Increasing costs hinder farming investment

Press, 31 December 1982, Page 12

Increasing costs hinder farming investment

High on-farm costs continue to restrain farm investment and have placed great pressure on the farming industry, according to the New Zealand Meat and Wool Boards’ Economic Service. Over the previous three years on-farm costs have increased by a total of 63 per cent, while prices received at the farm gate (including supplementary minimum prices) had lifted by only 33 per cent.

“This has placed great pressure on the industry and

has resulted in three years of below maintenance investment which must have an impact on future production levels.” said Mr Neil W. Taylor, director of the Economic Service. "The smaller high-stocked units and hard hill country are the worst affected areas." The Economic Service has just released the 1980-81 sheep and beef farm survey as well as the provisional results' for the 1981-82 year ending June. It estimates that net farm incomes for 1981-82 provisionally averaged $22,400 compared with an actual average net income of $21,698 the previous year and $24,772 in 1979-80.

Although the 1981-82 income is estimated at 3 per cent above the previous year, the income in real terms, after allowing for inflation, was 11 per cent down.

The 1981-82 season was a difficult one for most sheep and beef farmers. Both meat and wool production declined from the previous year and stock numbers grew, at a more moderate rate, said Mr Taylor.

Farm gate returns for all products included S.M.P. payments and there was a further decline in farm investment and real net. incomes.

The per farm gross, incomes. lifted by 15 per cent over the 1980 : 81 levels due to the higher farm gate prices including S.M.P.s which more than compensated for the reduced production levels.

The lower volumes of output were the result of some quite adverse climatic conditions particularly in the east coast of the South Island but also reflected the second year of low farm investment. In the 1981-82 year, farm expenditure was squeezed and farm investment as'

measured by expenditure per stock unit decreased from the earlier years’ levels. "This was the second year in succession -that investment in sheep farms was estimated to be below that required to maintain the industry and this must soon be reflected in reduced levels of output,” said Mr Taylor.

Fertiliser application, especially on hill country, fell sharply to be about 20 per cent below the levels of two years earlier.

Per farm net incomes in 1981-82 were up in moneyterms but after allowing for inflation were below the previous • year and were in fact the lowest since 1975-76.

According to the Economic Service, sheep numbers continued to grow, but at a slower rate, to reach 70.5 million at June, 1982, up only 0.9 per cent for the year. Beef cattle are estimated to have declined sharply by more than five per cent. With no change in the dairy cattle population, total livestock numbers showed virtually no growth to June, 1982 — a significant change from the increases of recent years. While some improvement in total meat and wool production is expected in the 1982-83 season, the increase overall is expected to be small reflecting the con-

tinued drought in eastern South Island areas and also the lagged impact of the reduced level of farm investment, said Mr Taylor. The lift in lamb production expected this season was due largely to the improved percentage this spring, especially in the North Island and Southland. Lower slaughterings of beef cattle will mean lower export beef production.

“It should be noted, however. that present levels of production are historically high and for lamb and mutton export production in 1982-83 is expected to be 30 per cent ahead of four years ago.” ; ' ' Much of the farm development which had been undertaken in recent years had been stimulated by the Livestock Incentive Scheme and the Land Development Encouragement Loan.

"Both of these have nowbeen terminated and there seems little likelihood of any new developments being initiated from current income surpluses. Furthermore, farmers are becoming increasingly reluctant to increase borrowings for development,” he said.