Difficult Times But Not All On Rocks

Press, Volume CX, Issue 32321, 12 June 1970, Page 6

Difficult Times But Not All On Rocks

In the outpouring of words in recent months about the state of farming it has not been easy to get to the real truth of the matter, but the casual observer might well be excused for thinking that a big part of the industry is on the rocks.

Some voices have recently been raised, however, to present a rather different picture.

For instance, Professor K. B. Cumberland, professor of geography at Auckland University, told a public meeting at Rangiora recently that if the situation was looked at objectively, and if the unavoidable, adverse and temporary effects of drought were ignored, then an overwhelming majority of farmers were still doing reasonably well, in spite of lower prices for some of the products they had to sell. He suggested that those farmers in real financial stress were in a minority. In similar vein, Professor J. D. Stewart, professor of farm management at Lincoln College, told the recent Lincoln farmers’ conference that, excluding the dairy industry, for which he could not speak with authority, it was his experience that reasonably efficient farmers on units that were not too small and with a reasonable debt load were earning real incomes which compared with those of persons of comparable status in the community outside agriculture.

Discussions in the last few days with organisations which ere in a position to know how farmers are faring financially would seem to indicate that the situation is fairly much in line with what these two authorities have indicated—that the number of farmers who are seriously up against it in Canterbury, at least, is relatively small. Some have put the figure at 1 or 2 per cent, and some of these might have been in financial troubles at almost any stage. This is not to say, of course, that farmers are having a picnic. In fact very much the reverse is the case and this is readily understandable when It is realised that for upwards of almost two years all but some favoured districts mostly those well inland—have been in the throes of drought of varying intensity. Someone estimated this week that crop-wise the drought had been responsible for reducing cropping farmers’ returns on average by something like 30 to 40 per cent, and in addition many have had to face additional costs through having stock away on grazing, in providing additional supplementary feed, and in lower wool weights, quite apart from the lower prices for wool, lower lambing percentages and having to draft light lambs. It is hard to generalise as to what the drought has cost farmers, but there was some agreement during the investigations being made this week that it could be 84000 or $5OOO on average, with in quite a number of cases the effect being up to $6OOO or $7OOO, and in extreme cases $lO,OOO to

$15,000. Some districts have suffered much more than others in all this. It is not hard to see that in these circumstances farmers have been set back quite severely and stock and station firms lending to farmers is invariably much higher and the State Advances Corporation is giving priority to tiding farmers over this period of adversity with loans which will bear interest only for two years, when the position will be reviewed to see how the situation is before a decision will be made on terms of repayment. The corporation is not being difficult about security—it is taking what security is available—and in fact up to $lOOO will be made available with an acknowledgement of debt only, and no application fee is required for these loans. There is general agreement round farm financial circles about the helpfulness of the corporation and its understanding of the farmer’s position. A spokesman for the corporation said this week that something over 100 applications had been received from farmers in Canterbury for this sort of aid. Where farmers have a high level of equity in their properties, tiding them over a period of adversity like this is not thought to be a bad thing—“it is like the farmer using his farm as a bank,” was a comment heard this week.

It is quite impossible to generalise about the position of farmers and one authority said this week that there was a need for a thorough survey of farmers’ financial positions to determine the real position and to identify areas where assistance might be needed and where the community might be able to assist when it might not be possible to support farming right across the board.

Farmers fall into a number of categories and are affected to varying degrees by the recent conditions.

There are those, of whom there are a proportion in Canterbury and Marlborough, who are relatively unencumbered by debt, and who consequently have no interest bills to pay. They are as safe as the proverbial church, although they may not be earning a very high rate of interest on their investment.

On this point of interest earnings someone pointed out this week that account had to be taken of the increase in value of the asset also, and with the upward movement in the value of land one organisation reported this week that on the basis of a 10 years’ study they had concluded that the interest earning on certain properties was about 4 to 4} per cent, on top of which there was about a 2 to 2} per cent gain due to the rise in value of the land, bringing the overall earning to about the 6 to 7 per cent mark.

This point was also made by Professor Stewart when he told the Lincoln farmers’ conference that he was quite prepared to accept the argument that farmers were entitled to interest on their equity capital, provided that they would include the increment in their net worth over a period of time as an addition to their income.

On this same question of interest earning someone also pointed out this week that farmers did not always look to be in such a poor situation when account was taken of the farmers' actual investment in his property and not just the current valuation of the asset —this showed a very different picture where a property had been held for a period of time.

It was noted this week that between the early 1950 s and today farmland values had about doubled. Returning to the state of various classes of farmers, there is a further category with a degree of liability but not excessively indebted and who are soundly financed. They have been set back by drought and lower returns and they are going to take a little time to make up the lost ground again but they are in no real danger. A further group are, however, in a more serious position in that they are more heavily indebted and even before the drought were finding it difficult to reduce principal and replace capital items.

