Lower farm returns expected

30 October 2002

Unseasonably cool, dry weather, combined with a strengthening dollar and fall in international prices will take its toll on farmers this year.

The latest Ministry of Agriculture and Forestry forecasts for the year ending June 2003 indicate that a fall in international prices and a strengthening New Zealand dollar will result in lower gross farm revenues.

To compensate, farmers and orchardists plan to spend less on capital items, such as tractors, and development.

This year’s colder than usual spring is depressing pasture growth. As a result, milk solids and meat production could be down between two and five percent for the year.

Horticultural grape, stonefruit and apple crops have been hit hard by frosts especially in Hawke’s Bay, while in Canterbury fruit was damaged by hail over the weekend. The apple crop, for instance, could be down 20 percent nationally and the grape harvest down by 15 percent.

Farmers are concerned that drought conditions could develop this summer as an El Nino weather pattern strengthens. Irrigation has begun early and there are good flows in rivers used for irrigation. Canterbury alone now has 400,000 hectares irrigated.

Dairy farmers are bracing themselves for a substantially lower ($3.70 versus $5.30) milk solid payout. This has slowed the rate of dairy conversions and cow prices have fallen, in some cases by 45 percent.

Land prices so far have not fallen dramatically. The national dairy farm model shows a 24 percent drop in gross revenue for 2002/03.

Deer farmers also expect a much lower schedule price with the price for a top-grade AP 60kg stag expected to drop from $8.05/kg in 2001/02 to $5.50/kg in 2002/03 (a fall of nearly 32 percent). This will significantly impact on deer farm incomes.

Sheep and beef farmers are expected to fare relatively better, with a 10 percent drop in gross revenue. This reflects price drops of 10 percent for lambs and 12 percent for cattle, offset by higher wool prices.

The outlook for grain crops looks good. The price outlook is high due to droughts raging in Australia and the USA. Arable farmers have enjoyed a dry spring allowing for cultivation but crops need some warmth now.

Small seed production has expanded, which should mean more grazing is available once seed has been harvested.

Many farmers have re-estimated their provisional tax payments downwards. These payments are due in the current financial year.

Farm and orchard financial performance for typical situations and average performance

Models Model
Size Ha
2001/02
June yr
2002/03
June yr
2001/02
June yr
2002/03
June yr
2001/02
June yr
2002/03
June yr
Gross Income Cash Farm Expenditure NTP after tax
National Dairy 96 467,380 355,680 217,614 198,735 191,025 74,335
National Sheep & Beef 590 340,143 306,176 173,099 164,904 112,006 59,329
South Island Deer 180 271,035 230,676 98,800 94,150 122,415 60,206
Canterbury Arable 259 526,800 536,000 285,400 287,700 135,100 92,400
Hawkes Bay Pipfruit 12 523,496 480,000 384,564 383,364 96,568 22,862
Bay of Plenty Kiwifruit 5 232,568 216,874 144,363 134,003 70,005 65,571

For more information, please contact:

MAF Senior Policy Analyst, Chris Ward, Tel. 04-474-4168

Contact MPI

for general enquiries phone

0800 00 83 33