The income method is generally an unreliable method for the valuation of non urban property. The use of value based on "units of production" is much more reliable.


A unit of production is the unit produced when the property is put to it's highest and best use. There are a number of possible units but the most
common are:

There are many other more specialist units some already covered in the previous part such as the bird unit for poultry farms and sow unit for piggeries. However, the most popular and nearly universal unit is the dry sheep equivalent (DSE) which can be used for almost all grazing land.

It is sometimes referred to as the dry sheep area (DSA) which means that area of land required to run one dry sheep during normal seasons and conditions. The more reliable statistic is the winter carrying capacity of the property as this does not show as the high variation that summer carrying capacity can show. For example, the number of breeding sheep carried is almost always confused by the number of lambs attached to each ewe.

The use of carrying capacity as an indicator of value has been recognised by the courts:

In the absence of direct assistance from sales of other grazing properties in the difficult and crucial task of examining and testing the valuation figures of the two experts, the natural step is to turn to carrying capacity and the support, if any, which the competing valuations derive from that source. There is judicial authority of long standing that the value of grazing properties can best be determined on a carrying capacity basis: Fisher v Comm Land Tax (1914) 20 CLR 242, 252-253; Kiddle v Comm Land Tax (1920) 27 CLR 316, 319-320. -Hardie J in Lodge v WC&IC (1967) 14 LGRA 88, 92

Also in the Union Trustee case:

The manner of use of the sheep area basis of valuation ie the value of the area that will carry a sheep by Mr T was also the subject of criticism by the appellant on the ground that the nett returns of the respective properties were not known and that such knowledge was essential to the use of such a basis of valuation. In my view this is not an essential element of this method of valuation. It is also my view that particularly in cases where the carrying capacities of the properties are not the same, the sheep area basis gives a more accurate basis of comparison of values - Mansfield CJ, Union Trustee v Comm of Tax, The Valuer, July, 1962, p202 at p207

The reason for the importance of carrying capacity is because this is the most important single factor that a potential purchaser would examine before deciding to purchase a grazing property:

A purchaser of the subject property at the relevant date would, in my view, have made extensive inquiries from the plaintiff and from all other sources, particularly the Pastures Protection returns, as to what the property had carried in the past; in other words, the sort of inquiry and investigation made by Mr McN. I am of the opinion that a purchaser would have paid much more regard to what the property had carried in the past than the view of experts a to what it was capable of carrying - Hardie J in Lodge v WC&IC (1967) 14 LGRA 88, 93

The degree and quality of analysis required was covered in the following case:

In the Board's view, a proper standard of valuation requires as a starting point, a detailed knowledge of the land and improvements not only with respect to the property to be valued as at the date of valuation, but also with respect to the basic sale properties as at the date of sale. In this regard, hearsay knowledge and fragmentary inspections when driving along roads or when engaged on other business matters are quite
inadequate. Furthermore, comparable sale prices must be analysed in such a way as to deduce units of value capable of application to a valuation of the property or properties to be valued. Usually the unit value deduced from a sale must be further adjusted to bring some or all of its components to some basic standard (eg average district standard). The amount of the deduced unit value, as adjusted, can then be compared with
the amounts of similar-type unit values deduced from other sales. Before applying such a unit in a valuation, corresponding adjustments must be made with respect to its components to allow for differences between the property to be valued and the basic standard." Case ED 1/262, The Valuer, April, 1972, p119 at p121.

The courts have also considered it so be a more accurate method for the valuation of rural properties:

Objection was raised to the use of sheep area values in this way, but I think that they may be open to smaller margins of error than acreage values for it is obvious that there must be a broad correspondence between sheep area values for lands in the same general locality and having similar uses and potentialities" Else-Mitchell J in Watkin v VG, The Valuer, October, 1974 p305 at p 307


A dry sheep is a castrated ram known as a wether. It is the basic production unit against which most other livestock can be compared. It is has become the carrying capacity datum because dry sheep require the least amount of food and are the most efficient grazing animal particularly in arid regions. Therefore, more dry sheep can be run on a
property than any other type of adult sheep.

For comparison purposes the existing livestock being carried on a grazing property are converted to a dry sheep equivalents and then, the property is be compared directly with other grazing properties using dry sheep equivalents. The value per dry sheep equivalent is found by analysing sales.

In Lodge's case Hardie J converted Lodge's estimate of the subject property's carrying capacity in terms mixed sheep into dry sheep. Again in The Minister v Locke (1963) The Valuer, July 1964, p247 Hardie J at page 249 converted a mixed sheep into dry sheep.

There is a certain amount of disagreement about actual dry sheep equivalents. The disagreements centre around the use of trial measurements against “real life” farm measurements.

However, a commonly used scale is as follows:


Wether (36-45kg liveweight) in good store condition
Ewes over last 4 weeks of pregnancy  1.5
Ewes with lambs 2.0*
Dry ewes
* British breeds are higher as they have more twins
Dry cows 10
Dairy cows - milking
Mature beef cow and calf
Weaner cattle (growing)
2 year old cattle (growing)
Fattening cattle (450 kg+) 13

However, the chosen unit or production should be one common to the subject property and preferably, in the locality:

The Board considers that "flock sheep" is a better standard for carrying capacity than "breeding ewes" for the type of properties concerned, because it is in accord with actual stocking. As a result, it reduces to a minimum the need for conversion from one type of stock to another when calculating carrying capacity from the records of stock actually carried.
The Board also agrees with the method of expressing the carrying capacity in terms of sheep only with the understanding that some cattle are also carried" " - Case ED 1/262, The Valuer, April, 1972, p119 at p129.


The major advantage in using the dry sheep equivalent method is that the basic value includes all those elements of value which directly affect the carrying capacity of the property. These are:


The conversion of different stock to a common datum such as DSE may include a great deal of error. The error rises with the DSE conversion factor. For example, there will be greater error in converting a property with all beef cattle than a property with breeding ewes to DSEs. The problem of management applies to carrying capacity. An above average manager may have a higher carrying capacity than the average or indifferent manager and vice versa. Therefore, the carrying capacities of properties under abnormal management will have to be adjusted to carrying capacity under normal or typical management.


There is debate amongst rural valuers whether or not sheep or cattleyards are included in the Dry Sheep Equivalent Value. However, yards are a only small part of the total rural value so that whether or not it is included, will not make a major difference to the final value. The author considers that yards should be excluded as they are only used a few times during the year. Therefore, under this analysis the following values are to be added to the Dry Sheep Equivalent Value:

Sheds, including shearing and machinery shed


2500 dry sheep
2 500
500 ewes
100 beef cattle

4 150

From comparable sales the value/DSE in this locality is $150.


4 150 DSE * 150 =
622 500
50 000
15 000
Yards  5 000
Woolshed 3 stands * 10 000 =
30 000

722 500