Real Estate
32 THE NZ FARMERS WEEKLY – farmersweekly.co.nz – June 1, 2020
Van Leeuwens are stepping back Annette Scott annette.scott@globalhq.co.nz
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HREE years on from being the first hit with Mycoplasma bovis Aad and Wilma van Leeuwen have decided it is time to take a step back. The van Leeuwen Dairy Group (VLDG) has put nine of its 16 farms on the market as its founders plan a shift in their dairy farming focus. “Along with a capital restructure we recently finalised a new vision for the business, which is primarily focused on optimising and growing our robotic barn farm operations,” Aad van Leeuwen said. That was a plan long before M bovis struck the large-scale dairy farming operation in South Canterbury. “We were looking at selling farms before bovis but then there was the dairy downturn then bovis. The timing wasn’t right,” van Leeuwen said. “Now we want to step back, now’s the time for us.” The VLDG’s vision is to optimise its existing hybrid barn and robotic barn farming operations as well as invest in growth. Van Leeuwen believes barns are the way of the future for dairy farming in New Zealand given the ever-increasing environmental regulations. “Our aim is to be a market leader in farming systems that are sustainable with new environmental regulations ensuring the business is well positioned to capitalise on future dairy profitability due to growing scarcity of supply. “It’s very good timing at the moment to see if people are keen to invest in the VLDG and help our
STEPPING BACK: Aad and Wilma van Leeuwen have decided it is time to take a step back and refocus their future in dairy farming. Photo: Annette Scott
I don’t believe they will ever eradicate it but they have given it a damn good hiding and done a lot of severe social damage along the way. Aad van Leeuwen Farmer next generation of farming.” The van Leeuwens farmed in Waikato before moving to South Canterbury in 1993 where they have concentrated their dairy farming operations over the past 37 years.
“We have grown our business substantially over the years and are now looking to pass this legacy on to the next generation.” The nine farms for sale include six dairy farms and three complementary drystock support farms used for grazing bulls, heifers and wintering cows. The portfolio comprises 3500 hectares of land, extensive infrastructure, irrigation shares and a supply contract to Oceania Dairy. There has been a mix of management across the farms including sharemilkers, contract milkers and direct farm management. Prospective buyers have the option to own and operate the farms outright or buy the farms as a passive investment with
external operation via a long-term leaseback. “This is an incredibly rare opportunity to secure a profitable dairy farming operation of scale,” Colliers International national rural and agribusiness director Ruth Hodges said. The net yield on investment has been independently forecast at up to 7.3% on an owner-operator basis and 4.24% on a passive leaseback basis. “The strength of these returns and the sheer scale of the portfolio add up to a truly unique offering for the NZ market. “The long-term outlook for dairy proteins is very strong. NZ’s production is not increasing, meaning supply in the future will remain tight and prices firm,” Hodges said.
The farms have been operated under a traditional pasturefocused seasonal supply with the top production of the six reaching 2,058,000kg of milksolids with potential to reach further, van Leeuwen said. The VLDG has invested heavily in eradicating M bovis from all its farms since the outbreak in July 2017 with all nine farms having been cleared of the disease for more than 18 months. But while the farms have been cleared the van Leeuwen’s compensation battle with the Ministry for Primary Industries goes on. “The bovis impact hit hard. The battle has been long and ongoing and extremely stressful and MPI still owes us in excess of $10 million. “A portion of that figure has been to the High Court now and we’re confident MPI will come back to the table in the next couple of months to sort it out,” van Leeuwen said. And eradication of the disease from NZ? “I always said and I maintain to eradicate this disease they will have to find the very last cow in this country. How are they going to do that? “This disease can lay dormant and undetected in animals which can be sold and traded around the country and then after a while rear its ugly head again. “This is the reason the rest of the world lives with it and allows the farmers to manage it. “I don’t believe they will ever eradicate it but they have given it a damn good hiding and done a lot of severe social damage along the way. “Is it worth it? I don’t think so,” van Leeuwen said.
Stress pockets in agricultural lending Some businesses will come under stress Firm balance sheet and debt servicing vulnerability 50 40
%
%
Equity to assets Interest coverage ratio (RHS)
12 10 8
30
6
20
4
worsened somewhat,” the Reserve Bank said. Dairy prices in New Zealand dollar terms have fallen by about 8% since January while milk price futures for the 2021 season have fallen to about $6/kg milksolids. That is still above the low prices of the 2015 dairy downturn when
All industries (ex. financial services)
Dairy
Accommodation
0
Retail trade
2
0
Construction
10 Food and beverage services
AGRICULTURE has fared relatively well during the covid-19 pandemic but vulnerabilities in the sector remain, the Reserve Bank says. In its Financial Stability Report for May it said lending to the agricultural sector is a key concentration of risk for the banking system, accounting for about 13% of loans, of which around two-thirds is to dairy farming. “The industry is vulnerable to income shocks given its dependence on global commodity prices and pockets of dairy lending have yet to recover from the 2015 downturn. “Low serviceability metrics indicate the agricultural sector has entered this crisis with a limited ability to take on more debt to absorb temporary falls in income.” Northland, Auckland, north Waikato and Hawke’s Bay have also faced persistent drought
since December, creating further stresses. “Some highly indebted dairy farms could face solvency and liquidity pressures were milk prices to fall materially.” In a published chart of balance sheet and debt-servicing vulnerabilities, the dairy farming industry has the lowest interest coverage ratio, about 2%, and a low equity-to-assets ratio, about 35%. The interest coverage ratio is calculated as the total income less total expenses divided by the interest, using industry aggregate values. Before the covid-19 outbreak became a pandemic commodity prices for the agricultural sector were stable, allowing it to avoid much of the initial economic impacts. Businesses in the primary sector were also generally able to operate under alert levels three and four, unlike many sectors of the economy. “However, the outlook has
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the payout including dividend for farmers fell below $5/kg. “However, there remains a tail of highly indebted dairy farmers from that downturn who generally require payouts above $6 to break even and these could face significant stress if commodity prices continue to fall.”
Non-performing loans in the agriculture sector were 2% in March, a small increase on their numbers in March 2018 but below the 3% levels of 2010 and 2012. The dairy industry contains most of them, many of which became highly stressed during the downturn in 2015 and 2016 and whose long-term viability remains uncertain without substantial restructuring of their balance sheets. Forestry and some other pockets of the primary sector are also vulnerable given the trade disruptions that have happened and possible export price falls, ANZ senior economist Liz Kendall said. The financial system is sound and resilient to all but the most severe scenarios, Reserve Bank governor Adrian Orr said. “Banks have good capital and liquidity buffers and need to use these to support customers and contribute to the economic recovery.”