ECONOMICS OF MEAT AND WOOL

Press, Volume XCVII, Issue 28701, 26 September 1958, Page 7 (Supplement)

ECONOMICS OF MEAT AND WOOL

By

W. L. KEEN,

Senior Statistician, N.Z. Meat and Wool Board’s Economic Service.

year the Economic Service of the New Zealand Meat and Wool Boards carries out an investigation into the movement of sheep farmers’ costs. Over the last eight years the prices of goods and by sheep farmers have risen by over 40 per cent.

This means that the bulk of the increase in sheep farm expenditure over this period has been spent on meeting the higher costs of farming operations and not on a great increase in the usage of farm materials and services.

The exception to this general statement would be the hill country, where the increased expenditure is reflecting the improvement and development work being carried out.

It is true that this rise in expenditure has to some degree been lost sight of, because of the favourable prices ruling for meat and wool in the last few years. This favourable level of prices is the most important factor accounting for the increase in meat and wool production; recent research work has shown that the level of disposable farm income has a very great influence on farmers’ investment in their farms, and this investment in turn has been the main driving force behind the increased output of meat and wool. As far as the technical problems of meat and wool production are 'Concerned, it can be said that by and large they have been solved. This is not to say that we are producing to capacity, but it does mean that given the economic incentive, our sheep farmers can increase—in fact, they have increased—the production of meat and wool at an annual rate exceeding the 2J per cent, per annum postulated by the Direc-tor-General of Agriculture to be necessary if New Zealand is to feed its three million people in 1975 and to maintain imports at their 1950 level. Cause And Effect Our main question now is: will the fall in lamb and wool prices and the consequent in net farm income cause a slackening off of the increasing volume of meat and wool production? The accompanying diagram illustrates how our sheep farmers are being caught between the twin effects of falling prices and steadily rising costs.

The squeezing effect of even a slight fall in gross returns, in conjunction with a slow but steady rise in costs is apparent

from the diagram. It can be seen that a 15 per cent, fall in gross income means a 30 per cent, to 35 per cent, fall in net income.

If the fall in disposable incomes lasts for a season or two it will be reflected in the lowering of production by the lessening of farm investment expenditure. To believe that lower prices for farm products bring forth increased production is what R. H. Bevin has called one of the great New Zealand economic fallacies, for though farmers worked harder than ever in the 1930-33 depression, farm output did not increase. Improvements What counts in the long run is what the farmer is able to put into the farm in the way of fertiliser, improvements to pastures and capital equipment, better livestock, the use of better techniques and so on. In some quarters a “standstill’’ policy in farm production is being advocated and a reduction in farm investment would eventually bring about this result. We at the Economic Service, however, believe the opposite course of action is the best one for New Zealand to take—that a prosperous farming community ensures a prosperous national community. As a consequence any action, political or economic, which slows down our pastoral, production through its adverse effects on farm investment, can only react to the detriment of the nation’s welfare. This really brings us to the crux of the matter—what is the economic outlook for meat and wool? Though we are able to increase our production of meat and wool, is it worth-while doing so in the face of declining terms of trade?