Economic Compansons of farm improvement Groups

New Zealand Journal of Agriculture, Volume 96, Issue 2, 15 February 1958, Page 161

Economic Compansons of farm improvement G roups

.. By

R.H. SCOTT,

Land Utilisation Officer, Department of Agriculture, Wellington IN Taranaki, the Manawatu, and some South island dairying districts groups of • dairy farmers are co-operating with the Department of Agriculture in supplying information on their production, the capitalisation of their enterprises, and the ■ returns which they -re obtaining, and this article analyses such information resulting from operations 'in 1955-56 of individual farms in different groups in the districts «.i mentioned.

THE reason that figures are given for individual farms, is that computed averages for each group of farms would actually represent no particular farm. The figures given are for the farm which is returning its owner the highest net return per acre for the group. Though the particular farm cannot be regarded as being representative of dairy farming in its district, a comparison between the higherproducing farms shows some district differences.

Carrying Capacity All stock on the farms were converted to a common animal unit, the dairy cow in milk. To allow comparisons between groups the carrying capacity was computed on. the basis of animal units per 100 acres of effective farm area. The area of some farms, particularly on the west coast

of the South Island, included land which could not be used for farming and which could never be converted to farmable land. To give an effective farm acreage such areas were deducted from the area included in the title to the land.

TABLE ANIMAL UNITS PER 100 ACRES (All stock converted to the unit— cow in milk) Group Units Oaonui .. .. .. .. 89 Rongotea .. .. .. .. 114 Collingwood .. .. .. 57 Takaka .. .. .. .. 56 Murchison .. .. .. .. 58 Rotomanu .. .. .. .. 53 Harihari .. .. ... .. 69

The Rongotea farm has the highest carrying capacity, the Oaonui farm has the next highest, and the Rotomanu farm has the lowest. However, all the farms are likely to increase their carrying capacities, particularly the Oaonui, Murchison, Rotomanu, and Harihari farms, on which land im-

provement work is to be done and which as completed will be reflected in increased output.

Butterfat Production Butterfat production was computed “at the pail”, and the number of cows in milk for the season for each farm comprised those which had milked for 100 days and over. Those cows which had milked for less than 100 days were excluded when the computation “average butterfat production per

cow” was made.

TABLE 2—AVERAGE BUTTERFAT PRODUCTION Group Per cow Per acre lb. , lb. Oaonui .. .. 310 236 Rongotea ■ ... .. 284 239 Collingwood .. .. 390 195 Takaka . .. .. 333 144 Murchison .. .. 260 111 Rotomanu ' .. .. 293 123 Harihari .... ... 314 164

Though the Rongotea farm had the highest butterfat output per acre, it was only a little ahead of the Oaonui farm, which had a significantly higher per cow production. The Collingwood property had the highest per cow production, but with an annual rainfall of about 150 in. there were several land-management problems which handicapped intensive per acre output. The Murchison farm had the lowest production under both headings, but this district has the severest winters and the shortest growing season of all the areas compared. Again, output per acre on most of the farms will increase as further land improvement work is undertaken.

Farm Capitalisation To arrive at the capital structure of the farms, the following values were used: — Livestock: A conservative sale value was adopted. However, this standard value has been used for several years and is now considerably below the ruling market rates for similar classes of stock. Plant and equipment have been valued on the basis of normal resale value; that is, what it is likely to realise if sold. Land, buildings, and improvements: The latest Government valuations for these were used.

TABLE 3—FARM CAPITALISATION PER ACRE Livestock, Land and i. plant, and improve-. Group equipment ments Total 1? q I? s £ s Oaonui 36 18 78 14 115 12 Rongotea .. .. .. 43 16 112 12 156 8 Collingwood . . .. 33 8 73 2 106 10 Takaka ... 26 0 77 4 . 103 4 Murchison .. 27 4 47.2 74 6 Rotomanu .. .. .. 26 2 33 2 59 4 Harihari .. .. .. 33 4 25 8 58 12

With a lower standard of farm building and other improvements on the land the Murchison and two Westland farms had the lowest per acre capitalisation. In one of the latter the per acre capital investment in livestock, plant, and equipment was actually greater than the per acre

investment in real estate. Real estate represented over 65 per cent, of the total investment for all farms except the Murchison and Westland farms.

