Cash losses push arable sector into extra finance

Press, 14 May 1982, Page 17

Cash losses push arable sector into extra finance

The arable sector of New Zealand's primary industries is going to need $2OO to $250 million in extra financing during the financial years 1981-82 and 1982-83 because of its deteriorating terms of trade, according to a Lincoln College economist. Mr Roger Lough.

cost inflation has resulted in a cash loss on average for each arable farmer in three out of the last four financial years.

Mr Lough told the conference that farmer returns showed farm costs had increased on average bv $50,000 since 1977-78. In the financial year 197879 the average arable farm made a gross profit of $55,000 and costs of 537.000 left a net profit of $17,000$lB,OOO. To that must be added non-farm income of $3500 and subtracted $12,000 capital investment and $12,000 in living expenses. This resulted in a cash loss of $3500 which, was financed by. an increase in the mortgage of $2BOO and $7OO-$BOO increase in the farm account with agricultural merchants.

He told the annual conference of the agriculture section of the North Canterbury Federated Farmers last week that there would be an average cash loss per arable farm of $23,000 during 198182 and $15,000 to $lB,OOO in 1982-83.

The Lincoln College Economics Research Unit collates financial returns from a sample of New Zealand's cropping farmers and makes some interpretations from the statistics.

Mr Lough summarised the results of the latest analysis for the last executive meeting.of the Dominion Agriculture section of Federated Farmers and last Friday he repeated this for the North Canterbury section.

In the next financial year the gross profit of $75,000 was reduced by $51,000 costs to give a net profit of $24,000 which, after non-farm income, capital investment and living expenses, resulted in a cash surplus of $2500. In 1980-81 the average gross profit jumped to $90,000 but soaring expenses of $70,000 left a net farm income of $20,000. After nonfarm income of $4OOO, capital expenditure of $16,000 and personal expenditure of the same amount, there was a cash deficit of $BOOO.

His addresses have been very disquieting for representatives of the arable sector. thought to be among the better-placed sectors in New Zealand agriculture. But despite the linking of New Zealand wheat prices to world returns for the grain and buoyant prices for small seeds and barley, the remorseless pressure of farm

In the financial year just passed. Mr Lough said his

projections showed a steady gross profit of $90,000, ah increase in costs to $76,000$78,000 and the worst net profit in four years of $14,000. He said he expected a cash loss on average of $23,000 which w’ould be covered in the usual ways — increasing the mortgage and the current accounts with banks and merchants. He projected a slightly improved result for the current financial year of $15,000 to $lB,OOO cash loss but the combined effect of these two bad years would result in the need of the sector for extra credit of over $2OO million.

The president of the Canterbury Manufacturers' Association, Mr D. A. Bowron, told the conference that he' believed New Zealand was one of the most efficient primary producing countries in the world, but among the world's worst marketers. He said manufacturers were learning to become lean and hungry, but it was a very painful process. In just 15 years manufacturing had grown from providing nothing in export earnings to providing 30 per cent today. This contribution was the

support but now farmers were facing the uncertainty of the political implications of such massive government support. He predicted that in 10 years agriculture's share of export earnings would fall to 30 per cent of the total, although there would not be »a decline in money terms. “This will reduce your political clout.” Mr Bowron told the farmers. “You will be facing the same problems that the manufacturers are now facing. “Currently farmers are wanting to draw water from the Rakaia without anv

clearly expressed ideas of what is going to be grown with the extra water except more meat and wool and dairy products. “No manufacturer would be looking to increase production when he already had large overstocks of unfinancial product which is not wanted on saturated overseas markets." he said. Mr Bowron floated the idea of moving towards New Zealand Harming. Inc., a huge private enterprise company controlling all of the country's farming output.

same as the dairy industry Having some sort of corpobut more than wool. ' rate plan is a necessity for He said the meat and wool survival in the modern tradand dairying sectors of prim- ing world, he believes, and ary industry received signifi- New Zealand farming should cant government financial move towards a company

structure with management divisions reporting to an able board of directors.

The chairman of the agriculture section of North Canterbury Federated Farmers. Mr F. A. Bull, said Mr Bowron had not failed to be controversial and thoughtprovoking.

Mr Bull, in his annual report, drew attention to recent demands for removal of subsidies to farmers but no Government cuts in health, education and welfare.

“With 60 per cent of farmers' income this year coming from S.M.P.'s 'you don't need much between the ears to realise that no supplementation would soon result in no'free health, no education and no social welfare." he said. “I also wonder at the mentality of these same people who complain so bitterly about a $3OO million investment into New Zealand's major industry but make no sound when a 10 per cent pay rise to civil servants costs the country $350 million.

"I do recall our Prime Minister claiming many years ago that he .was going to fix inflation. I only wish that it was higher on his list of priorities. “When you compare the life of our pioneering ancestors in this country with the cradle to the grave social welfare existence of today is it really any wonder that we have problems. "There is no real inclination to work because from the top down we are governed by regulation rather than incentive.

"Wage rates are set to accommodate the most inefficient. so why exert yourself? We have redundancy payments regardless of whether you are. already a superannuitant or may go to a new job the next day. “Weak management and negotiators have given us outrageous agreements and rocketing costs in industries where the increases and inefficiencies can be handed on and militant unions rule with no apparent regard for the well-being of the country, employer or producer.

“Social welfare and unionism were once heralded as major social advances but human nature being what it is, today's welfare state and union antics have now become destroyers of pride and incentive and a fuel to inflation.

“I believe that enough of the population would be prepared to accept tough measures to halt, the present trend," said Mr Bull.