5 March 1999

SOME COPE, OTHERS DONT

JUDGING from media reports at this end, New Zealand farmers are not flavour of the year with UK sheep and beef farmers, politicians and supermarket chains. Please dont shoot the messenger, though, just because the message is unpalatable.

Since New Zealand agriculture went "cold turkey" in 1986, New Zealand farmers and farming have been under enormous pressure. Using hard data from the Agriculture and Forestry New Zealand Policy Unit based in Wellington, let me run through a few of the issues.

There are no government payments of any kind coming back through the farm gate in New Zealand and for some farmers the past 12 years have been a real pain. Over the 10-year period from 1986 to 1996, the overall number of farmers has declined by 17%, sheep farms have declined by 44% and horticultural units have increased by 31%. There are now 98,270 lifestyle blocks (usually 2-3ha), outnumbering farms by 50%.

Farm size has had to increase to cope with lack of profitability – sheep farms have increased from an average of 428ha (1057 acres) to 601ha (1485 acres) and dairy farms have increased from an average of 87ha (215 acres) to 123ha (304 acres). The number of sheep in New Zealand has come down from a peak of 70.3 million in 1983 to 46.2m at June 1998. The number of people involved in sheep and beef farming decreased by 32% between 1996 and 1996 – but statistics like these dont show the full effect of such changes on farming couples and their families.

30% doing well

Our accountancy partnership is one of the largest specialist practices in New Zealand, servicing some 300 farms spread across a sheep, beef, cropping and dairying cross-section.

So what are we finding for the year ended 30 June 1998? Some 30% of the farming businesses are doing well to surprisingly well in financial terms but another 30% are doing very poorly. One feature of a deregulated farming economy is that this polarisation really starts to show up after a while. Each year since 1986 the gap has widened between those farmers who are coping (and coping well) and those who are not.

What are some of the specifics? The average New Zealand sheep and beef farming family had a gross farm income (sales tax exclusive) for the year ended 30 June 1998 of NZ$171,100 (£57,670) and received an average of some NZ$36.20 (£12.20) for their sale lambs. Total farm expenditure including interest, rent and depreciation were of the order of NZ$140,400 (£47,320) leaving a net profit figure before income taxes and personal drawings of NZ$30,700 (£10,350) (Source Meat and Wool Economic Service of NZ – December 1998).

We would say from a viability point of view that a net farm profit of NZ$30,700 (£10,350) is some NZ$15,000 (£5055) short of net profit sufficiency. There is a major gap here with no real prospects of narrowing – given that the changes seen between 1986 and 1996 are likely to continue until 2006.

The return on capital for most New Zealand farming businesses for most of the past 10 years would be 2-4%. Thats using a sensible calculation of net farm profit, interest and livestock adjustments and allowing for wages and management costs, as well as a realistic bottom line for the value of stock, plant, land and buildings. Quite a few businesses will have seen a nil return and only the crackerjacks would get to 10%.

Unlike commercial property, this type of data plays no part at all in setting the sale values of New Zealand farms. Some 90% of these are still owned by families who may not be getting the job satisfaction of 15 years ago but are still digging in for a long haul.

It has not been good enough to be an average farmer in New Zealand for some 10 years now. Being average – or below-average – means trouble, at least in financial terms. Where is all this leading? In 10 years time New Zealand will have fewer farmers, fewer rural bank managers and fewer specialist farm accountants – it is simply a function of numbers.

Grasping the nettle

The situation in Australia is broadly similar except that it is much less dependent upon agriculture than New Zealand. In 1986, 59% of total NZ exports came from agriculture (excluding forestry). In 1996 the figure was hardly lower at 54.7%.

Where is New Zealand agriculture leading to? Lamb, beef and wool prices received by New Zealand farmers over the last two years are too low for viability but are the world prices. The NZ dairy industry is also under pressure but is well structured .

The farming industry here – both on farm and off – has over the last 10 years grasped the reality that production is vanity and profit is sanity. Some have grasped the nettle here much better than others but the phrase does describe well where New Zealand agriculture and New Zealand farmers are right now.

FARM INVENTIONS COMPETITION – COMMENDEDS

Left: Hitching a combine and its header trailer together is never easy, largely due to the sheer lack of visibility, and invariably involves a second person seeing the driver back. But Douglas Aitken from Laurencekirk, Kincardine-shire, who works on a 500ha (1200-acre) arable and dairy farm, found a simple way of adapting the existing hitching system to make it more user-friendly. He converted the trailers existing fixed drawbar into a telescopic drawbar, with a flotation jockey wheel for side-to-side alignment, allowing one man to do the job quickly. Once the hitch is attached manually, the combine is reversed slowly to retract the telescopic hitch and a pin inserted to secure it.

Right: Farmer William Aitken from West Linton, Peebleshire, didnt like calving a cow in a conventional crate because of restricted access to the cow and the difficulty of assisting with calving and helping the cow back to her feet if she lies down. His L-shaped gate system is used in his existing shed and has a head-catching system at one end of the gate and a 4.5m (15ft) long side gate that can be swung into the open position to give the cow room to calve in comfort. Sliding bars on the long side of the gate give access to the area and safety to the stockman.

Above: Harold Hulland, a 93ha (230-acre) livestock farmer from Whiteyard, Lochfoot, Dumfriesshire, designed this compact lamb adopter a couple of years ago. It consists of a pen front, designed to restrain the ewes head, which can be moved from pen to pen. Sheep can feed, drink and smell their lambs without causing harm to them. The lambs, meanwhile, can thrive safely until the sheep accepts them. The lamb adopter pen is particularly useful where ewes are reluctant to mother, says Mr Hulland, or where one ewe needs to be persuaded to adopt one of triplets.