Why Progressive New Zealand Dairy farmers are moving to South America
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New Zealand Dairy farmers are moving to South America
New Zealands farm landscape has changed dramatically over the past few years. Once considered one large sheep farm and a breadbasket for the United Kingdom with over 77 million sheep ( a controversial figure as many sheep were counted twice during this period to get the generous subsidies then been given ) it is now seen as one large dairy farm supplying the world.
Why the change ?
Simple economics. Dairying is grossing approximately 10 times per hectare what the average sheep farm is grossing even without irrigation.
Despite the dire effects on the environment with polluted waterways and tainted groundwater dairy farm conversions continue at record levels using irrigation to farm in areas that were seen as too dry previously to use. Other forms of farming cannot compete in the short term.
The cost alone for water for irrigation is at least 400 USD per ha which makes traditional forms of farming uneconomic.
Then the average term debt of a New Zealand dairy farmer milking 800-900 cows is about 5 million US million which is huge amount by international standards. One might well ask why they take on so much debt and risk when returns are less than 4%. 20 years ago they were more like 11%. The short answer is capital gain on the land. Over the past few years as foreign and local dairy investors exploit the opportunity to make strong capital gains without paying any tax the land prices have soared to 40,000 USD to 60,000 USD per ha.
The Greatest risk to New Zealand Agriculture is Fonterra
Forterrra is the name of New Zealand largest dairy company. In recent years it has been rocked by a number of food scandals both at home and overseas, notably China. When Fonterra has a major weakness in its brand, it vibrates right down the economy making it everyones problem. Shareholder farmers and industry participants are well aware of this and are looking for solutions from a breakup of this near monopoly to other less extreme solutions.
In the meantime those who are committed to the industry have diversified internationally to spread their risk. The first attempts at this ended in disaster when a Wrightson of New Zealand set New Zealand Farm Systems up in Uruguay resulting in not only the loss of their 36,000 ha of Uruguayan farm land but the near destruction of the parent company. The project was contaminated by greed, ignorance and later corruption from the start and left a very bad taste with those who had supported it in Uruguay.
However other New Zealand investors have been more successful such as the huge Manuka Dairy Farm in Chile ( Osorno ) and countless other individual farmer investors who have mixed a measure of Kiwi skill with the local farming advantages in Brazil, Chile and more recently Uruguay. Mostly finding better soils, climate and cheaper land and labour prices are the comparative advantages.
Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours. #adp02
Post available in: English