Will Farm Prices Fall? – Whiteboard Friday

Gareth MorganEnvironment3 Comments

This week we saw discussion around a report from Ag First economist Phil Journeaux which estimated that land values could fall by $40b across the country as environmental limits (such as limits on water use, nutrient leaching or greenhouse gases) are put in place. To understand this figure, and whether it is right, we need to understand the drivers of land prices, and how they might change when environmental limits are in place. That is the subject of this Whiteboard Friday.

The report has been criticised by experts for a number of reasons. The report itself shows that link between the productive return on land and land prices is tenuous at best. This shows that consumptive and particularly speculative reasons are key drivers, yet the report only looks at the productive impact. The scenario chosen for the costing is very much worse case scenario, and could easily be offset by improvements in water quality, which increase the consumptive drivers for owning land.

However, we must acknowledge that in some sensitive environments, limits will impact on the productive uses of land. This is likely to impact on land prices as it has in Taupo. But is this necessarily a bad thing? Are higher land prices the main measure of success for farming? They have been in the past because of the focus on farming for tax free capital gain.

Obviously a drop in land price isn’t good news for the current owner, but all businesses face a risk that the value of their business will rise and fall. Over time, lower land prices lead to lower costs, so the return on farming would normalize as a result.

Will Farm Prices Fall? – Whiteboard Friday was last modified: October 14th, 2016 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.

3 Comments on “Will Farm Prices Fall? – Whiteboard Friday”

  1. We have given too many concessions to dairy farmers and this has assisted to artificially raise farm prices to where speculation became the core business income rather than sustainable farming. The user pays principle brings reality back to the industry. The environmental cost must be met by the dairy industry and only then will farm prices reflect their true market value.

  2. We live in changing times. All of us, farmers included, will need to alter the way we live, work and get around.

    What concerns me is how hard farmers resist environmental improvement measures. Waikato farmers are currently banging on about how they oppose Waikato Regional Council’s Healthy Rivers Plan. (These same farmers are the self-styled “guardians of the land” remember).

    1. I remember how proud some of my farming relatives, many long dead now, were of their stewardship of the land. “Look at the native stream life here”. ” In most countries it has long gone” is from one dairy farmer.
      He would be disturbed with the overstocking, degraded land and rivers and capital gains farming common these days. I am sure that I can hear the mutterings about “bloody Queen Street farmers” still.

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