Farm industry should not be undermined: economic service

Press, 4 April 1985, Page 25

Farm industry should not be undermined: economic service

Prospects for New Zealand’s sheep and beef industry were not strong in the short run, yet the industry had survived difficult periods before, according to the Meat and Wool Board’s Economic Service. Mr Neil Taylor, the service’s director, told the' Meat and Wool Board Electoral College that it was important the total farming industry was not undermined in the short term because it could play a vital role in the New Zealand economy in the longer term. Farming contributed 21 per cent of real net output in the New Zealand economy and provided employment for 26 per cent of the workforce. Mr Taylor said the farming industry was facing major changes, probably the most significant it has had to contend with for decades.

Sectors of the pastoral industry, in particular, will feel the impact to varying degrees of moves to restructure the economy. Some of the changes introduced or announced had an immediate and direct effect on farm costs and returns, and while there were reductions in support taking place elsewhere in the economy which will lower costs to the farmer, their impact will be delayed. “As a result, sections of the industry that are unable to adjust quickly will face difficulties,” said Mr Taylor. Mr Taylor said the pastoral industry was at present enjoying a more favourable year financially than was expected, but in relation to earlier yers the present financial position was not strong. The outlook, given the changes in support

measures already announced, gives some cause for concern, he said. The fall during recent years of net incomes in real terms had placed a burden of increased borrowing on the industry. This year’s lift in income had allowed the industry to improve its level of inputs on average, and in some instances reduced the current account debt levels. This was a welcome respite to many fanners. However,* Mr Taylor said, there was still a group of farmers carrying high debt loads and in the midst of development programmes for whom the prospect of increased costs, particularly interest, was a daunting prospect. The smaller heavily indebted units and those hit by droughts were again at risk, said Mr Taylor. It was important that the disruption caused by new Government policies being put into place during the next year or so be contained within reasonable levels and that units, viable in the long run, were not lost to the industry. Mr Taylor said 50 per cent of fanners had an equity of 84 per cent or better. The problem, how-

ever, for many farmers was cashflow and nearly 40 per cent of farmers were spending at least 20 per cent of their gross earnings on interest. “This is a non-sustainable situation and gives cause for real concern. “Future trends in farm finance and ability to service debt will be of key importance over the next few years with the structural changes under way in the economy.” In 1984-85, the export lamb kill is expected to reach 37M, one of the highest over, which reflects last season’s record lambing percentage, high ewe numbers and low growth in sheep numbers. The mutton kill at 7.5 M is up 13 per cent on 1983-84, and beef production will increase by 11 per cent. Wool production is estimated to reach a record 390,000 tonnes. A 9 per cent increase in farm output coupled with prices up by 15 per cent resulted in farm gross incomes this season rising almost $25,000 per farm. Consequently farm expenditure lifted 18 per cent and after allowing for inflation inputs of 10.1 per cent there

was an 8 per cent lift in the volume of inputs purchased. Net incomes increased by $9lOO over last year, but in real terms the absolute net income was still below the 1980-81 level, an<j only 73 per cent of the 1975-76 figure. Gross farm income for sheep and beef farms is expected to decline by 7.4 per cent in 1985-86. Net farm income is estimated to drop 11.5 per cent and in real terms reach the second lowest level since 1975-76. Prices paid for goods and services used on sheep and beef farms increased 10.1 per cent in the year to January 1985. In the previous 12 months the increase was 0.3 per cent. The relative steep increase reflected the end of the wage and price freeze, the 20 per cent devaluation, and price increases in the 1984 Budget, such as the fertiliser transport subsidy and increases in motor spirit duty, said Mr Taylor. The 10.1 per cent increase is the same as that for 198283, the start of the wage and price freeze. In the last five years farm input prices had increased an average 11.9 per cent per year or 75 per cent over five years.