And finally there Is the group that are really up against it and hard pressed. While a very minority group in point of numbers, they are often people who have moved Into farming In the last few years, have a high level of indebtedness round their necks, and have been urgently in need of a few good years to put them on their feet. They have had an unlucky run. Some of the properties in this position are family farms. A son has taken over from his father. The father has retired and the son is married with a family to support. What was once a one-family unit is now expected to carry two families and there is simply insufficient surplus to meet even interest commitments. The type of farm that is in worst trouble seems to be the one that is entirely dependent on sheep—on returns from meat and wool, and particularly where It is in a lower rainfall area. The Romney store sheep property is a case in point, where it has not been possible to diversify into cattle because of the cost yet where development has been carried to a pretty high level.

The beef sector has, of course, been a bright star in the firmament in recent months and those breeding and selling cattle have, for instance, earned a $2O premium over last season on calves, according to one authority. On some more favoured properties beef breeding or fattening and good prices for lamb meat have helped to offset the decline in wool returns—fine wools this season have slumped by as much as 10c per lb on last year and coarser wools, already low priced, by a smaller amount.

But according to all reports the good efficient farmer, who has moved with the times and adjusted to changing conditions—who has moved into lucerne and is interested in irrigation—is still reasonably well placed.

One of the most surprising aspects of the whole situation, and perhaps the most encouraging, is that many farmers still have faith in farming. They are demonstrating it by wanting to buy more land to add to their existing enterprises. A State Advances Corporation spokesman said this week that they did not have enough funds to service all those who wanted to do this.

It means that, in fact, talk about the case for amalgamation is now to some degree outdatedamalgamation is on. Here are a few figures to support this. In the nine months to March, 1969, one firm in the land sales business reported that 89 per cent of sales made by its local branch of areas in excess of 50 acres had been made to farmers who were amalgamating their new acquisition with an existing holding. For 1967-68 the figure was 76 per cent and in 1966-67, 53 per cent. In recent months the proportion could have dropped a little to about 70 per cent, but in the period since early April seven out of eight sales were made to adjoining owners. Farmers are going on buying land—this firm estimates that 90 per cent of farmland sales are to farmers. Competition for adjoining land has raised land prices in some cases and in some other localities, partciularly in close proximity to a populous centre and with perhaps special crop diversification prospects, there has also been an up-

ward movement in values, but over the whole scene there has probably not been much change in recent months. Part of the reason for interest in expanding holdings is attributable to the increases in land values with farmers using their increased equity as a security for borrowing to enlarge their holdings. It is generally thought that farm land is dear but one man close to the farming world expressed the view this week that this was not the case when a comparison was made of farm land values and the cost to the city-dweller of buying a section and building a house in a fashionable residential part of the city. He said he knew what he would prefer —an $BO,OOO or $lOO,OOO farm, or a house property costing $30,000, which was quite unproductive. The State Advances Corporation is actively promoting amalgamation of uneconomic farm holdings with other properties within the limits of its funds, and this is seen as a viable proposition where the remaining farmer has the managerial skills necessary to make it a success, and, quite contrary to the belief that amalgamation could ultimately lead to a denuding of the countryside of population, one authority sees that once these amalgamated enterprises get under way there will be employment opportunities that will result in no population reduction whatsoever.

There is every indication that the expansion of farm sizes is taking place within I the concept of the family' farm. Some farmers are at j present interested in larger' grazing runs, with reasonable access to a main centre, where there could be scope for it to be run by a family group of, say two or three families.

There is now a very definite interest in rainfall, for it is in the foothills that farmers have in the last two seasons, and in others before them, escaped the effects of drought and been; able to farm serenely and) very profitably on. In fact I

these farmers are among those—some 20 per cent was the figure given by one man although it is hard to put a figure on it—who have done reasonably well in the last season in contrast to the great majority who have encountered less favourable times.

Southland, incidentally, is also reported to have had one of its best seasons for years and the economy is now said to be as buoyant as it has been since about 1963, in spite of low wool prices, indicating that farmers have been able to adjust to living reasonably satisfactorily with prices at these levels. Even if the weather does take a turn for the better now, the effects of the drought will continue to be felt in Canterbury throughout this year and these will be felt indirectly right through the community with farmers having less to spend.

In these circumstances farmers are naturally concerned at the prospect of facing increased costs as other sections of the community enjoy a spate of salary and wages rises when they, who are dependent on overseas markets for their income, have no recourse to such relief, but one philosophic mind this week suggested that from time to time the fortunes of the farmer seem to be happier than those of the wage earner and then the reverse appears to be the case, and maybe it is a time now for. some adjustment in fortunes in favour of the wage: earner.