Rotorua

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Property Details

$65,000,000 to $85,000,000 Working Capital Require

ID: 388876

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Farm Investment
The Offer
* To provide debt funding of NZ$65-85m.
* This will be used to purchase up to 10 farms in the Lake Rotorua Catchment, New Zealand.
* The debt will be secured against the land purchased.
* Capital will be repaid after 5 years or may be converted to equity at agreed valuation.
* The investment could assist with future Investor Migrant applications.

The Opportunity
* The unique value presented by dairy farms in the Lake Rotorua catchment


Current Dairy Farming State:

Rotorua Lake Catchment
Dairy land values within the region are currently depressed. Farmers have to be able to demonstrate they can farm with a lower environmental footprint by mid-2017 or risk losing their current right to dairy farm. The perception is the changes required will reduce dairy productivity and profitability which has caused the market value of this land to fall by approximately 33%.

Nationally
The dairy industry in NZ is very depressed due to 3 seasons of low returns. Many farmers are in the position of having to borrow to pay interest so the debt levels in the NZ dairy industry continue to rise. Many will face having their loans called up from the banks due to low to negative equity positions. This is further driving down land values.




Farm Financial Performance
Current
Fonterra supplier ATA Farmer Comment
Farm Size ha 220 220 Comparing 2 farms of same area and type
Stocking rate 3.0 2.3 Cows per hectare
Annual Production kg ms 211,200 211,650
Production per cow 320 429 34% more efficient ATA system
Payment $4.15/kg milk solids; $0.65/litre; The current farmer is paid by Fonterra on $/kg milk solids
the equivalent of the equivalent of $7.93/kg whereas the supplier of AKE Milk is paid on a $/Lt basis
$0.34/litre milk solids . The AKE supplier is getting an 91% premium.

Milk Income $ 876,480 $ 1,677,713

Farm Working Expenses $ 982,080 $ 838,134 Reduction through improved animal health, lower chemical fertilisers and improved efficiency.

EBIT -$ 105,600 $ 685,746 The additional premiums associated with ATA Farming have the potential to increase land values by up to 48%


1. Set up Rotorua Farm Holding Company (RFHC)
The RFHC will be established to hold the investment portfolio consisting of the up to 10 farms. RFHC will be contract managed by Caring Dairying Management Ltd (CDML). The investment of $65m – $85m will be used to purchase up to 10 operating dairy farms within the Lake Rotorua catchment and convert these to ATA Methodology for the supply of AKE Milk to The Rotorua Milk Company. These farms currently present a unique investment opportunity.


2. Target and secure selected farms
There are currently 23 dairy farms within the immediate Lake Rotorua catchment. All of these farms are under serious economic pressure. CDML will identify and target up to 10 of these farms to be included in the RFHC. These selected farm owners will be invited to include their property as part of this portfolio. The company will secure the land, buildings and stock by buying out the debt and retain the farmer to continue to manage the property in return for an annual management fee and equity in the holding company.
The equity offered will reflect their current level of equity in their farm. This approach is not to exploit the farmer by buying at the lowest possible price reflecting the stress in the industry but to create a relationship which is beneficial to both parties.
The farmers invited to participate are good farmers. Their financial position does not reflect their farming ability but the poor state of the NZ industry.

3. Apply to Lake Incentives Fund for Incentive Funding
Each dairy farm in the Lake Rotorua Catchment is required to have a management plan approved by the Bay of Plenty Regional Council to show they can farm in that catchment within the threshold for dairying. This plan will also identify the level of N discharge the farm can achieve. Farms which demonstrate they can farm 'below the line' (the threshold) are eligible for a pay-out under the incentive scheme.
CDL is currently working with the BOPRC to validate that the ATA Methodology be recognised as means of significantly lowering N discharge. This will improve the potential pay-out under the incentives fund.

4. Initiate ATA Methodology on Farms
Each of the farms purchased for the Rotorua Farming Company will go through the process of ATA Certification. This involves the following steps:
* ATA Farm Business Health check to establish the status of the farm against defined ATA Good Farming Practice.
* Status Report on status of farm relative to
Defined ATA Good Farming Practice
o Fail: an implementation programme is developed to achieve certification followed by a recheck.
o Pass: the farm achieves ATA
Certification and is eligible to provide AKE Milk.



Use of Funds
Secure Funding, Executive Team and Set up of Rotorua Farm Holding Company, target and purchasing farms,
secure agreements with land owners (5% of capital*) $4,250,000

Complete Sale and Purchase on up to 10 farms $75,000,000

Working capital for 10 farms $5,000,000

Caring Dairying Management Ltd will be contracted by RFHC on the following basis;

* Secure the funding, provide the executive team, complete the farm purchases and set up operational management of farms for 5% of funds raised
* Executive management of each farm on behalf of RFHC 1.5% of capital value plus
* 15% of N pay out, plus
* 15% of increased valuation of farm after 5 years
*details of establishment costs (% of total capital raised)





Nitrogen:

NZ farmers are under pressure to reduce nutrient leaching from their farms to water. This is particularly so in the Lake Rotorua catchment where there is a sustained initiative from local and central government to reduce the level of nitrogen flowing into Lake Rotorua.
Pastoral farmers in the Lake Rotorua catchment are being regulated and incentivised by the Bay of Plenty Regional council to change the management of their land to reduce nitrogen discharge into the lake by 270 tons of nitrogen per year. The fund in support of the incentive is provided by a joint initiative between central and local government.
Farmers have to provide the council with a plan to show they can reduce their N discharges below a threshold level if they wish to continue with their current land use; i.e. continue to dairy farm. Once below the 'threshold' these farmers will be eligible for the incentive fund to further reduce N discharges.


The Tatua Effect
The farms within the investment company will increase in value because they become a dedicated supplier to The Rotorua Milk company which pays a premium over other milk processors. This affects the value of those farms as has been experienced with suppliers to the Tatua Dairy Factory in central Waikato. The land values of Tatua suppliers are approx. 33% higher than adjacent land of Fonterra suppliers due to the premium Tatua offers.
Dairy land values in the Lake Rotorua catchment are currently depressed due to the impact of the N regulations and the state of the industry. Caring Dairying Management Ltd expects these values to increase by 50% over the next 5 years supported by;
* higher milk payments,
* profitable sustainable farming, and
* N pay out.




* The Rotorua Region is an environmentally sensitive region containing some of New Zealand's most ecologically valuable waterways. The waterways within the region are deteriorating due a number of causes including agriculture.
* Rotorua is of high cultural importance to NZ as it is the home of the Te Arawa people; one of NZ's largest indigenous (Maori) tribes. Maori are playing an increasingly significant role in the move away from industrialised agriculture to more traditional sustainable farming methods.
* Agriculture within the region is being increasingly industrialised; as with the rest of the world; at a cost to the environment, the welfare of the animals and to rural wellbeing. Land use is likely to be restricted based on potential for environmental harm which is driving down farm land values.