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Factors affecting farm values in the Australian Wheatbelt

Farm prices across Australia vary widely depending on a range of factors:

  1. Factors dictating yield potential – Soil quality, rainfall (extent, timing and reliability are all important – see  Growing conditions in the Australian Wheatbelt for more on this), external water supply (of particular importance for livestock, perennial or horticultural enterprises), temperature (typical growing season temperatures and temperature extremes) and solar exposure.
  2. Other factors affecting farm profitability – On-farm infrastructure, proximity to input suppliers and market (given the large land area covered by the Wheatbelt, proximity to port is a key determinant of farmgate prices and production margins).
  3. Other factors affecting price – Farm size and proximity to urban areas.

Of these variables, the two most important determinants of broadacre farm pricing are rainfall and farm size. Generally, the further from the coastal regions, the lower rainfall, yield potential and farmland prices. However, within each rainfall zone, farm size becomes the dominant pricing variable with there being a very clear and consistent inverse relationship between per hectare land prices and farm size.

Land Commodities maintains a constantly updated database of all commercial scale farms (with a price tag of AU$2 million and above) available for sale in the Australian broadacre sector. The following series of graphs show the relationship between price and size for farms available for sale in Western Australia in different rainfall categories in early 2012.

Relationship between property size and price, 300 mm to < 400 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, 300 mm to < 400 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, 400 mm to < 500 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, 400 mm to < 500 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, 500 mm to < 600 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, 500 mm to < 600 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, ≥ 600 mm rainfall zone of Western Australia (properties on the market in Q4 2011 >AU$2M list price per farm)

Relationship between property size and price, ≥ 600 mm rainfall zone of Western Australia (properties on the market in Q4 2011>AU$2M list price per farm)

Farmland prices are also higher closer to urban areas. In very close proximity to urban areas the potential for permitted use rezoning and real estate development obviously influences value. However, even within an hour’s drive of major urban areas where there is little potential for future development, farmland prices will generally be higher.

This is due primarily to the fact that farms are a lot smaller within commuting distance of cities. In these areas prices are driven primarily by ‘hobby’ or ‘lifestyle’ farmers as opposed to professional farmers or investors. For these types lifestyle buyers farm investment fundamentals are not the primary purchasing consideration, so they tend to pay higher prices on a per hectare basis.

Having only one major city (Perth with a population of 1.8 million), Western Australia has the lowest population density to farmland area of any Australian state, with only 5 people per thousand hectares of wheat growing land. New South Wales, with a larger urban areas (Sydney: 4.6 million people) has a population to wheat land density nearly four times higher at 19 people per thousand hectares. Victoria, a small state with a large urban population (Melbourne: 4.2 million people) has an even higher population to wheat land density of 38 people per thousand hectares.

Population to wheat land density for different Australian states, 2011

Population to wheat land density for different Australian states, 2011

Unsurprisingly, of these states farm sizes in Western Australia are highest and land prices lowest. In New South Wales where farm sizes are roughly a third of the size of Western Australia, farm prices are higher and in Victoria where farm sizes are around a quarter of those in Western Australia, land prices are even higher still.

These differences in farm sizes and land prices between Australian states obviously have important implications for investment returns. For a more detailed analysis on the relationship between farm sizes and investment returns, download our free report, Comparative Analysis of the Australian Wheatbelt. The document also addresses the key question: which region of Australia has delivered superior returns to agricultural investors in the past and is most likely to offer superior risk adjusted returns in the future?

References and data sources:

  • Australian Bureau of Statistics, Crops and Pastures Data Series, 2012
  • Australian Bureau of Statistics, Agricultural Land Use and Selected Inputs Data Series, 2012
  • Australian Bureau of Statistics, Selected Agricultural Commodities Data Series, 2012
  • Australian Government Department of Agriculture, Fisheries and Forestry, Australian Bureau of Agricultural and Resource Economics and Sciences, Agricultural Commodities Statistics, 2012

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