- 1.1 Project and Client
- 1.2 Objectives
- 1.3 Methods
- 1.4 Results
- Table S1 Average farm debt and estimated agricultural sector debt in New Zealand
- Table S2 Comparison of agricultural sector debt for 1988 and 1998
- Table S3 Change in total average debt by farm type between 1988 and 1998
1. Summary
1.1 Project and Client
This study was commissioned by the Ministry of Agriculture and Forestry to determine the level and structure of farm debt in New Zealand in 1998. The research was carried out by Landcare Research, Lincoln, in 1998–99.
1.2 Objectives
- To provide a reliable estimate of debt levels across all farms in New Zealand, by type of farm, for the accounting year ending June 1998 (or other appropriate 1998 balance date).
- To interpret this data in the context of assets owned on the same farms.
- To compare current debt levels with debt levels in 1995.
- To compare current debt levels with those measured in an earlier survey, conducted in 1988.
1.3 Methods
We surveyed 881 farms in five sectors (sheep and beef, dairy, horticulture, cropping, and "other" types).
1.4 Results
Farm debt
Overall, 90 percent of farms reported some form of debt. A slightly higher percentage of cropping and dairy farms reported debt than sheep and beef, horticulture, and "other" farms.
Among the 790 farms reporting liabilities, there was a total of 2712 individual loans, an average of 3.4 loans per farm reporting liabilities. The average amount of each individual loan was $92,900. The largest source of term funds was trading/trustee banks, followed by loans from family members. The largest sources of funds for seasonal finance were bank overdrafts and revolving credit facilities. Trading and trustee banks provided 68 percent of the total funds advanced to the respondents, and family members 12 percent.
Taking into account the size of the average liability and the number of individual loans, the greatest use of borrowed funds was for farm purchase, followed by farm running costs.
Average total debt per farm was highest for dairy farms and cropping farms (Table S1). Average debt levels on dairy farms and cropping farms were more than double those on sheep and beef farms, and approximately 3 times those on horticulture and "other" farms.
About 20 percent of total debt was in the form of current liabilities; current liabilities appeared to be a greater proportion of total debt on cropping farms (26.5 percent) and on horticulture farms (37.7 percent) than on other farm types.
Median total debt for all farm types was substantially less than average debt. For sheep and beef, dairy, and cropping farms, median debt was about 65 percent of average debt; the figure for horticulture was 42 percent and for "other" farms 57 percent. This indicates that average debt levels were substantially skewed by a relatively small number of farms with much higher debt than other farms. The average farm debt (weighted over all types of farm) was $285,957 per farm (Table S1).
Average total liabilities increased with farm size across all farm types. Fifty-three percent of horticultural farms had liabilities less than $100,000, as did 48 percent of "other" farms and 41 percent of sheep and beef farms. On the other hand, 35 percent of dairy farms and 28 percent of cropping farms had total liabilities in excess of $600,000.
Table S1 Average farm debt and estimated agricultural sector debt in New Zealand
Farm type |
Average total liabilities per farm |
Total farms in New Zealand (from Agribase) 1 |
Total
debt by farm sector |
||
All farms |
Farms with liabilities |
||||
Sheep-beef |
$227,999 |
$261,222 |
33 860 |
$7,720 |
|
Dairy |
$507,059 |
$530,372 |
15 124 |
$7,669 |
|
Horticulture |
$166,488 |
$178,552 |
4 676 |
$778 |
|
Cropping |
$500,951 |
$516,132 |
1 371 |
$687 |
|
Other |
$179,069 |
$207,848 |
10 456 |
$1,872 |
|
Total |
$285,957 |
$318,956 |
65 487 |
$18,726 |
|
2 Based on the number of farms, not farmers or farm businesses. Not all farms in the survey were of sufficient size to be regarded as stand-alone farm businesses. Independent estimates suggest that New Zealand farm business debt, where the debt is serviced from the farming business was approximately $14 billion as at June 1998.
With the exception of dairy farms, the ratio of total liabilities to gross income (a crude measure of farm viability) decreased with farm size, indicating a smaller proportion of debt in relation to annual gross income with an increase in farm size, and therefore an improved viability for larger farms. For example, the ratio was 3.4 for small sheep and beef farms compared to 1.2 for large farms. The ratio was 3.7 for small cropping farms, compared to 1.7 for large farms; and 8.5 on small horticultural units, compared to 0.8 on large units.
