Following the rollout of the National Policy Statement for Freshwater Management freshwater, regulation rollout in Aotearoa-New Zealand came into full effect in 2017. New rules introducing a framework for management of freshwater resources are being progressively introduced at regional levels to reduce pollution through a focus on nonpoint source nutrient leaching and runoff from farms.

The regulations relating to nitrates and other nutrients

Regulations seeking to set nitrate leaching limits have brought about specific nutrient rules that purportedly account for differing environmental risk. These serve to place controls on productivity in accord with the particular zoning rules applying for a particular region. On the basis that land value is closely linked to its productive capacity, the value of land is also potentially affected since management systems and farm inputs are constrained. But has this new wave of regulation yet to impact farm land values?  If so, is this even more apparent in Canterbury and other neighbouring regions in New Zealand’s South Island where increasingly intensive agricultural pursuits has aggravated environmental equilibriums - with many districts being classified “highly threatened” as a nutrient allocation “Red Zone” where water quality outcomes are not met?

Relationships between productive capacity and investment return

The implications for productivity are clearly significant - after all, such regulations have the ability to constrain or even prohibit carrying out certain land uses previously commonplace. Yet, perhaps somewhat paradoxically, production is the one critical factor farmers usually have considerable control and influence over. Moreover, farms are typically bought and sold on the basis of their perceived productive capacity, since profitability (and therefore investment return) is a reflection of productivity.

Some commentators have suggested that farmland values could be reduced significantly by regulating for low nitrate leaching limits, with the reduction in value explained by the potential loss in long term income earning potential. However, whilst this proposition might seem completely plausible, there has been little actual evidence presented supporting such thinking. It is submitted that expected decreases in land value due to conditions imposed under resource consenting limitations is therefore largely theoretical.

Measuring nutrients - can it be done accurately equitably?

Complicating this are widespread concerns about regulatory control mostly as it relates to fairness and equity. There are also particular concerns around authenticity and accuracy in measuring losses, and variability in measuring compliance inconsistencies around the calculation of nutrient use on-farm via “nutrient budgets”. In short, it would seem there is a lack of public confidence surrounding the assessment of likely losses to the environment. It is therefore unsurprising that some studies have found that farmers have a strong degree of apprehension around the likely effect of regulation on production gains or losses, profitability, and any likely influence on farm values.

Regulatory impact on land values - the evidence

Nevertheless, a recent study conducted in Canterbury did not find any conclusive evidence that land values were being significantly impacted by nutrient regulation. In fact, even where there may be a perception that productivity or profitability would be impacted negatively due to the nutrient regulation, it was also acknowledged that installation and implementation of technology and systems in order to help mitigate nutrient regulations have resulted in real benefits to operations. Indeed, farmers in the study were generally positive about their ability to farm within nutrient limits, using technology and management systems to mitigate and maintain, if not enhance, their respective land values.

Examples of this might include the "Matrix of Good Management" document which by all accounts provides farmers with a reasonable guide or benchmark on what is acceptable for their resource under their chosen farming system. Even Overseer software which, despite its shortcomings, equips farmers with a way to measure their impact on the environment. Such tools (and there are many others) assists farmers to farm at their desired level of intensity - but within environmental limits and in a way compliant with regulations.

Farming at an intensity above apparent land quality

Ultimately, regulation essentially attempts to classify farm land based on its inherent, nature given qualities; for example, soils, climate, contour. Farmers are being asked to farm the land within that classification. In cases where that classification does not fit, then impact on land value is likely - suggesting that where there is an intention to farm at an intensity above what suits the fundamental qualities of the land, then that farm operation is polluting. Farm within the limits created and land value will continue to be impacted by normal market forces.

Concluding comments - is there an opportunity presented?

However, in this period where rules are being created, there is a level of uncertainty where those best informed will likely overturn opportunity. Those less informed will face complications and barriers because they have or are trying to farm at a level of intensity that does not suit the environment as determined by the rules. It is concluded that through this period of relative uncertainty there will likely be impact on land values for entities that are farming their resource at an intensity that impacts the environment and who are not applying technologies and better management systems to mitigate that environmental impact. On the flipside, land values will be likely maintained or enhanced for farming entities where land is respected with regard to the rules and to its resource.