Farm Development “Still Profitable”

Press, Volume CVIII, Issue 31775, 4 September 1968, Page 7

Farm Development “Still Profitable”

“This bulletin demonstrates that even at low farm prices farm development to high levels of productivity is still a profitable venture for the farmer to undertake,” says Professor B. P. Philpott, professor of agricultural economics and director of the agricultural economics research unit at Lincoln College, in the preface to a study of the profitability of higher stocking rates in Southland.

The publication Is a result of 15 months of interviews and field work by Mr A. C. Lewis, of the agricultural economics research unit at the college, who with Mr R. C. Jensen, senior lecturer in agricultural economics at the college, has prepared it Mr Jensen says that most farmers on the high-fertility Southland plains are carrying five or six ewe equivalents to the acre, but many are hesitating to increase stock numbers. The recent low wool and lamb prices, the credit squeeze and the unhappy economic position of New Zealand have made farmers cautious about spending money on farm development. Some feel that possibly labour costs will be too high and that unreliable prices may make development beyond the five or six ewe equivalent unprofitable.

Costs move upwards, Mr Jensen says and prices for wool and lamb vary, and it must be expected that in the long term a cost-price squeeze will threaten family incomes and erode profits of farmers who do not progressively increase production.

“Some farmers claim that there is no incentive to develop. Their incomes are high enough already. Others Claim that the ‘Government gets it all through tax.’ We , have shown that this is not the case and that further development

to high stocking rate is pro- ' fitable both before and after 1 tax. You do not have to run to keep ahead of the costprice squeeze, but it helps. A i careful canter will do. One i thing is certain—you cannot : stand still. “We know our conclusions are sound. Good profits have been retained by farmers who have adopted even more pro- ■ gressive development practices than we recommend for the average farmer.” Three Farmers The Lincoln publication takes the case of three farm- 1 ers each on 240-acre properties with 5.5 ewe equivalents I to the acre. One stands still 1 at this level. A second increases his stocking slowly to reach a level of eight ewe 1 equivalents in 16 years. The third man reaches this level ' in eight years, and the bulletin notes that this is not as < fast as is technically possible. On the basis of 1966-67 | prices—54.03 net a lamb, $3.63 1 net a ewe and 26.7 c per lb I net for wool—continuing for I the next 17 years, the publica- I tion shows that over 17 years i after all development ex- l

penses have been met the fast developer has earned $11,305 more net income than the man who stood still, while the slower developer earned $4670 more, and after paying extra tax they had $6342 and $2588 more. After development the two developers had annual net incomes of $5553 before tax and $4418 after tax, compared with $3065 before tax and $2712 after tax for the man who did not develop. The aftertax income of the developers was therefore 63 per cent higher, or $1706. In the face of rising costs, the bulletin says of the man who stood still, his production remained the same, his family income diminished and he was a casualty of the costprice squeeze and could well go out of business. On the other hand, both developers would keep ahead of the cost-price squeeze with their net incomes rising in spite of their rising costs. Mr Jensen says that the increasing of ewe numbers is not the only way to increase) profit. There is good reason to believe that cash cropping, and in certain circumstances, beef fattening, could also bring in more income and this possibly at lower cost than intensive sheep fattening.