08 May 2018
Farming has always been about environmental management. Now new rules aimed at reducing the impact of farming on waterways will make that role more explicit.
It means a farm environmental plan will be as important as a Land Information Memorandum report when buying or selling a property, adding to the environmental compliance requirements for farm buyers and lenders.
"Achieving compliance carries a considerable investment in time, resourcing and ongoing cost.”
In this market farms which haven’t completed a substantial amount of work around future water allocations, nutrient discharge allowances and how they will impact on land-use intensity can expect to not realise their full value.
Achieving compliance carries a considerable investment in time, resourcing and ongoing cost.
Some farmers are more advanced than others but if the people I’ve spoken to in the Waikato are anything to go by it is accepted new rules are coming. They will be a permanent part of farming - and they are essential to the long-term viability of the sector.
For those with the right mindset the new rules will be an opportunity to create the sort of farming businesses increasingly attractive to producers facing heightened customer expectations over quality, purity and traceability.
They will also be creating the sort of businesses New Zealand agriculture should aspire to lead the world in – efficient, sustainable and high tech.
The case for investing
Nine years of steady targeted investment has transformed John Hayward and Susan O’Regan’s Te Awamutu dairy farm into a sustainable business well placed to weather the changing environmental compliance regulations facing New Zealand’s agri sector.
The pair set out with a bold ambition – to be New Zealand’s most sustainable dairy farm – and to do that they needed to completely change the way they farmed.
Across their 240 hectares they have regenerated 11 wetlands, fenced waterways and replanted riparian strips.
They’ve reduced their cow numbers and environmental footprint and by the end of next year they think they’ll be completely self-sufficient and won’t need to bring in any extra feed all while running a productive and profitable dairy farm.
Hayward and O’Regan identified the biggest issue with their land was sediment loss, which needed to be mitigated along with phosphate and E.coli (a waste bacteria) loss.
Working with the Waikato Regional Council they used a land capability report which mapped the farm, different soil types and land classification.
Along with a farm environment plan, this helped identify land less suitable for stock grazing and meant they could look for opportunities to get more value from what was classed as 'fairly marginal' land.
Fifteen hectares of class seven land was ‘retired’ and planted in mānuka, at a cost of about $NZ2000 per hectare, some of this is used for honey production for Comvita. Another five hectares was planted in pine.
This allowed them to drop their nitrogen footprint and the trees have also been signed up for carbon credits. In time this will allow the couple to offset the carbon footprint of their business.
Two sediment dams help control sediment loss while growing their own maize and installing a feed pad gives them more control over costs, enabling them to focus on higher productivity from fewer cows and farm more intensively on land better suited to grazing.
The couple estimate they’ve spent on average $NZ30,000 annually over nine years on environmental initiatives and while it’s difficult to put a value on the investment now, long term it will protect and grow the value of their land.
As a financier ANZ is paying a lot of attention to compliance and how the requirement for an environmental plan will become part of the lending process. From now on the environment has to sit at the front of a business model - it can’t be growth first, environment second.
ANZ has been doing a lot of work around understanding the farming sector's transition to more sustainable farming practices.
While some farms have been slower to act than others, a recent farmer-customer survey by ANZ showed strong awareness of the need to invest in environmental compliance.
More than 90 per cent of respondents were very aware and were doing something about it - but they were looking for help with the 'how?'
There was uncertainty around what technological or precision-farming investments they should make to not only make them compliant but help them make better decisions with the environment at the heart of their farming model.
Respondents also understood there is a cost to this transition. Over the past five years the average-spend on environmental enhancements was $NZ16,000 (possibly higher in parts of the South Island).
Around 70 per cent had invested in fencing waterways, 52 per cent in riparian planting, 52 per cent on changes to fertiliser management, 38 per cent into irrigation practices and 35 per cent in changes to water use.
Almost 60 per cent said they would absorb the cost into total farm expenditure; 45 per cent said costs would reduce overall farm productivity; 23 per cent would reduce spending in other areas and 15 per cent said they would require extra borrowing to cover the cost.
While respondents estimated costs would be $NZ10,000 - $NZ20,000 a year, I personally think it will be more than that. When fencing and planting is done they have to think about more investment in technology.
There are plenty of examples of customers using technology to record data on the farm which is helping manage their environmental footprint.
Water sensors tell farmers exactly how much water is being used, and where, via an app on their phone; individual online stock profiles give farmers access to animal health and productivity records on the spot and nutrient budgets use software to track all the nutrients going onto a farm and where they are going.
Farmers of all types and all generations are getting on board with environmental compliance as it becomes a fundamental part of the business.
All farmers I know consider themselves custodians of the land and want to leave their farms in a better state for the following farming generations. ANZ is supporting customers through specific environmental loans to aid with technology advances and farm systems.
The requirement now is for farmers to exercise their environmental creativity and formalise their environmental impact. That's got to be good in terms of meeting consumer expectations and improving waterways.
When it comes to selling their business, the more they have done to meet signalled or implemented rules, the better off they - and future generations - will be.
Mark Hiddleston is Managing Director Commercial & Agri NZ at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
08 May 2018