry	Effective
1989	621	621	0	0
1990	528	528	0	0
1991	665	665	0	0
1992	836	678	1120	915
1993	956	673	1240	1024
1994	1244	1207	1258	1221

An analysis of these trends by Mr Ted Clissold, Gisborne District Valuer for Valuation New Zealand, suggests that foresters attribute substantially higher values to land than do farmers because they assess the value of capital improvements at considerably less. This suggests an expectation of greater financial return from forestry by forest investors than the return expected from farming by farmers. The issue is further complicated by assessments of risk, which are substantially different between publicly equity-funded forest investors and private owner operators with substantial debt funding. The latter is the position of most farmer buyers.