Positive outlook for arable farms in medium term

18 December 2002

The latest Ministry of Agriculture and Forestry forecasting report - the Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) - says the medium term outlook for the arable industry is better than it has been for some time, in comparison to other land uses.

The report says the outlook for arable product prices is very positive for the 2002/03 season and cautiously optimistic for the next five years.

The report's author, senior policy analyst Murray Doak, says looking out to 2005/06, continued focus on efficiency, quality and high value production should ensure that New Zealand growers continue to receive returns above their overseas counterparts.

Mr Doak says the first part of the outlook period will be influenced by the following factors: 

  • droughts in the United States and Australia which have reduced world production and stocks and markedly increased world spot market cereal prices;
  • competition for land over the last few years from other land uses which has reduced the pool of growers and available land in New Zealand; and
  • an international over-supply of small seeds that occurred several years ago is less marked, and demand from pastoral farmers within New Zealand has increased, encouraging firms to re-enter the market offering farmers good contract prices.

The report looks at the 2001/02 season and finds that grain production during the season was up in total compared to the previous year. The barley area rose significantly while wheat and maize grain areas were slightly down.

During the year ended June 2002, the arable sector grew grain and seed crops worth $379 million at farmgate. Exported product was worth $78 million free-on-board (FOB). The industry is centred in Canterbury.

The area of wheat grown in New Zealand during the year was estimated at 53,000 hectares (ha), based on levies collected on wheat sales. This was down from 56,000 ha in the previous year.

Imports of wheat during the year increased substantially to 319,000 tonnes - up from 204,000 tonnes the previous year. "The increase is indicative of the demand for grain as an animal feed source (particularly for poultry), and the low production of milling wheat in this country," Mr Doak says.

The barley area increased substantially to an estimated 70,000 ha producing 406,000 tonnes. The sudden rise in planted area was prompted by very high spot prices for feed grain during the 2001 winter.

The majority of the 15,000 ha of maize grain was grown in the Waikato and Bay of Plenty. The area was down 2,000 ha from the previous year.

The indicative grower price for milling wheat rose considerably to $325/tonne for the 2001/02 season on the back of a lower New Zealand dollar, firming world prices and competition for good arable land in main wheat growing areas. The prices for feed wheat and barley also rose over the year.

For the years 2002/03 to 2005/06, the report makes the following projections:

· Anecdotal evidence suggests the total wheat area for 2002/03 is likely to be similar to the last few seasons. There has been a shift towards more spring sown milling wheat to take advantage of the expected rise in spot prices due to the Australian drought.

  • The total area of all cereals is expected to be similar to recent years despite the improved outlook. This is due to more competition for land for alternative uses and other crops.
  • The expansion in dairy cow numbers in recent years has increased the demand for supplementary feed grown away from milking areas. A decline in maize grain areas in recent years should at least be halted.
  • World wheat prices have so far risen dramatically in 2002/03, with prices for high quality protein milling varieties increasing more than feed wheat varieties. However, the impact of rising wheat prices is unlikely to have a dramatic effect overall, since much of the 2002/03 crop was contracted before prices rose and the increasing demand for grain is from the poultry industry rather than the baking industry.
  • Global projections by international agencies carried out in early 2002 suggest price rises in line with inflation over the next ten years. The current Australian and US droughts will mean lower world production, lower stocks and price volatility for the year ending June 2003.
  • The last serious world grain shortage in 1995/96 lifted prices dramatically. However, prices fell significantly in the three following years. The long-term trend continues to be for declining real grain prices.

Looking beyond the forecast period to the longer term, the report says New Zealand will always be an importer of arable products and therefore will continue to be subject to political, climatic and market influences at the international level. This can alter the outlook for arable production, both markedly and suddenly.

Murray Doak says there are some key issues that will potentially shape the future of the New Zealand arable industry. These are the coexistence of GM and non-GM production systems; the availability, allocation and use of water; the implications of changes to New Zealand's biosecurity system; and the influences of consumer demand. The industry is expected to be innovative, market-focused and to invest in research and application of technology.

For further information, please contact:

Murray Doak, Senior Policy Analyst, MAF Policy

Contact MPI

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