Higher ‘exit rate’ expected

Press, 13 May 1988, Page 18

Higher ‘exit rate’ expected

PA Wellington Farm investment and incomes will continue at low levels and farmer in, debtedness will rise with many yet to leave the land, according to the

Ministry of Agriculture and Fisheries’ Outlook for Agriculture report. The report supports prediction of gloom made by Federated Farmers, the Meat and Wool Boards’ Economic Service and rural activist groups over the past few years. The ministry said it expected a higher rate of “industry exit” by

farmers, because now 24 per cent of sheep and beef farms have less than 50 per cent equity, and five per cent of all farms have zero or negative equity.

On those farms, about 41 per cent of their gross incomes is spent on servicing their debts. But the ministry said the number of farm sales over the last three years was well down on historical turnovers and this suggested most unprofitable farmers were yet to leave. It said one of the reasons why the sales

have not happened was that the Rural Bank was over exposed to the rural sector, and would not be keen to see a rush of sales

which could dilute the value of its portfolio. The bank’s offer of up to $20,000 clear after leaving farming was a positive step to speed up the exit process, it said. The ministry is forecasting drops in incomes for sheep, beef and dairy' farmers, with sheep and beef farm incomes dropping 16 per cent since last year to the lowest level since 1960.

For 1988-89 incomes are expected to improve slightly, partly because of a forecasted weakening of the exchange rate.

• Gross agricultural production is estimated to be 5.9 per cent of gross domestic product this) year — down from 7.7 per cent of gross domestic product in 1985. Farmer’s spending also continues to drop, down to a nominal level of $444 million compared with $B7B million in 1984. The ministry uses a 1971 base to estimate the real level of spending of $57 million

— only 34 per cent of 1984 levels. Those levels of investment are not enough to keep up with depreciation of capital stock and farmers selling assets to raise cash, it says. The report says many fanners entered this season optimistic because of a mild winter and good spring. But, the optimism was ill founded and farmers adopted survival strategies.”

That means a continuing contraction in production and export volumes over the coming seasons, the ministry says.

Government assistance to agriculture is now close to zero, having dropped from about 80 per cent in 1981 to 23 per cent in 1986. It says interest concessions and Government spending on research and development, which are the main remaining types of assistance will drop further.

Prospects for major agricultural exports are mixed. The beef outlook was favourable, but sheepmeat exports were still dominated by excess supplies of subsidised European Community product. .The short-term outlook for wool sales was firm, and world market prospects for dairy products have improved, the report said.

Kiwifruit and apple exports face intensifying competition on overseas markets.