7.0 TRENDS IN DAIRY FARM VALUES
The 1970's saw the start of a period of rapid inflation in farm land values. Figure 1 demonstrates how land values have changed in real and nominal terms over the last 23 years. (These values were deflated using the consumer price index to December 1995). As can be seen, both Waikato and Canterbury land prices reached a peak in the early 1980's, when Government subsidies both directly and indirectly allowed farmers to pay prices beyond the productive worth of the property. After 1984, the removal of farm subsidies resulted in farm prices slumping to their lowest real value in the past 23 years.
FIGURE 1: Trends in Land Values in Waikato and Canterbury
In the Waikato, from 1991 land prices rose rapidly, by an average of $2000/ha per year. This was against a background of relatively low inflation and high expectations of other dairy exporters reducing their subsidies in accordance with GATT. Over the same period, Canterbury land prices rose by only about $1000/ha/year. In both centres values have approximately doubled since 1991. This is illustrated in Figure 2.
FIGURE 2: Land Price - Canterbury vs Waikato 1973 to 1996
In real terms, land prices in the Waikato have only just reached the heights of the early 1980's; but over the last 23 years have gained $11,500/ha in nominal terms. This equates to an inflation adjusted return of approximately 4.2% per annum. In Canterbury, land values have now only reached parity with 1972/73 levels in real terms. However, Canterbury prices seem to have risen further, whereas those in the Waikato have virtually stood still over the past 12 months.
Gribble (1996) suggested that farms should sell for between two and three times their gross income. In the Waikato in 1972/73, they were selling at 2.7 times their gross income; in 1992/93 this figure was 3.5, and in 1995/96 farms are selling at 3.6 times their gross farm income. In Canterbury, farms are changing hands for approximately 3.4 times their gross farm income. This suggests that in both centres land is being exchanged at prices above what a productive valuation would suggest it was worth.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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