2 Overview of the arable sector

Review of 2005/06

The sectors covered by this report are among the most exposed to world markets and most vulnerable to global influences. There is very little ownership of the industry by the producers beyond the farm gate, so arable farmers and vegetable growers are not as readily able to buffer themselves from price variations as other sectors. The industry is nimble and able to move quickly to fill niche markets.

This combination of attributes has been tough for the industry in 2005/06, with the New Zealand dollar relatively high at the time prices were set, and then falling during the production season. This, coupled with high global prices for energy and the flow-on through other costs, has caught the industry in a pincer situation.

Profitability has taken quite a hit. The arable farm model profitability has fallen 59 percent since 2003, despite a reasonably good production season. The arable, vegetable, and maize industries collectively are not feeling very positive about the future as margins for growers continue to be squeezed. There are more than a few top farmers in Canterbury looking seriously at conversion of part or all of their farms to dairy farming. The vegetable industry nationally continues to suffer from having little influence on processors or consumers. Rationalisation of some global companies has badly affected some regions, particularly the lower North Island, but benefited others, such as South Canterbury. The maize grain and silage industry is under pressure from imported stock feed supplements such as Palm kernel extract (PKE).

Yet New Zealand’s comparative advantages in the seed and the vegetable industries remain. In both cases, this advantage is consistency, reliability, and quality. This year may be a salutary reminder that despite these advantages, other influences may determine future sustainability of an industry. Some factors such as land prices do not fall when one industry suffers declining fortunes. A tight labour market affects all industries, particularly those where margins are tight, but the quality of the produce is often dependent on the skills and common sense of the labour.

Outlook for 2006/07

Arable farmers’ confidence has reportedly dropped after the good 2005/06 harvest, and this situation is likely to continue into the 2006/07 year. Farmer perceptions of the medium-term prices for produce are positive but they are very concerned that if this is as good as it gets, there will be problems maintaining the industry, as the rising costs of production are more than eroding the gains. Internationally, there is an overhang of inventory in many crops so the medium term prospects are subdued. The vegetable industry remains subject to the vagaries of the international market and the relative exchange rates with the main markets.

Farmers are therefore focusing on reducing costs and becoming even more efficient. There is room to improve in this area, but the scope may be limited as the industry has been continually subjected to these pressures for many years.

The recent snow, although making conditions difficult for those with stock, may also clear any overhang of stock feed that remained from the benign 2005 winter. It will also improve the groundwater supply situation that affected many farmers in 2005/06. Furthermore, the predictions are for a lower New Zealand dollar. For arable and vegetable growers who rely on a larger proportion of directly imported inputs than other farm types, this can be a two-edged sword. However, benefits to the pastoral industry from a lower dollar are likely to flow on to the arable sector as purchases of feed and seeds have the potential to alleviate the generally subdued international market scene.

Figure 2.1: Agricultural production census, June 2002 - North Island

Source
Agriculture Production Census, 2002, Statistics NZ.
Note
*ANZSIC categories.
Grain farms mainly grow cereals, including dry peas, maize, wheat, barley, and oats.
Grain and livestock farms mainly grow cereals mixed with sheep and/or cattle farming.
Other farms growing arable crops may be classified as vegetable growing, or crop and plant growing
(not elsewhere classified).

Figure 2.2: Agricultural production census, June 2002 - South Island

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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