Financial viability - a long-term view

Abstract

Farm profitability is under pressure, with depressed product prices and a rising exchange rate combining to reduce farmer incomes. While exchange rate movements do affect short-term profitability, longterm trends have a much greater effect upon farm profits. While commodity prices are cyclical, over time they fail to keep up with inflation. An analysis of international commodity prices from 1949 to the present day demonstrates a reduction in real terms for all agricultural commodities. An analysis of prices received by New Zealand farmers since the 1950s shows a similar trend. The efficiency of sheep production, measured as lambing percentage and wool weights, has not demonstrated the improvements achieved by other sectors. Milkfat production per cow has doubled over the past 80 years, broiler chicken feed conversion efficiency has doubled over the past 20 years, wheat yields are two and a half times greater now than 70 years -ago, while lambing.percentage and wool weights hXVc not-significantly-improved-since-I-950.Sheep. and beef farms maintained profitability by increasing stocking rate and stock numbers per labour unit, and diversifying .into more profitable stock, such as deer. The pressures facing farmers in the mid 1990s are being faced by other farmers elsewhere in the world, and have existed since intensive farming began in New Zealand. To farm profitability today, as in the past, farmers need to continue to capitalise on technology, and modify farm outputs to match market demand, at a greater rate than?%tip~titEK -~~ - Keywords: agricultural profitability, agricultural production, commodity prices, New Zealand