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Farm profits to decline following boom years


Media Release

22 July 2002

Farm profits to decline following boom years - Farm Monitoring

Dairy, sheep and beef farmers can expect more subdued profit margins following record years for farm income.

The Ministry of Agriculture and Forestry's annual Farm Monitoring report just released shows average dairy farm revenue increased by 15 percent in 2001/2002 compared with the previous season, which itself was up 37 percent over the year before.

However, the average farm revenue is forecast to drop 18 percent in 2002/03.

Sheep and beef farms last year enjoyed a 20-year high in gross and net income.

This has been reflected in a rapid rise in farm property values and increased on-farm expenditure - in particular on wages, feed, fertiliser and repairs and maintenance.

Spending on capital items, especially plant and machinery was also up for the second year running. National tractor sales jumped 45 percent in 2000 compared with 1999 and there was a further 76 percent increase in 2001 compared with 2000.

Many farmers had difficulty finding skilled labour. Wage and salary rates climbed, often by up to 20 percent, in addition to better terms and conditions.

The annual MAF Farm Monitoring survey looks at the agricultural sector for the year about to finish and forecasts the outlook for the next year.

In the arable sector, 2001/2002 was more mixed. Prices were up but weather caused problems.

While it was an excellent growing season in most regions, a wet summer made harvesting difficult. Net trading profits rose due to higher cereal prices, better yields and better returns from livestock activities.

The horticultural sector expects that export earnings will pass the $2-billion figure in 2002 and significant increases will continue over the next few years.

There was a dramatic and unexpected financial turnaround for the pipfruit sector. A huge boost in financial returns has translated to a significant lift in grower confidence.

Deer farmers forecast that venison prices will on average be $2.00 per kilo less in 2002/03 than in 2001/02. Processors and exporters have predicted even greater reductions.

Dairy sector

After a record year for farm revenue, dairy farmers are facing a significant drop in revenue in 2002/2003.

The MAF Farm Monitoring report shows the average farm revenue increased by 15 percent in 2001/02 compared with the 2000/01 season, which itself was up 37 percent over the previous season.

The report shows that the last two good years have seen a solid level of on-farm spending, especially on repairs and maintenance, fertiliser and machinery replacement. Tax payments have also been high with many farmers paying the equivalent of $1/kg milksolids.

However, the average farm revenue is forecast to drop 18 percent in 2002/03 due to the projected drop in payout.

Farmers are budgeting to maintain a good level of on-farm expenditure, but repairs and maintenance are being cut by 32 percent while capital spending is reduced by 75 percent.

The good revenue and spending over the last two years will carry most farmers through the coming 2002/03 season reasonably well. However things will get much tougher in 2003/04 if the payout stays down as is forecast.

The high level of spending over the last two years has kept servicing industries and contractors extremely busy. The forecast reduction in revenue in the coming season will directly impact on rural towns and eventually spread through to the rest of the economy.

Sheep and beef

Farms have experienced the highest levels of gross and net income for at least 20 years.

However for 2002/03 farmers can expect a 15 percent drop in the price of finished cattle and a nine percent drop in prime lamb values..

Between June 2001 and March 2002 there were significant increases in farm values, particularly in Central Otago and Southland. Those rises are expected to either stabilise or decline slightly over the next 12 months.

Many farmers used opportunities created by increased profitability to purchase neighbouring blocks of land.

This season's increased expenditure on repairs and maintenance, and capital purchases in particular are expected to decrease in 2002/03. Fertiliser expenditure is expected to remain constant.

Farmers throughout the country report a lack of skilled labour and as a result are making greater use of agricultural contractors. Contractors' charge out rates in some instances have increased by 40 percent.

Deer Farming

In October 2001 deer farmers were getting record prices for venison but by the middle of this year those prices had dropped by almost half - down from a spring high of $10.17 to $5.25 by July 2001 due to diminishing BSE impacts and increasing stocks.

Deer farmers forecast that venison prices will on average be $2.00 per kilo less in 2002/03 than in 2001/02. Processors and exporters have predicted even greater reductions.

While market factors indicate a correction in venison prices from the highs of spring, forecast venison and velvet prices suggest that industry profitability will be retained.

Arable

For arable farmers it was definitely a season of two halves - the best of times and worst of times.

Overall the result was an improvement on the year before. In a model farm Net Trading Profit rose from $74,100 in 2000/01 to $157,900 in 2001/02 due to higher cereal prices, better yields and better returns from livestock activities.

However there was a lot of variability amongst farms. While many farmers suffered very significant losses, there were also a significant number who had improved overall profitability during 20012/02.

The growing season was excellent but unseasonably wet and overcast. As a result, clover seed production was a disaster and pea crop yields were poor. Ryegrass growers had a difficult and frustrating harvest period and losses for some were high.

The 2001 drought resulted in spot prices for feed grains and grazing more than doubling, but few arable farmers were able to take advantage as most had contracted at lower prices from spring 2000.

The New Zealand dollar is creating considerable uncertainty and as a result of the poor clover and pea harvest, many farmers are concerned about the ability of the New Zealand industry to retain its position as a quality supplier of product to export markets.

Horticulture

Key issues raised across the horticulture industry include biosecurity - both imported and exported products.

The cooler, wet season resulted in a poor season for summerfruit. But for apples and wine grapes, the season was very good and wine grape production has risen from 75,000 tonnes, due to frost last season to an estimated 120,000 tonnes this vintage.

Kiwifruit continues to show positive steady results and growers are feeling generally positive. However the cool wet spring affected pollination on reduced flower numbers and restricted fruit growth.

Last year's Horticulture Monitoring Report showed very poor financial results for both the Hawke's Bay and Nelson pipfruit models in 2000/01 and only a slightly better forecast result for 2001/02.

For Hawkes Bay, the forecast cash orchard surplus (COS) for 2001/02 $27,076, but the district achieved a surplus of $115,056. The Nelson forecast was $35,136 but it achieved a COS of $235,841.

Ends

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