Long-term analysis of price, productivity, and profitability trends in New Zealand agriculture

Abstract

Much has been written and spoken over the years about continually declining inflation adjusted commodity prices, the volatility of the New Zealand dollar, and the difficulties of competing against subsidized agricultural sectors. While NZ agriculture has enjoyed good levels of profitability in recent years these underlying forces still remain and will continue to impact farm profitability. Rising land prices and improved productivity of our competitors are likely to erode NZ agriculture's tr aditional position as a low cost producer in the future. The commonly cited responses to the forces outlined above are 1) adding value to commodities, and 2) increasing productivity. An earlier analysis showed that the NZ sheep and beef sector, in particular, was experiencing decreasing prices in real terms and farm productivity had remained largely unchanged for fifty years. In contrast to the data reviewed earlier, this paper shows that over the last fifteen years the NZ agricultural industry has been exhibiting just those responses required to combat the forces above. New Zealand lamb prices have increased in real terms since the late-1980s and in comparison with international prices. Beef and dairy prices have also fallen substantially less than the comparative international price, however wool and wheat prices have fallen more than the international price. In addition, there have been significant increases in farm pr oductivity, most notably lambing percentage, lamb carcass weights, and milksolids production/ cow. The result has been a 57% increase in dairy Earnings Before Inter est and Tax (EBIT) over the past 5 years, compared with the previous half decade (measured in real terms). Sheep farming has experienced a 79% increase in EBIT over the same period. The challenge and subject of significant debate which is outside the scope of this paper is how NZ agriculture is to remain at the forefront of global pastoral agriculture as a low cost, innovative, and profitable sector. Keywords: agricultural productivity, farm profitability, product prices, New Zealand agriculture.