Farm outlook better better in long term

Press, 24 December 1986, Page 8

Farm outlook better better in long term

PA Wellington Good grounds existed for optimism in the medium to long term in New Zealand’s sheep and beef industry, but in the short term there were still serious problems to overcome, said the director of the Meat and Wool Boards economic service, Mr Neil Taylor. Those problems related to the poor financial position of many in the industry — both farmers and service people, he said in commenting on prospects for the current season. The industry had had to contend with an extremely difficult situation for the second successive year, said Mr Taylor. In the 1985-86 year, real sheep and beef farm net incomes fell to their lowest level in 25 years, and only a marginal improvement was expected this year.

Production volumes were holding at last year’s levels, and with some improvement in wool prices, gross farm income was expected to increase 7 per cent.

Fertiliser expenditure would remain at levels well below those needed to maintain the industry base, he said. The reduction in fertiliser use was particularly severe in hill country regions. Interest expenditure had increased sharply during recent years, to the point where in the current year, it was estimated to make up more than 23 per cent of total farm expenditure, and 20 per cent of gross income.

This was twice the level of expenditure on fertiliser on the average sheep and beef farm. As recently as four years ago interest expen-

diture represented only 10 per cent of total farm expenditure, Mr Taylor said.

Per farm net incomes were likely to show some improvement this year, but in real terms would be the second lowest since 1960-61, the lowest being last year. “Of real significance, however, is that this increase will be achieved only after cutting expenditure to well below maintenance levels,” Mr Taylor said.

After allowing for depreciation, principal repayments, drawings, and tax, it was estimated that more than half of all farms would have a cash deficit before new borrowing this year, in spite of the higher level of gross and net farm income.

The average sheep and beef farm was estimated to incur a cash deficit of $6300 in 1986-87, compared with a $lO,OOO deficit in 1985-86.

"The industry is still accumulating debt, and at high interest rates, and this is of real concern,” Mr Taylor said. The regions to show the lowest income in the current year were Marlborough, Canterbury, and South Canterbury, largely through the on-going effects of earlier droughts and lower cropping incomes.

An indication of the continuing serious financial situation in the sheep and beef industry was the low level to which the sheep and beef farmers’ terms of exchange index had fallen, Mr Taylor said.

This index provided a measure of the relative purchasing ability of farmers.

In 1985-86 the index fell 34 per cent on the previous year, to its lowest level since it started in 1960-61. It was expected to remain at this level in the current year. The outlook for 1987-88 was for the production base of total stock units on sheep and beef farms to decline 0.7 million stock units.

This further destocking of farms was expected to occur as a result of the low levels of on-form expenditure and the purchase of inputs such as fertiliser, during recent years. This would have implications for farm output and therefore export earnings from the industry, Mr Taylor said.