Farmland sold for carbon forestry has fallen to its lowest level in years

For the best part of a decade, productive sheep and beef country has been quietly disappearing under pine trees. The Emissions Trading Scheme made carbon forestry the more attractive bet, and farm after farm was sold to forestry operators chasing long-term carbon credit revenue. Now, for the first time, the trend is going into reverse, and it isn’t regulation that turned it.

The numbers are finally moving the right way

A new Beef + Lamb New Zealand report shows 30,000 hectares of farmland was sold for forestry in 2025, less than half the roughly 64,000 hectares a year that changed hands at the 2021/22 peak. More striking still, B+LNZ chair Kate Acland told Mike Hosking that only 1,300 hectares were converted in the first three months of 2026. Annualised, that would put the conversion rate below 6,000 hectares, lower than the pre-2018 baseline of around 7,000 hectares a year before the ETS-driven rush began.

Acland’s own verdict was that the situation is “still really concerning”, and given what has already happened, that caution is fair. But the slowdown itself is real, and the reason behind it matters more than the raw figures.

The market signal working as it should

Acland linked the slowdown directly to improved sheep and beef returns. The logic is simple. When a farm is profitable, the carbon forestry cheque looks a lot less compelling. Farmers with a commercial reason to hold their land stop selling it, and the buyers who were converting whole farms find fewer willing sellers.

That is a market signal doing its job without a single new rule being written. For years the debate has been about how much regulation is needed to stop the conversion of good farmland. The government did move, introducing legislation restricting farm-to-forest conversions on higher-quality LUC 1-6 land and an annual cap of 15,000 hectares for forestry entering the ETS on lower-quality farmland. But B+LNZ has argued that even under those restrictions, up to 27,000 hectares a year could still be converted when all pathways are counted, nearly four times the historic baseline. Better commodity prices have delivered a sharper outcome than the statute book.

The damage already done

The good news arrives on top of a decade of losses. B+LNZ’s Stock Number Survey to 30 June 2025 recorded 292,800 hectares of new afforestation since 2017. B+LNZ has estimated more than 2 million stock units lost as a result. A 2023 B+LNZ afforestation review showed whole-farm purchases from 2017 to 2021 alone reached 210,442 hectares.

That is productive pastoral land, and the flow-on effects reach well beyond the farm gate. When farm workers leave a district, local spending falls, school rolls shrink, and rural services thin out. BERL analysis cited by Rural News Group has quantified exactly that erosion of rural community capacity. For agribusiness suppliers, processors and export-linked firms, fewer stock units means less throughput.

The incentive hasn’t gone anywhere

Here is the catch. The slowdown is being driven by returns, not structure. The ETS architecture that made carbon forestry attractive to overseas capital, long-term credit revenue and low operating costs against pastoral farming, is entirely intact. Acland’s clearest warning was that the improvement may not hold, cautioning that the conversion number “will probably rise as foreign investment offers flow in”.

When sheep and beef returns soften again, or carbon credit prices climb, the calculus for foreign buyers flips back quickly. And the land in play is not marginal country. Hawke’s Bay, Wellington and Wairarapa have remained preferred locations, with Southland also drawing interest, all productive farming regions.

The practical question for anyone with rural, agribusiness or export exposure is whether the current window of decent returns holds long enough for the government to make deeper structural fixes to the ETS. Market forces have bought some breathing room. Whether that room is used before the next commodity cycle turns is the part policy still controls.

Sources

• “Still really concerning”: Rush to convert farmland to forestry begins to slow (2026-08-06)
• Farmers still rushing to convert land to forestry – report
• Farm conversions to forestry slower but food producing land still at risk
• Sheep & Beef Farm Conversion to Forestry Slows, Risk to Rural Communities
• Stock Number Survey Report 30 June 2025 (2025-06-30)
• Land-use change from pastoral farming to large-scale forestry Update (2023) (2023-08)