New Zealand - Converting cut-over forests to dairy farms feasible - academic

The pumice lands of the North Island's volcanic plateau may be set to undergo the biggest farming revolution since the 1930s discovery that their cobalt deficiency could be fixed. New Zealand's largest farmer, state-owned Landcorp Farming Ltd, announced at the weekend that in the next six weeks it will make decisions on a massive project to convert North Island forests to pastoral farms, many of them for dairying. And researchers at Massey University say such forestry-dairying conversions could be financial winners. In a study based on 2003 costs and values, Massey University's department of finance, banking and property, has shown that an investor with 50 per cent debt and a required after-tax return of 7 per cent could afford to pay between $4500 and $6000 per hectare for land covered in stumps and "slash" (forestry waste). The study, "Can Forestry Land Produce Milk", by senior lecturer Iona McCarthy, investigated converting land in the area of the Kaingaroa forest – which contains large areas of mature trees ready for cutting – and compared it with dairy farm sales in the Reporoa region. Reporoa – where there have been significant numbers of large-scale conversions from drystock farming – recorded dairy farm sales at a range of prices between $11,000/ha and $18,072/ha in 2002. Mrs McCarthy found that buying forestry land and developing it would cost $7300/ha, with farmers having to spend a further $4200/ha on Fonterra shares, a total of about $11,500/ha on top of the purchase of bare land. "If the raw land ranges in value between $4500 and $6000 per hectare, this equals to a total (per hectare) price range of $16,000 to $17,500," she said. "There is little difference between cost of an existing unit and developing a unit from forestry land." But a new development would have economies of scale – especially if several farms could be done at once, and the process repeated on other land in subsequent years – a high standard of improvements, new pasture species and convenient layout. Mrs McCarthy said two forestry blocks which had been sold to dairy farmers – 93ha sold at $5300/ha and 183ha sold at $4450/ha – confirmed that land planted in pines could be successfully converted from stumps and slash to productive pasture in a short time. This was despite the fact that switches in land use from forestry to pastoral farming were very unusual. Mrs McCarthy said there had been a big increase in the use of dairying land over the past decade, with large-scale conversion of sheep, beef and arable farms to dairying. There were now limited opportunities for large scale dairy development in the North Island – unless land was clawed back from forestry. Much of the volcanic plateau was put into forestry before farmers found that problems of "bush-sickness" in livestock in the regions were actually due to a soil deficiency of the trace element cobalt. The rapid expansion of dairying in the Reporoa region since the late 1980s had proven the suitability of pumice land, with many of the large-scale farms producing over 1000kg/ha of milksolids. She said her calculations of costs opted for an expensive form of land clearance, grinding stumps and slash and incorporating the woodchips in the soil, at a cost of about $3000/ha. But this cost would drop sharply if equipment could be used on a succession of farms, and moved to new sites in subsequent years. The method was similar to that used for removal of stumps in peat swamps and the waste would quickly rot into the soil, especially if extra nitrogen fertiliser was applied. Landcorp chief executive Chris Kelly said his company had gained extensive experience at large-scale dairy conversions on the West Coast's pakihi soils, such as at Cape Foulwind. He said it was too early to say exactly which forests would be converted, but the projects were likely to be in two forms: "Either we would purchase the land, in which case we would sell off the cutting rights (to the standing trees). . . or we may lease the land, in which case the cutting rights may have been onsold". Landcorp runs 368,000ha of farmland and has more than 1.4 million stock units on 110 farms, with its main revenues from sheep and cattle and a growing proportion from milk and deer. In 2002, it said it would build its livestock from 1.5 million stock units to 1.8 million, and it is now in the third year of a five-year development programme to reduce its exposure to volatile beef returns by earning half its income from dairy and deer. But Mr Kelly said today that the proposed forestry conversions would skew those targets, and it was more likely that dairying would generate half the company's income once the new farms came on stream. He declined to specify the area of forests being considered, but agreed there had been indications from other parties that the deal would involve more than 20,000ha, and would add the equivalent of 400,000 stock units to the company's operations. "What has interested us has been the general trend by Fletcher Forests and – it is now public knowledge – by Carter Holt to exit their ownership of forestry land, at least in part". "So the issue for us is whether we can make figures work by not replanting those trees, but putting the land into sheep, beef and dairy farms," Mr Kelly said.