Taupo scheme in disarray

19-07-2010 | Richard Rennie

A failed land deal has left the a body established to protect Lake Taupo short on funds it needs to continue working to reduce nitrogen loadings into the catchment. Richard Rennie reports.

The Lake Taupo Protection Trust bought 1100ha of farm land near Tihoi last year, intending to sell it on to a company called Land Use Innovations. Under strict nitrogen controls the company's directors aimed to run a lucerne based cut and carry cropping operation and tourism ventures.

However, the deal has now turned sour, with the two directors of the company unable to make the purchase.

A source close to the deals confirmed the trust paid farmers exiting their land $13.2 million. Land Use Innovations was to pay LTPT $6 million to take it over and institute nitrogen restrictions under Environment Waikato's Nitrogen Discharge Allowance (NDA) regulations.

Land Use Innovations directors Jane Lawrence and Adrian Jepson took possession in June last year without being required to pay a deposit on the properties.

Trust chief executive Graeme Fleming defended the decision to allow the deal to go ahead without a deposit in place.

"We took an inventive approach and a bit of a punt on this deal because the market was not your typical land market. Nitrogen restrictions apply to the properties in perpetuity. Secondly, we required payment of a full commercial lease from the company, which they met."

NDAs for the 1100ha area limit discharge to 5kgN/ha/year, a cut of 10kgN/ha/year from previous discharges under sheep and beef operations.

The couple behind Land Use Innovations had planned to operate an eco-tourism venture on the property, including horse riding and allowing four wheel drive and hunting clubs to access the land. All stock had been removed from the farms on possession and none was allowed to be placed back upon the area.

However, the stringency of the conditions, including no stock and the tight NDA grated with company director Jane Lawrence from day one.

"We would have preferred to have had more of a transitional step to no stock on the property, to allow us to move to more tree planting over time. We could have even provided grazing for local farms in the catchment over the drought period, but the agreement would not allow for it."

Sheep and cattle have been placed on the property since the couple vacated the property, something Lawrence said rankles even further.

"The cut and carry cropping of lucerne would have generated income, but even this could not go ahead on grounds of nitrogen discharge for lucerne."

Fleming, however, described the science on nitrogen losses from lucerne as "all over the place". The trust had tendered out research to Landcare in order to establish whether it could be grown and harvested under the nitrogen restrictions. This research was likely to continue.

Stock was still being run there, but this was only a temporary arrangement with a neighbouring farmer. A decision on marketing the properties would be made within the month, Fleming said.

The failed deal leaves the trust having to renegotiate another sale on properties that are highly restricted in their land use. Fleming believed forestry would be one of the few options open to land users with it.

Average values for forestry land are approximately $2000-$2500/ha, compared to the estimated value paid by the trust of $13,000/ha to previous farmers and well down on the $6000/ha this deal was supposed to bring in.

Retiring land from farming in order to meet the goal of removing 150t of nitrogen from the lake catchment has proven an expensive mission to date. Had this deal gone through the nitrogen cap would have represented a cost of $650/kg of N reduced.

Fleming would not disclose what nitrogen values are trading for in the catchment, but estimates from farmers they are nearer $400/kg. He admits the failed deal leaves the trust short of funds to complete other deals.

Its kitty at inception three years amounted to $72 million. These have been drip fed for the past three years with $24 million spent on approximately 1800ha in the catchment, including the $13.2 million in this failed deal.

The trust has managed to quit two of the six farms bought, but the land retired so far only accounts for 15t of nitrogen reduction, 10% of the goal.

Deals now increasingly involve valuing nitrogen reductions on land retired by remaining land owners in the catchment.

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