The Pastoral Economy in Hawkes Bay
In the early 1980’s the New Zealand economy, including the farming industry, was substantially deregulated by the government of the day, a policy that caused considerable short term hardship to many farmers as well as other business sectors together with their workers throughout the country. In the long term however, deregulation together with removal of all subsidies, tariffs and all manner of beurocratic business restriction was the impetus required to achieve and to sustain our current level of prosperity as a viable trading nation; irrespective of seemingly inevitable, cyclical, price highs and lows affecting different primary commodities from time to time.
An immediate effect of deregulation was a reduction in the national sheep breeding flock by about 25%. The Labour Government deregulation included the removal of all farming subsidies and to a large extent the reduction in sheep numbers that followed demonstrates the extent to which farmers had been farming for subsidies to that time. What followed was a significant diversification into other forms of farming, cattle and bull beef farming, deer farming, forestry, horticulture, etc. Just as significantly, from the 1980’s to the present time efficiency levels have increased, considerably so on a great many properties.
Through improved productivity based breeding programs together with better and more sustainable management pracices, there have been significant ongoing increases in farm production and profitability within the remaining flocks and herds. As a result the fall in volume of lamb and mutton exports has been considerably less than the fall in breeding flocks. Beef exports have in fact increased substantially.
The immediate, short term problem affecting Hawkes Bay farmers and common to all New Zealand pastoral farmers are low wool and lamb commodity prices. To a significant degree low lamb prices to the farmer are a result of the artificially high New Zealand dollar value relative to the currencies of our export markets, as well as the relatively short term price cycles dictated by international supply and demand. Low wool prices however have been a relatively long term phenomenon and arguably of even more concern.
The effect of wool prices on the pastoral economy:
From earliest land settlement, wool has been a primary income source for New Zealand and Hawke’s Bay farmers and the long term sustained falls in wool prices are obviously of major concern. New Zealand is the largest cross bred wool trader in the world and like other North Island farming Districts, the Hawke’s Bay wool clip is almost entirely crossbred wool. Cross bred wools are used internationally for broadloom and hand knitted carpets, knitting yarns and textiles. Sadly, despite woollen carpets and garments having greater aesthetic appeal, wearing ability (in carpets) and even fire resistance, wool prices have fallen in real terms between 3 and 6 % per annum for the past 20 years, a result of effective competition from alternative synthetic fibres as well as, arguably, poor marketing and the inability of the New Zealand wool industry to manage its affairs effectively and gain any significant competitive advantage for a superior commodity. Never the less, a sustained fall in overall global wool production, together with an emerging world wide consumer preference for natural products, suggest that if the wool industry were to implement a united and effective global marketing strategy, the future for New Zealand cross bred wool would be promising in the long term. Increased export quotas, part of a very recent free trade agreement between New Zealand and China are very promising for the long term future of the sheep industry.
A survey of east coast hill country farms (Meat & Wool New Zealand – Economic Service) estimated an average gross wool income for 2007/8 of $36,100 as part of a total gross income projection of $266,000. Other major income sources estimated were sheep (excluding wool) at $127,200 and beef at $89,400. The total net farm profit (before tax) was estimated as a net loss of $1000.00, a serious drop from a $44,400 profit provisionally estimated for 2006/07, $57,486 in 2005/06 and $91,000 in 2004/05. The decline in net profitability is as much a reflection of severe drought that affected much of the East Coast in 2007.
Filed under: Hawkes Bay, Investment, Moving to New Zealand, Pastoral
