5.0 CHANGES IN THE ECONOMIC IMPACTS OF AGRICULTURAL PRODUCTION AND PROCESSING

Trends in standard Type II Multipliers for agriculture are reviewed in Section 5.1 to 5.3 but note that these multipliers incorporate only the effects due to backward linkages (purchases of inputs and spending of extra household income). Section 5.4 analyses the changes due to both backward and forward linkages in pastoral farming and forestry. The forward linkages depict the impact of additional processing of meat, wool, milkfat and logs. The results must be treated with caution for several reasons:

First, the definition of industries has altered. The 1976/77 inter-industry tables treated products on a commodity basis, whereas the 1981/82 and 1986/87 tables treated agriculture on a farm-type basis. Hence the "Dairy and Beef" industry in .1976/77 included all dairy and beef production, no matter what farm-type it came from. This caused particular difficulty in assessing employment by industry in 1976/77 since employment was available only on a farm-type basis, and hence a particular farm type had to have its employment split between the various commodities produced.

Second, beef was included with dairy in 1976/77 and with sheep in 1981/82. Hence these years are not directly comparable. In 1986/87 and 1990/91, beef was separated out, so by including it with. first dairy and then sheep, comparisons can be made between 1990/91 and both 1981/82 and 1976/77.

5.1 Output Multipliers

Constant Prices

Constant price output multipliers have declined in every sector of farming over every period from 1976/77 to 1981/82, 1981/82 to 1986/87, and 1986/87 to 1990/91.10 While the output multipliers may have declined because of a shift to on-farm self-sufficiency, (a shift which might be expected during a farming recession), the major cause seems to have been the decline in real product prices and the accompanying squeeze on household and farm input spending.

The 25% decline in the "dairy" output multiplier from 3.6 in 1981/82 to 2.7 in 1986/87 was particularly severe, and was probably primarily the result of the significant reduction in milkfat prices. (Milkfat prices over the period increased by only 5% whereas the PPI all groups increased by 58%). The dairy multiplier decline continued into 1990/91 as real milkfat prices declined a further 6%.

There was a 19% decline in the "sheep and beer' constant price multiplier from 3.1 in 1981/82 to 2.5 in 1990191 and a 31% decline in the "sheep" multiplier from 3.9 in 1976/77 to 2.7 1986/87. Again, these declines occurred over a period of prolonged decline in real returns. Real prices for sheep products fell by around 65% over the period and real returns for beef fell by 20%.

TABLE 5.1

OUTPUT MULTIPLIERS (Constant Prices)


1976/77 1981/82 1986/87 1990/91
Dairy/Beef 3.1
2.6
Dairy
3.6 2.7 2.5
Sheep 3.9
2.7
Sheep/Beef
3.1 2.7 2.5
Cropping 4.7 4.0 3.0 2.9
Fruit/vege 2.9 3.0 2.9 2.6
Other Farm 3.6 3.2 2.8 2.5
Current Price Multipliers

In contrast to the consistent declines in constant price output multipliers, current price multipliers for farming have moved in various ways with the dairy/beef farming output multiplier having declined by 11% from 1976177 to 1990/91, and the sheep farming multiplier having increased by 18% over the same period. It seems clear that the rapid rise in current price sheep farming multipliers reflects the decline in real sheep meat and wool prices with purchases of inputs now taking a larger portion of the sheep fanning dollar, A similar shift appears to have occurred with regard to fruit and vegetable farming where constant price multipliers have fallen by 12% but current price ones have risen by 13%. On the basis of these observations, one could anticipate that any future rise in real prices for products from these farm types is likely to be accompanied by a fall in current price output multipliers.

TABLE 5.2

OUTPUT MULTIPLIERS (Currcnt Prices)


1976/77 1981/82 1986/87 1990/91
Dairy/Beef 2.8
2.6 2.5
Dairy
2.8 2.7 2.5
Sheep 2.3
2.7 2.8
Sheep/Beef
2.8 2.7 2.6
Cropping 3.0 2.8 3.0 2.7
Fruit/Vege 2.5 2.7 2.9 2.8
Other Farm 3.1 2.9 2.8 2.6
5.2 Income Effects and Multipliers

Direct incomes (as a proportion of agricultural output) have fallen markedly over the period 1976177 to 1990/91. The decline was most severe for sheep (53%), but was also very high for fruit and vegetables (36%) and beef and dairy (22%). Both sheep and fruit and vegetables appear to have had very high declines over the period 1986187 to 1990/91, although there is a wide error margin in all income figures for the latter year. Mso, the figure for agricultural incomes in 1990/91 represent estimates of the figures for the early 1990s rather than for 1990/91 itself (see Butcher 1993)

TABLE 5.3

DIRECT INCOME : OUTPUT RATIOS (current prices)



1976/77

1981/82

1986/87 1990/91

Dairy/Beef 0.23
0.19 0.18

Dairy
0.29 0.22 0.20

Sheep 0.18
0.11 0.09

Sheep/Beef
0.23 0.12 0.11

Cropping 0.20 0.25 0.14 0.18

Fruit/Vege 0.29 0.31 0.25 0.20

Other Farm 0.27 0.20 0.16 0.17

Total change in income (expressed as a proportion of agricultural output) arising as a result of agricultural production and resulting upstream impacts has also fallen, but not always by as large an extent. This indicates that those supplying goods and services to agriculture have suffered less of a decline than the farmers.

TABLE 5.4

TOTAL INCOME: OUTPUT RATIOS (Current Prices)



1976/77

1981/82

1986/87 1990/91

Dairy/Beef 0.59
0.48 0.43

Dairy
0.64 0.52 0.45

Sheep 0.45
0.41 0.37

Sheep/Beef
0.60 0.41 0.37

Cropping 0.60 0.60 0.49 0.46

Fruit/vege 0.58 0.63 0.59 0.51

Other Farm 0.68 0.59 0.48 0.45

The general decline in income impacts and the rapid increase in some farm income multipliers (notably sheep and fruit and vegetable farming) is consistent with declining prices for products from those farm types. For other products such as dairy/been there has been a small decline in the income multipliers suggesting that on-farm incomes have fallen more slowly than purchases of inputs.

TABLE 5.5

INCOME MULTIPLIERS (Current Prices)



1976/77 1981/82 1986/87 1990/91

Dairy/Beef 2.6
2.5 2.4

Dairy
2.2 2.4 2.3

Sheep 2.5
3.7 4.5

Sheep/Beef
2.6 3.5 3.5

Cropping 3.0 2.4 3.6 2.6

Fruit/Vege 2.0 2.0 2.3 2.5

Other Farm 2.5 2.9 3.0 2.6

5.3 Employment Impacts and Multipliers

In agriculture over the period 1976/77 to 1990/91, direct employment per unit of output has fallen by 11% in dairy/beef, 15% in fruit and vegetable, 34% in "other farming", and an amazing 48% in sheep farming.11 Nor has this fall been simply a result of a switch to sub-contracting because total employment (which includes the downstream impacts of purchases of goods and services) per unit of output has fallen even faster; by 23% for "fruit and vegetables", 32% for "dairy/beef", 45% for "other", and 55% for "sheep farming". The falls in employment show no signs of abating with all sectors showing further decline in direct and total employment per unit of output between 1986/87 and 1990/91. The results imply dramatic improvements in labour efficiency on farms (particularly sheep farms), and a decline in the percentage of inputs coming from off-farm.

TABLE 5.6

DIRECT EMPLOYMENT PER SM (1986/87 prices)



1976/77 1981/82 1986/87 1990/91

Dairy/Beef 18.5
19.8 16.5

Dairy
26.9 24.7 20.8

Sheep 23.7
15.9 12.3

Sheep/Beef
116 14.6 11.1

Cropping 29.5 44.6 10.8 6.5

Fruit/vege 33.6 22.8 29.3 28.7

Other Farm 28.0 41.2 17.5 18.5

The figures for cropping suggest an enormous increase in labour productivity on cropping farms, with total labour per unit output having declined by 56% over the period. The decline is not consistent, with there having been a slight increase in employment:output ratios from 1976 to 1981 and then a dramatic decline from 1986 to 1991. Even though these figures are very imprecise (since the price series for cropping farms is very approximate), and even allowing for the change in definitions of the industry (which occurred between the 1976/77 and 1981/82 inter-industry studies), the magnitude of the decline suggests that cropping farmers have become much more efficient in their use of labour.

