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23 August 2006
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
"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
"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
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."
For further information, please contact:
Murray Doak, Senior Policy Analyst
Phone: 03 358 1862 or 0274 772 936
Lesley Patston, Senior Communications Adviser
Phone: 04 894 0162 or 029 894 0163
To view the report in full, go to: