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Arable monitoring report makes sobering reading

23 August 2006

MAF Arable monitoring report makes sobering reading

The Ministry of Agriculture and Forestry’s (MAF) 2006 Farm Monitoring report into the status of the country’s arable production sector shows a tough past season and not much optimism about the immediate future.

The report’s author, Senior Policy Analyst Murray Doak, says the sectors covered by the report (arable cropping, fresh and processed vegetables and maize) are among the most exposed to world markets and most vulnerable to global influences.

“While the industry is able to quickly move to fill niche markets, many producers have little ownership of the industry beyond the farm gate and are not as readily able to buffer themselves from price variations as other primary sectors,” Mr Doak says.

“This has made life tough for the industry in 2005/06, with the New Zealand dollar relatively high at the time prices were set, and then falling during the production season. This coupled with high global prices for energy and the flow-on through other costs has caught the industry in a pincer situation and profitability has taken quite a hit.”

The arable farm monitoring report is part of an annual process where MAF monitors the production and financial status of farms. Trends, issues, and sector concerns are also monitored. The reports are based on model farms designed to best typify average growing operations within specific regions and information for each model is drawn from real growers and a wide cross-section of agribusiness.

The report shows the arable farm model profitability has fallen 59 percent since 2003, despite this past year’s reasonably good production season.

“The arable, vegetable and maize industries collectively are not feeling very positive about the future as margins for growers continue to be squeezed,” Mr Doak says. “There are more than a few top farmers in Canterbury looking seriously at conversion of part or all of their farms to dairy farming.”

Looking to the future, Mr Doak says arable farmers’ confidence has reportedly dropped after the good 2005/06 harvest, and this situation is likely to continue into the 2006/07 year.

“Farmer perceptions of the medium term prices for produce are positive but they are very concerned that if this is as good as it gets, there will be problems maintaining the industry, as the rising costs of production are more than eroding the gains.”

The report says internationally, there is surplus stock of many crops so the medium-term prospects are subdued. And the vegetable industry remains subject to the vagaries of the international market and the relative exchange rates with the main markets. However, Mr Doak notes that since the report was written world cereal prices have improved and stocks of small seeds dropped, so farmers are now slightly more optimistic.

“Farmers are continuing to focus on reducing costs and becoming even more efficient. While, there is room to improve in this area, the scope may be limited as the industry has been subjected to these pressures for many years,” Murray Doak says.

He says the recent snow, while making conditions difficult for those with stock, may also clear any surplus of stock feed that remained from the mild 2005 winter. It will also improve the groundwater supply situation that affected many farmers in 2005/06.

Furthermore, the predictions are for a lower New Zealand dollar. For arable and vegetable growers who rely on a larger proportion of directly imported inputs than other farm types, this can, however, be a double- edged sword. Positively though, the benefits to the pastoral industry from a lower dollar arelikely to flow on to the arable sector as purchases of feed and seeds have the potential to alleviate the generally subdued international market scene.

New Zealand’s comparative advantages in the seed and the vegetable industries remain. In both cases, the advantage is consistency, reliability and quality.

“This year may, however, be a salutary reminder that despite these advantages, other influences may determine the future sustainability of an industry,” Murray Doak says.

“Land prices do not fall when one industry suffers declining fortunes. And a tight labour market affects all industries, particularly those where margins are tight, but the quality of the produce is often dependent on the skills and commonsense of the labour.”

ENDS

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