Land represented around 70 percent of the value of total assets. Dairy farms had the highest average total asset value of all farm types and horticulture farms the lowest. The average value of dairy farms was 2.4 times higher than the average value of horticultural farms in the sample, 30 percent greater than sheep and beef farms, and 8 percent greater than cropping farms.
A substantial number of farms had equity of more than 80 percent of the value of total assets, in particular those with sheep and beef, horticulture, and "other" farms. Eighty-three percent of sheep and beef farms had more than 60 percent equity, 64 percent of dairy farms, 68 percent of horticulture farms, 69 percent of cropping farms, and 75 percent of "other" farms. Just over 1 percent of sheep and beef, dairy, and "other" farms had negative equity.
Larger farms tended to have lower percentage equity than smaller farms. However, because larger farms also had lower liabilities in proportion to gross income than smaller farms (with the exception of dairying), they potentially have the ability to service their greater debt.
Because of the number of farms of each type in the survey, the estimates for total debt on all farms, sheep and beef farms, and dairy farms, are more reliable than the estimates for horticulture and cropping. The 95 percent confidence intervals for total liabilities of dairy and cropping farms was significantly above those for the other farm types and for the average of all farms.
Agricultural sector debt
Based on our survey data for 1998, we estimate there were 65 487 farms in New Zealand, with a total debt of $18.7 billion. This estimate of total agricultural sector debt is dependent on knowing the number of farms in New Zealand. Various estimates of the number of farms in New Zealand exist, depending on the purpose of the information and the definition of a "farm". There is uncertainty in determining the point at which a farm should be considered a lifestyle farm.
Not all farms included in the total number of farms (65 487) were of sufficient size to be regarded as stand-alone farm businesses. For this reason the reported level of national farm debt does not only relate to on-farm businesses. Industry estimates suggest that New Zealand farm business debt, where the debt is serviced from the farming business, was approximately $14 billion as at June 1998.
After converting 1988 data to 1998 dollar values, average debt per farm increased by 91 percent between 1988 and 1998, while New Zealand’s total agricultural sector debt increased by 53 percent in the same period (Table S2). The percentage increase in debt per farm is greater than the increase in the debt over the whole sector because there were fewer farms in 1998 (65 487) than in 1988 (82 063). This apparent reduction in the number of farms is due in part to differing definitions of a farm, so the increase in total agricultural sector debt may be different from the 53 percent reported here.
Table S2 Comparison of agricultural sector debt for 1988 and 1998
1988 debt |
1988 debt corrected to 1998 dollar values 1 |
1998 debt |
Change |
% change |
|
$ per farm 2 |
$115,273 |
$149,486 |
$285,957 |
$136,471 |
91 |
| New Zealand ($ million) |
$9,459 |
$12,266 |
$18,726 |
$6,460 |
53 |
2 Across all farms, including those reporting no liabilities.
From 1988 to 1998, average debt levels increased on all farm types; they increased most on dairy and cropping farms and least on horticultural farms (Table S3). There was a 36 percent increase in average debt per farm for sheep and beef farms.
Table S3 Change in total average debt by farm type between 1988 and 1998
| Farm type 1 | 1988 |
1988 debt corrected to 1998 dollar values3 |
1998 |
Change (1998 dollar values) |
Percent change |
Sheep and beef |
$127,008 |
$167,651 |
$227,999 |
$60,348 |
36 |
Dairy |
$127,688 |
$165,599 |
$507,059 |
$341,460 |
206 |
Horticulture |
$133,004 |
$154,364 |
$166,488 |
$12,124 |
8 |
Cropping |
$108,965 |
$140,194 |
$500,951 |
$360,757 |
257 |
2 Across all farms, including those reporting no liabilities.
3 Inflation adjustment based on PPI: Sheep and beef 1.320; dairy 1.297; horticulture 1.161; cropping 1.287.
Using the ratio of total liabilities to gross income as a crude measure of viability, between 1988 and 1998 the average viability decreased for all sizes of sheep and beef farms, for medium to large dairy farms, for most horticulture units, and for small cropping farms.
The survey also included a comparison of farm debt in 1995 with that in 1998. Between 1995 and 1998, average debt per farm increased substantially only on dairy farms and cropping farms. The increase was not so substantial on the other farm types. The relatively small percentage increase in farm debt between 1995 and 1998, and very large percentage increase between 1988 and 1998, indicates that most of the increase in debt occurred between 1988 and 1995.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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