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Rural Insights Dairy

Tight margins remain

The mid-point farm gate milk price to $7.80/kgMS in May is positive, however higher than expected inflation has continued to squeeze margins. This continues to influence the level of activity in the dairy market.

Environmental due diligence now normal

Buyers and lenders continue to require detailed environmental information to verify current and future production profiles and/or any CapEx required to achieve future production expectations.

Restricted land use drives scarcity

Change in land use to dairy continues to be largely restricted. Given the national total productive platform is arguably now at a maximum, this is expected to drive scarcity of dairy land and influence underlying transaction value in the longer term.

Outlook for the next 12 months

Flight to quality expected to continue

High stock volumes are expected to continue, providing a range of options for buyers who are now more selective. Location and quality will remain important considerations for buyers and will be primary drivers of value.

Long-term strategies will fuel activity

Longer-term investment strategies are likely to be the primary driver of buyer activity, and in the absence of strong motivating factors (such as age, energy, debt, up/downsize), vendors are likely to remain resilient to any price gap generated by buyers. Given support land is expected to remain in high demand, decommissioning of smaller dairy farms is likely to continue.

Cost of debt will influence market liquidity

While well-capitalised operators are expected to be able to continue to access debt capital, the current relatively high cost of debt is expected to reduce the level of overall capital circulating in the market.

View full report here.



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