The impact of nutrient regulations on dairy farm land values in Southland

Environment Southland is setting water quality limits in Southland, New Zealand. It has been well-documented that restrictions on nutrient losses from dairy farms are likely to negatively impact on farm profitability. Less understood is the influence of these regulations on rural land values. Dairy land values have traditionally been driven, in part, by changes in profitability expectations, although lags exist. Therefore, there is a risk that the costs of implementing water quality limits will impact on rural land values. Farm systems modelling was used to investigate the cost of reducing nutrient losses. Present valuation methodology was then used to examine the potential impact of this cost on dairy farm land values. Results show that mitigating nutrient losses from dairy farms in Southland reduces operating profit, resulting in a reduction of land value. Modelling suggests a 20% reduction in nitrogen leaching reduced operating profit by 14% and land value by 17%. The 25th and 75th percentile for the reduction in operating profit was -17.2% and -10.5% respectively. The 25th and 75th percentile for the reduction in land value was -21.5% and -13.1% respectively.