Grain war final straw for many growers

Press, 12 September 1986, Page 19

Grain war final straw for many growers

By

DAVID LUCAS

A world grain war involving subsidised crops and deregulation of New Zealand’s wheat industry could be the final straw which will put many arable farmers out of business, farming leaders believe. Most cropping farmers are already having severe liquidity problems resulting from the downturn in the rural economy. The deregulation of the wheat industry from January will compound the financial problems of arable farmers as their wheat prices will be tied to the international price and New Zealand’s doors will be open to imports of subsidised wheat and later, flour. A world oversupply and the first stages of a world grain war involving stocks' of subsidised wheat from the United States and the European Economic Community have depressed international prices. New Zealand growers can expect to receive $165 to $lBO a tonne for average quality wheat this coming season, a drop of about $lOO on last season’s price. Mr Ness Wright, chairman of United Wheatgrowers, estimates growers need a minimum

of $250 to $270 a tonne to enable them to grow wheat efficiently under the present cost structure in New Zealand. It was important that wheat-growing remained viable as it was the cornerstone of New Zealand’s arable industry, said Mr Wright. Farmers had asked the Government to delay for two years the demise of the Wheat Board which has had statutory control ‘over the price and distribution of wheat and flour for 50 years. The board should be allowed to monitor the industry for the next two years and prevent what was becoming a chaotic marketing situation, said Mr Wright. The Government had gone too far and too fast in deregulating the industry compared with other sectors, said Mr Wright. “We want more time to adapt.” Arable farmers say they are competing on a onesided free market by having to accept depressed world prices for their products yet many of their

input costs are loaded with Government tariffs. Mr Fred Bull, a former president of North Canterbury Federated Farmers, has pinpointed high internal costs and low world prices as two major reasons for the problems facing the arable industry. “A free market is fine as long as it applies across the board; at the moment it is one-sided,” said Mr Bull. Arable farmers in the United States, the European Economic Community, and Australia were all •subsidised to varying degrees, but their New Zealand counterparts received no assistance, said Mr Bull. As well, overseas farmers had an advantage of lower input costs, such as diesel which cost farmers 30c a litre in Australia, 23c in England and 57c in New Zealand. The costs of many of the inputs such as machinery were boosted by Government tariffs, said Mr Bull. Federated Farmers have argued for many months for tariff protection to be removed

but Mr Bull feels even if it was removed today, some farmers would be unable to pull out of their financial mire. "To be completely fair, there should be no tariffs and the Government should remove all this type of protection.” Some farmers had managed to reduce chemical costs by 30 per cent by importing them direct from Australia, but moves were being made to block this cost-saving method, said Mr Bull. Mr Bull suspects many arable farmers do not fully realise how bad their financial position will be by the end of this season if grain prices remain depressed. It would be highly unlikely that any arable farmers with borrowed money will be able to balance their farm budget from on-farm income this coming season. Farmers have very little scope to reduce their input costs; only essential repairs and maintenance were being done and plant replacement was virtually non-existent. “The Government talks about diversification — but there is a limited market for most of these other crops, such as but-

tercup squash. Diversification is simply pie in the sky.” The whole farming industry had taken such a pounding in recent months that there was no easy answer to its problems, said Mr Bull. High interest rates had become locked in, in spite of predictions by the Government that they would have declined several months ago. The transition to a free market should have been phased in gradually as there was no way New Zealand’s arable farmers could compete with a subsidised grain war between the United States and the E.E.C. Because arable farmers were often not paid for crops until 12 to 18 months after the ground was initially cultivated, they needed considerable amounts of seasonal finance to tide them over. Instead of clearing their overdrafts relatively quickly, this seasonal finance was becoming hard-core debt. The financial crisis facing cropping farmers made it impossible for them to qualify for assistance from the Rural Bank’s refinancing package as their budgets had

to show a positive return, taking into account reasonable living expenses, farm maintenance and machinery replacement, said Mr Bull. Mr Bull questioned whether the Government wanted an arable industry. The industry was being run down, and should shortly reach a point of no return where individual farmers would be unable to afford the cost of replacing their aging equipment and would have to look at alternatives. Mr David Montgomery, Canterbury and North Otago agronomist for the M.A.F., said farmers were reacting to the depressed outlook for cropping by switching where possible from cereals to other crops such as peas, white clover and oilseed rape. Wheat sowings in Canterbury are estimated to be down 14 per cent on last season’s figure, and barley has been cut an estimated 24 per cent. Oat sowings have nearly doubled, peas are up 40 per cent, clover up 35 per cent, and lentils and. oilseed rape have risen considerably. Canterbury’s over-all economy was very de-

pendent on the fortunes of cropping farmers because of their high cost Inputs, said Mr Montgomery. This spending power multiplied as it flowed through the rest of the community. Delegates at an agriculture section meeting of North Canterbury Federated Farmers last week heard that even cropping units with access to expert advice were expecting to suffer financial pain this season. The 1986-87 budget for Lincoln College’s 196 ha cropping farm predicts a deficit, adjusted to reflect a typical farm with one man, of $7370 before drawings. The deficit would grow to $22,370 with the addition of $15,000 drawings and does not include provision for debt servicing.