EXECUTIVE SUMMARY
Between 1978179 and 1989/90, incomes on South Canterbury farms were significantly affected by circumstances outside the control of farmers.
These were:
- Changes to market prices for outputs.
- Adverse climatic events.
- Increased debt servicing costs.
This study of 10 South Canterbury farms examines the variation which occurred to gross incomes, farm expenditure, cash farm surplus, disposable profit and net cash result (surplus/deficit) for each farm over the time series.
The way farmers managed this change and the varying outcomes was influenced by their own personal and family objectives and life situation in addition to their farm management, business objectives and situation.
This paper examines the 10 case study farms to determine how the personal and family objectives and situation influenced the farm and business management decisions made by the farmers.
Each farmer was interviewed and a physical time line of events was drawn up. Next to this was put a financial analysis of farm accounts for the 12 years.
Each individual property showed unique results.
Combined, the results of the 12 properties showed some strong trends.
The outstanding result of the study is the high variation that occurred in income levels between years over the 12 year series, the large downward trend in income, and the inability of farmers to manage these changes adequately by changing farm management practices. Although farmers reduced farm expenditure in an attempt to counter income falls they were severely limited by non-discretionary and fixed expenses.
Performance levels also varied considerably between years, but to a much lesser extent than did income levels.
These variations in income and performance levels were generally caused by influences beyond the farmers' control.
For the 10 properties over the 12-year series, gross farm income variation was high. The major impact came from product price changes and not the droughts of the period.
The effect of the above external influences on individual properties varied considerably depending on the individual situation, particularly the physical and financial structure of the farm at the time. The physical and financial structure of farms depended on personal goals and motivations as well as the historical decisions made on the farm and in some cases the career cycle of the farmers.
Generally speaking, those properties affected to a lesser degree by the external influences were the more established, more financially sound, higher performing and more conservatively farmed properties.
To some extent, the degree of hardship and suffering of farming families in the mid- and late 1980's was a function of luck dependent on their stage of farming and the decisions they made in the early 1980's when the change that occurred in the farming environment was completely unforeseen.
Over the period of change, many farmers became very bitter toward the government. They felt betrayed because of the dramatic, unforeseen and unannounced change in their circumstances over which they had no control. To farmers, farming had been a family lifestyle, often hard, but good. Now they saw its traditional position of importance to New Zealand being devalued. The business environment in which they had operated was suddenly and dramatically altered by changes in Government Policy.
Looking back over the period of the 1970's and 1980's, the farmers identified that many government interventions and supports had been detrimental by providing false signals and encouraging farmers to make decisions for the wrong reasons. However, they felt that the process of deregulation had been badly managed by Government and that the Government had been particularly ruthless and insensitive to the circumstances of farmers and their families.
A very apparent result of the study was how little a sheep farmer could do in the short term to counter a sudden drop in product price.
All farmers reduced farm expenditure in an attempt to counter the income falls from 1985/86 onward. The results clearly show the limited degree to which this was possible and the large impact that reducing incomes had on cash farm surplus and disposable profit levels.
The study results indicate that annual physical and financial indices and ratios (e.g. farm expenses as % gross farm income) must be used with caution when comparing one farm with another or to compare the same farm in different years. These comparative criteria are very dynamic which emphasises the importance of evaluating the performance of a farm over time, both historically and in the future. The criteria do have merit, but they have limitations and must be interpreted in light of the climatic and economic conditions and the physical and management resources of the farm business.
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