Top economist objects to the cost of restructuring

Press, 24 April 1986, Page 25

Top economist objects to the cost of restructuring

The human, social and financial cost of adjustment caused by simply walking away from the present investment in the agricultural sector is too great for New Zealand to sustain, a leading agricultural economist has said. Mr Neil Taylor, director of the Meat and Wool Boards’ Economic Service, told the National Business Conference in Dunedin earlier this month that changes can be made in the sector. “But changes in an industry which is based on the seasonality and uncertainty of biological systems takes time to implement effectively,” he said.

“Forcing the pace simply involves enormous waste,” Mr Taylor said. The problems of the agricultural industry in New Zealand had been around for a decade. They included: • High inflation in input costs, up to 263 per cent in the last decade. • Prices received at farm gate not matching this inflation, up only 128 per cent. • Over-valued exchange rate. Farmers were encouraged to develop and their prices were supported with subsidies by way of compensation' for an over-valued exchange rate in an attempt to maintain real incomes. But extra borrowing was not confined to development but included climatic relief and to supplement farm-generated income, such as for maintenance and living expenses. “While interest rates were low, land values were rising and there was an expectation that they would continue to rise, this borrowing seemed at the time a sensible approach." Land values rose about two-and-a-half times from 1975-76 to 1982-83 but debt to equity ratios changed little. “Farmers simply mobilised their higher equity.” In the 1983-84 season only 53 per cent of the

sidles, the rise in interest rates and the high value of the floating dollar have

combined to produce a very difficult situation for cash available on sheep and beef farms was generated on farm, with a staggering 30 per cent coming by way of mortgage increases. But the fall in land prices recently, coupled with the removal of submany New Zealand farmers. As many as one third of farms now had a debt servicing level exceeding one quarter of earnings, with some as high as 40 per cent. In addition some 30 per cent of farms now had less than 50 per cent of equity. “The over-all financial viability of the industry is being put at risk in the short run, yet many of these units would, if they

were given greater opportunity in terms of time to adjust, be viable in the long term,” he said. “It is the speed of change which the industry has serious difficulty coping with.” “The expectation that an industry, likely to be viable in the medium to long term, can adjust rapidly without enormous resource waste in the short term is quite unreasonable. “A more moderate reordered approach to change would have achieved the desired end results, with less risk and resource waste. “The present farming crisis will very soon become a community crisis and finally a crisis for the nation,” he summarised.