TABLE 5.7

TOTAL EMPLOYMENT PER $m (1986/87 prices)



1976/77 1981/82 1986/87 1990/91

Dairy/Beef 47
39 32

Dairy
40 46 36

Sheep 65
38 29

Sheep/Beef
44 35 27

Cropping 81 83 35 27

Fruit/Vege 59 49 52 46

Other Farm 64 71 40 35

Employment multipliers have declined 9% for fruit and vegetable, 17% for "other farming", 14% for sheep, and 24% for "dairy/beef" over the period 1976/77 to 1990/91. This is consistent with a reduction in farm purchases and an increase in farm self-sufficiency. Any increase in self-sufficiency seems to have arisen from increased on-farm labour productivity because, as noted earlier, direct employment:output ratios have also been declining.

The employment multiplier for "Dairy" increased from 1.5 to 1.9 between 1981/82 and 1986187 although it has since declined to 1.7. This rise from 1981/82 to 1990/91 is rather surprising given the decline in the output multiplier for the period and the decline in real milkfat prices. The result suggests that the efficiency of on-farm labour on dairy farms has been increasing much faster than the efficiency of off-farm labour in the industries supplying inputs.

TABLE 5.8

EMPLOYMENT MULTIPLIERS PER $m (1986/87 prices)



1976/77 1981/82 1986/87 1990/91

Dairy/Beef 2.6
2.0 1.9

Dairy
1.5 1.9 1.7

Sheep 2.7
2.4 2.4

Sheep/Beef
3.0 2.4 2.4

Cropping 2.7 1.9 3.3 4.1

Fruit/vege 1.8 2.2 1.8 1.6

Other Farm 2.3 1~7 2.3 1.9
5.4 Forward Linkages for Agriculture and Forestry

The estimates of forward linkages (see Table 5.9) reveal enormous changes in both agriculture and the processing industries. The multiplier (including forward linkages) for sheep declined from 4.7 in 1976/77 to 3.8 in 1986187, while the "beef and dairy" multiplier remained at 3.8 in 1976/77,1986/87 and 1990/91. Of much greater significance are the changes in the numbers of people employed per unit of output. In 1976/77, beef and dairy farming generated 71 jobs per $ million of output (1986/87 prices), but by 1990/91 this had declined to only 38 jobs. For sheep farming, the figure had fallen from Ill jobs per $ million of output to 40 jobs, and in forestry the figure had fallen from 220 jobs to only 71 jobs.

The declines are attributable to increased productivity both on farms and in forests, and in the processing industries. There is also some impact through a change in the mix of processing over time, although the effect is not particularly significant.

5.5 Calculation of Forward Linkages

Table 5.9 shows the calculation of multipliers including forward linkages over the period 1976177 to 1990/91 for a number of industries. An explanation of analysis contained in, and the interpretation of, table 5.9 is necessary. "Sheep" in 1990/91 will be used for this example.

In 1990191, output of sheep was $2,327 at 1990/91 prices, or $2,227 at 1986/87 prices. An estimated 25% of this production (greasy wool and live sheep sales) went direct to final demand. A further 24% went to wool scours for processing, and a further 51% went to meat processing works, Direct employment: output ratios for the three industries (sheep production, wool scours, and meat processing) are as shown in the table. using the technical coefficients in the input output table, we find that for every $1 of "sheep" production there is $1 of "sheep" inputs, that for every $1 of "wool scouring" production there is $0.75 of ttsheep" inputs, and that for every $1 of "meat processing" production there is $0.45 of "sheep" inputs.

Using the above information we can deduce that $1 million of "sheep" production will lead to the following sales to final demand:

(i) $0.25 million of "sheep";
(ii) $0.32 million (= $0.24/0.75) of "wool scouring";
(iii) $1.13 million (= $0.Si/0.45) of "meat processing";

Given that we have employment: output ratios and multipliers (which include backward linkages only) for each of these industries, we can calculate the final direct and total employment effects flowing from the $1 million of initial "sheep" production as follows:



Output change
Employed/ $ million
Directly Employed
Employment multiplier
Total employed











(i) 0.25 x 1135 = 2.9 x 2.37 = 7











(ii)
0.32 x 1.18 = 0.4 x 19.53 = 7











(iii)
1.13 x 3.77 = 4.3 x 633 = 27

Total Impact






41

There are adjustments for round to total employed impact in table 5.9.

Given that the initial direct employment on farm to produce the initial $1 million of "sheep" was 11.75, the implied "multiplier including forward linkages" is 3.5.

(41 / 11.75 = 3.5).

 

10     Constant price multipliers were not calculated for dairy/beef or for sheep in 1990/91, so constant price comparisons with 1976/77 were not possible.

11     even greater fall in cropping has to be interpreted in light of the earlier comments about definitional changes.

For further information, see hard copy.

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