Gloomy outlook eased by falling N.Z. dollar

Press, 27 December 1985, Page 12

Gloomy outlook eased by falling N.Z. dollar

The gloomy on-farm situation described in a sheep and beef farm monitoring report released recently will be somewhat alleviated by the dramatic reduction in the value of the New Zealand dollar.

The farm monitoring report was compiled in late October and early November before the dollar had fallen in value, Ministry of Agriculture and Fisheries Chief Advisory Officer (Economics), Mr Alan Walker, said. The financial position and consequent plans of many farmers may change as the season progresses, he said. The report describes low farmer morale and trends towards changing management policies to produce heavier lambs.

“This effort to produce lean and heavier lambs is one of the more important findings of the monitoring system as it shows many of the ways that farmers are heeding market signals,” Mr Walker said.

The hope of an improved financial situation later this farming season has led farmers to adopt short term retrenchment and survival tactics in an "earn first - spend later” fashion, he said.

Gross farm revenue for the all classes representative sheep and beef farm is

expected to be down by >27,000 or 23 per cent on last season’s income.

Farmers are planning for major reductions in farm working expenditure, particularly for fertiliser, repairs and maintenance, weed and pest control and labour.

Total budgeted working expenditure is down by 15 per cent over last season. In volume terms, farm expenditure is expected to be down by 35 to 40 per cent, according to the report. The seasonal current account balance in the all classes representative sheep and beef farm budget is minus about >6500. While the figure is serious, the recent fall in the value of the dollar could well bring this figure up, Mr Walker said.

Fertiliser application .in the all classes representative sheep amd beef farm is expected to be down by 60 per cent - only 40 per cent of maintenance requirements.

More than a third of all sheep and beef farms will not receive any fertiliser this season, according to estimates in the report. Development and capital expenditure are expected to be reduced by around 85 per cent compared to last year. The terminal tax payments due in March next year will

cause considerable financial difficulty for a large number of fanners.

The effect of higher interest rates is reflected in the prediction that total debt servicing charges may increase by 13 per cent this year in the budget for the all classes representative sheep and beef farm. Debt servicing is expected to require 26 per cent of gross farm income, with interest payments alone accounting for 20 per cent.

In addition to the trend towards producing heavier lambs, farmers are responding to the financial situation by planning to retain cull ewes for wool production, and killing what would have been replacement ewe lambs as a means of increasing sheep returns. Lamb production is therefore likely to increase this season, with mutton production rising next season, Mr

Walker said. Where finance allows, cattle production is being emphasised at the expense of ewe numbers. Some farmers are also planning on all-wool farming. Farmers are also considering a whole host of short term tactics to alleviate financial difficulties expected this season, Mr Walker said.

The extent to which such planned tactics are carried out is influenced by the financial position of individual farmers.

The farm monitoring report does not attempt to predict or anticipate exchange rate movements, he said.

However, the trends discussed do indicate the ways farmers react. The latest movements in the dollar value are likely to further change farmer expectations and planned activities.