Otago has become the launch-pad for a Waikato company's new dairy farm investment business, with the acquisition of two Clarendon properties.
The two dairy farms near Milton are the first in the country conditionally purchased under RBS Invest's business model and investors are being sought.
The properties are both on Phosphate Rd. One of the farms features a historic local landmark, the Ewing Phosphate Company Ltd building, which is used as a wintering barn.
RBS Invest has a conditional contract to buy the properties, on behalf of investors, from the McDonnell family. The contract date for settlement is May 30 next year.
The model, aimed at getting more young farmers owning farms while delivering regular cash returns to investors, differed from typical farm equity investment schemes in several respects, director Paul Schuler said.
Ownership of the land by investors was to be fully funded, with no reliance on debt by the investment group, and the property would be held separately from livestock, plant and dairy company shares.
Investors in the land company would receive a return from the lease, typically based around a percentage of the milk solids income relative to the land's productive capacity and payout. It would typically equate to a return of 4%-5% a year, paid monthly.
A farmer operator signing on to a RBS Invest property would own the livestock, plant and shares required, and pay a lease to the land investors.
The farmers would progressively buy out the investors' ownership of the land, ultimately owning the property themselves. A typical time-frame for that to occur was about 10 years.
The scheme differed from most existing equity ventures, where the operator owned a share of the entire business, including the land, from the outset and carried significant debt levels to do so, Mr Schuler said.
''The problem we have been seeing is the development of a progression bottleneck.
Those operating partners wanting to get ahead in such ventures are unable to go forward, but also unable to get out of the arrangement, often due to those big debt constraints.''
The company's board recognised the usual pathway to dairy farm ownership through 50:50 share-milking was ''rapidly drying up'' and that also prompted it to develop the model as farm succession issues developed.
The simplicity of the model was enhanced by allowing the operator to progress through to whole farm ownership ''and that is ultimately what motivates anyone who goes farming'', he said.
The Clarendon properties represented ''excellent buying'' that surpassed what the company was able to acquire for the same value in the Waikato.
''Trying to find properties of a similar calibre and scale capable of similar production at around 1000-1100kg ms/ha up north is tough. They are as rare as hen's teeth in the Waikato and we were impressed with the properties' layout, quality and the value they represent,'' Mr Schuler said.
Circle Hill Limited Partnership is a dairy unit and support block totalling 325ha. The dairy farm has average production of 265,000kg ms from 570 cows off a milking platform of 200ha, supported by the 119ha Mary Hill run-off, which provided supplement and winter grazing.
The purchase price, capital contingency and fees charge gave a total of $7.85 million equity required from investors, which equated to a land value of $24,150 per ha over the total land area or $31,341per ha over the milking platform.
Clarendon Farm Limited Partnership was less established than Circle Hill, due to expansion by bringing in dry land.
The farm has produced 220,000kg ms off 195ha, while assessed status quo production was 225,000kg ms off 220ha.
Support land consisted of 27ha adjoining the milking platform. Equity required from investors was $6.3 million, which equated to a land value of $25,300ha over the milking platform.
Mr Schuler said Otago was a significant part of the dairy industry.
He expected the investment opportunity could appeal to farmers who had sold their farm but did not really have a connection with where they had invested the money. He hoped some would be mentors to the farmers running the farms and help them progress.
Farm ownership was a ''huge step'' and ''a long, long dark path'' sometimes, he said.
While investment from Otago would be great - ''that's a natural market to expose ourselves to'' - it was obviously not exclusive.
The minimum investment is $250,000.
RBS was established in 2006 by Duncan Coull, winner of the 2000 Taranaki Sharemilker of the Year award.
The principals of RBS Invest, including Mr Coull, are all involved in their own farming businesses, have worked in the rural finance sector and been involved in the syndication of rural property.
