Sector Overview
The 2003/04 season was a difficult climatic year for farmers. Most regions enjoyed a temperate winter after a dry autumn, followed by a cool, dry spring which tended to flatten out milk production. The main exception to this was Northland, which experienced a second wet and difficult winter and spring.
While late spring and early summer were relatively "normal", most regions experienced very high rainfall in February, particularly in the lower North Island, which saw widespread flooding. Many dairy farms in the region were affected by a disrupted milk pickup, and 50-70 farms were severely affected with pastures and buildings flooded.
Autumn was quite variable, with very dry conditions in the northern half of the North Island, and cool to colder temperatures the further south one travelled.
Most regions recorded good conditions through mid May into June, and most farms are going into winter 2004 with adequate to good pasture covers, but with cows in less than optimal condition.
At the start of the year farmers were spending cautiously, based on forecasts of a payout only slightly higher than 2002/03, and expectations of a further drop in 2004/05. As it turned out, the final payout figure lifted throughout the year, and farmers were considerably buoyed in early June 2004 with the announcement of a final payout for 2003/04 of $4.23/kgMS, and forecasts of a $3.85/kgMS payment in 2004/05.
At a national level, gross farm revenue increases by 18% compared with 2002/03, while cash farm expenditure remains essentially the same. Farmers appeared to make quite a conscious effort to hold spending, particularly in big ticket items such as feed, fertiliser, and repairs and maintenance. Nevertheless, spending was still at a "good maintenance" level.
Despite the lift in the payout, many farmers still recorded a disposable deficit from their farming business, albeit significantly better than that recorded in 2002/03. Of the 100 surveyed farms, 57 recorded a disposable deficit for 2003/04.
As usual, most farmers are budgeting, and hoping, for a more normal climatic season in 2004/05 and, on the basis of this, an increase in production. While the payout for next season is down, the increase in production, and a better deferred payment relative to 2003, sees gross farm revenue at the national level dropping only 1%. Farmers are maintaining a tight grip on spending and although they are expecting increases in such areas as electricity, fuel, rates and insurance, overall farm working expenditure is very similar to 2003/04. Interest costs are expected to increase as a result of a rise in interest rates, and more tax is likely, due to increased incomes in 2003/04. Most farms are currently budgeting on a bottom-line disposable deficit at more than double the 2003/04 level. While most farms are in reasonable financial shape, this would be the third year in a row in which the farm business has made a deficit. Many dairy farms have off-farm income and this, and some increased borrowing, is necessary to cover the deficit.
Table 1: Profitability Trends (Net Trading Profit ($))
2000/01 |
2001/02 |
2002/03 |
2003/04 |
2004/05f | |
Northland |
168,117 |
155,677 |
91,366 |
73,263 |
79,563 |
Waikato/Bay of Plenty |
157,055 |
180,188 |
61,019 |
92,532 |
84,495 |
Lower North Island |
167,666 |
172,830 |
43,467 |
86,903 |
72,804 |
Canterbury |
405,000 |
397,900 |
104,000 |
180,116 |
143,470 |
Southland |
405,245 |
344,145 |
43,493 |
93,170 |
89,867 |
New Zealand Weighted Average |
181,711 |
191,025 |
48,739 |
85,029 |
61,428 |
There is significant interest in once-a-day milking, with many farmers doing this, or proposing to do it, from Christmas onwards. Some are intending to milk once-a-day for the full season in 2004/05, and will undoubtedly be watched closely by their fellow farmers.
While 2003/04 was a difficult year for many, the recently announced increase in payouts means most farmers are heading into 2004/05 quietly optimistic about their industry.
Contact for Enquiries
Farm Monitoring Programme Manager
Monitoring and Evaluation
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
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