The omens are still good

1 March 2002

The omens are still good

New Zealand farmers are enjoying levels of prosperity

not seen since the 1970s. However, theres worry

about the rising value of the NZ dollar, explains

NZ correspondent Hugh Stringleman

AN extraordinary spring and summer has New Zealand pastoral farmers in all regions setting production records and counting on a third season of exceptional profitability. Drought conditions on the east coasts of both islands are now just a memory, as most of the country recorded 150-200% of normal rainfall during November and December.

Although world commodity prices have fallen, New Zealand farmers will compensate with increased production. Economic forecasters have already predicted that the farm revenue prospects of a season not much more than halfway through will hang on a mildly appreciating NZ dollar.

They have read the runes for slightly lower farm incomes in 2001-2002 (to Jun 30). This may not cause any heartache, as the 21st century has opened for NZ farmers with two seasons of farm profitability better than twice the average of the 1990s.

&#42 Boosted growth

Nevertheless, the forecasters may be underrating the extraordinary spring and summer rainfalls which boosted growth of lambs, calves and fawns, put more milk in the vat, more yield in the grain, fodder in the shed and size on the fruit.

"Not only are farmers enjoying favourable economic and seasonal conditions, they are reaping the rewards of maintained fertiliser applications, genetic progress and improved farm management," says Meat and Wool Economic Service director Rob Davison.

Sheep and beef farm profitability in the drought-prone 1990s was woeful, and had not been much better in the 1980s. But farmers worked harder, amalgamated, innovated and, above all, kept fertility inputs high.

When subsidies were removed, fertiliser usage bottomed out at 8kg/stock unit in 1985-1986. Last year it was 22kg, having risen nearly every season since the late 1980s. In the 2000-2001 year, total fertiliser sales were almost 3m tonnes, three times their lowest level.

Productivity was boosted through the 1990s by 3.2% annually in weight of lamb/sheep, by 1.1% annually in milkfat/cow, by 0.6% more wool/sheep and 0.3% more beef/cattle beast.

Comparing the beginning of the decade to the end, dairy production volume went up 75%, beef and veal by 12% and lamb by 14%, despite a 22% reduction in sheep numbers.

When combined with a rapid lift in milk solids payout from $3 to $5/kg (from 88p to £1.47p/kg), venison prices around $7.50/kg (£2.21/kg) compared with $3-$4 (88p-£1.18) and 50% more on average for lamb (up to £17), the 21st century has brought prosperity to pastoral farming not seen since the 1970s.

Sheep and beef farm profit before tax in 2000-2001 was just under $90,000 (£26,550), having rocketed away from the $30,000 (£8849) levels between 1997 and 1999 and the decade average of $41,000 (£12,100).

Mr Davisons team predicted a 10% fall in profitability this season, an estimate made before knowing the record lamb crop details, including a national average of 119%, which is 2.3 units higher than the previous record. This means 36m lambs weaned and 25m destined for slaughter. The balance are ewe and ram lambs kept for breeding, a proportion which is growing as farmers seek to expand their flocks.

The resumption of lamb exporting from Britain after the end of the foot-and-mouth crisis has positive signs for NZ lamb imports also. At the recent World Sheep and Wool Congress held in Christchurch, NZ, a UK Sainsburys representative said the re-opening of the export market for UK supplies would allow imported NZ lamb "to perform to the levels of previous years".

Tony Sullivan, senior manager of meat, poultry and fish for Sainsburys, appealed for restraint on larger lamb carcass sizes (the average from NZ being about 17kg) so the supermarket chain could market to new, younger buyers with modern cuts.

&#42 Dairy processing

The formation in 2000 of the giant Fonterra Co-operative, to handle 95% of New Zealands dairy processing and exporting, appears to have caught world markets at their peak.

With a predicted $14bn (£4.1bn) turnover this season, Fonterra has signalled a record $5.40/kg (£1.53/kg) milk solids basic payment in its first season to 14,000 dairy farmers. Turnover is forecast by the company to be $1m (£295,000) for every supplier, of which they will receive around 40% at the farm gate.

Milk powder prices have fallen about 15% and butter 10% since the beginning of the dairy season on Jun 1. However, Fonterra continues with the NZ Dairy Boards forward selling, foreign exchange hedging and conservative payout policies, and has not yet seen the need to alter its farm payment prediction.

An appreciation of the NZ dollar would quickly strip value from commodity prices. Fortunately the dollar has remained around 30p and 41US cents for an extended period, against numerous predictions that rates would change in favour of the NZ currency.

A quarterly Agribiz update from WestpacTrust Bank said mid-2002 presents concerns for New Zealand, as a slowing world economy points to further falls in commodity prices.

"Add to this a likely appreciation of the NZ dollar, and the outlook is for slower growth from the export-focused industries," it said.

Early this year the Reserve Bank decided against a further easing of interest rates, saying that the domestic economy is growing steadily and New Zealand will slip through the global recession relatively unscathed.

Above: Standing room only at the NZ Royal Show, Christchurch when the best meat breeds rams were judged. Production of lambs for major markets in Europe and the US has been very profitable for NZ farmers.

Left: Sainsburys UK meat manager Tony Sullivan with the CEO of his major NZ lamb supply company, Stewart Barnett of PPCS.

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