Gross Output Gross output includes everything that has been produced for sale on the farm during the year. It is arrived at by adjusting the gross sales for any changes in the valuation of livestock at the beginning and end of the year. For instance, on one farm the gross output was £2774, arrived at as follows: £ £ Sales— ■ Butterfat .. ... 2,242 Pigs .. . . .. 319 Cattle . . . . . . 35 Bobby calves . . .. 43 2,639 Value of livestock at beginning of year .. 1,347 Value of livestock at end of year 1,482 Add increase in value 135 Gross output .. .. 2,774 Gross output per 100 acres as shown in Table 4 gives an indication of the intensity of farming. TABLE 4—GROSS OUTPUT PER 100 ACRES Group £ Oaonui .. .. .. . . 4,172 Rongotea . . .. .. . . 4,168 Collingwood . . . . . . 2,869 Takaka . . . . . . . . 2,720 Murchison .. .. .. 2,153 Rotomanu .'. .. .. 2,260 Harihari .. .. .. .. 2,762 Owner Surplus A high gross output per 100 acres does not necessarily guarantee a high net profit, since output is sometimes obtained at too great a cost. A figure

which takes into account the inputs necessary to achieve the return is required to measure the economic success of an enterprise. ,

For these farms an index “owner surplus per 100 acres” has been computed. This is arrived at by deducting from gross farm output the farm running expenses, depreciation on assets, and interest at 5 per cent, on the value of assets as assessed above (land, improvements on the land, stock, and plant). The remainder has been defined as owner surplus and is the amount available to an owner to meet his own labour and management reward, taxation, and any reinvestment he may wish to make in the enterprise.

TABLE S—OWNER SURPLUS PER 100 ACRES Group £ Oaonui .. .. .. .. 2,120 Rongotea .. .. . . . . 1,780 Collingwood .. . . .. 1,040 Takaka .. .. .. .. 1,025 Murchison . . . . .. 431 Rotomanu .. . . .. 974 Harihari .. . . . . .. 655

For the Oaonui farm the owner surplus represents 51 per cent, of the gross output of the farm against 20 per cent, for the Murchison farm. Return to Capital To obtain an indication of the comparative profitability of the farms a return to capital and management was computed. From the gross output has been deducted farm running expenses, depreciation on assets, and an allowance for the operator’s own labour, assessed at £624 per annum. The resulting figure expressed as a percen-

FARM IMPROVEMENT GROUPS tage of the total capital investment gives a return on the investment. .

TABLE 6—RATE OF RETURN TO CAPITAL AND MANAGEMENT Group per cent. Oaonui .. . . .. .. 18.3 Rongotea .. . . . . .. 8.0 Collingwood . . .. .. 7.5 Takaka . . . . . . .. 9.0 Murchison .. .. .. .. 5.6 Rotomanu . . .. .. .. 16.8 Harihari .. . . . . .. 4.6 As the capitalisation of the enter-

prises as assessed is probably about a quarter to a third below the figure at which the respective farmers value them on a walk-in walk-out basis, the return to capital and management is below that shown in the table, and for the Murchison and Harihari farms there would be a very low return, approximately 1 to 2 per cent, on the investment. The return for the Oaonui farm would be approximately 12 per cent. No serious attempt has so far been made to analyse the differences in the results achieved on the farms. Some are due to climatic, soil, and topographic variations, whereas some are due to management differences; that is, the efficiency in using and combining the resources available. As information becomes available over a longer period an analysis of the economic and management data may give a lead on how to use and combine the resources' more efficiently to achieve greater net returns.