Methodology and calculations used in the models

How the models were created

The model orchards, vineyards and farms depicted in these reports are representative of their farm type within each region. Each horticulture and arable model is created from information drawn from up to 20 properties and a wide cross section of agribusiness representatives. Each pastoral model is created from information drawn from between 20 and 90 farms, depending on the model and a wide cross section of agribusiness representatives.

The aim of each model is to typify an average orchard, vineyard or farm for the region. Budget figures are averaged from the contributing properties and adjusted to represent real orchards, vineyards and farms. Income figures include off-orchard/vineyard/farm income, new borrowing, and other cash income. Expenditure figures include costs of management, production, debt, leasing, drawings, and other land development and capital purchases.

Monitoring is continually being improved to meet the needs of the users of this information. From time to time, the models are revisited and changes may be made. Bear this in mind when making comparisons between years.

Calculations used in the models

Part of the objective of the MAF models is to show the profitability of the models on a cash-in/cash-out basis for the season, before the introduction of outside funds such as off-orchard revenue, introduced funds or new borrowing. Prior to 2007, this bottom line was depicted as the disposable surplus/deficit. This included such expenditure as capital expenditure, principal repayments and development expenditure, but excluded outside (off-orchard/vineyard/farm) funds. This has been replaced by the orchard, vineyard or farm surplus for reinvestment.

Orchard, vineyard or farm surplus for reinvestment

The orchard, vineyard or farm surplus for reinvestment represents the cash available from the business after meeting living costs, which may be invested in the business or used for principal repayments. It is calculated as follows:

discretionary cash;
less off-orchard/vineyard/farm income and drawings.

Economic orchard, vineyard or farm surplus

The economic orchard, vineyard or farm surplus (EOS, EVS or EFS) depicted in the model budgets is calculated as follows:

net cash income;
less working expenses (excluding interest, rent and lease costs);
plus the change in pastoral livestock value (if applicable);
less depreciation;
less wages of management (WOM).

Wages of management

For the kiwifruit, pipfruit, viticulture, arable, deer and sheep and beef models, WOM is calculated as follows:

$31 000 allowance for labour input;
plus 1 percent of total capital as managerial reward.

For these models an upper limit for WOM of $75 000 has been set.

For the dairy models, WOM is calculated as follows:

$38 000 allowance for labour input;
plus 1 percent of total capital as managerial reward.

For the dairy models an upper limit for WOM of $85 000 has been set.

Dairy payout calculations

Definition of a financial year

The MAF dairy models work on a financial year of 1 July to 30 June. The payout within the year is a combination of the advance payment to 20 June for the current year and the deferred payment made in July through to October from the preceding season.

Payment in 2008/09

The deferred payment on the 2007/08 production was $1.00 per kilogram of milksolids. The advance payment to 20 June 2009 is calculated as $4.15 per kilogram of milksolids, as per the schedule from Fonterra. No value add payments were made within the season – the total value add payment of 45 cents per kilogram of milksolids will be paid as part of the deferred payment made in the 2009/10 year.

Payment in 2009/10

The deferred payment on the 2008/09 production was $1.05 per kilogram of milksolids. This gives a total payment for the 2008/09 season of $5.20 per kilogram of milksolids¹. The 2009/10 budgets include an advance payment to 20 June 2010 calculated as $3.77 per kilogram of milksolids. This is made up of $3.60 commodity milk price (Fonterra’s May 2009 forecast advance payment rate to 20 June 2010), plus 17 cents per kilogram of milksolids value-added payment (based on 85 percent of the season’s milk production attracting the 20 cents per kilogram payment – made in April based on production to the end of February).

The exception to this is Canterbury and Southland which produce approximately 70 percent of production before the end of February. This means that in 2009/10, the value-added advance is equivalent to 14 cents per kilogram of milksolids, giving a total advance to 20 June 2010 of $3.74 per kilogram of milksolids.

Model details

Data collection for the models is contracted out. The dairy and deer data is collected by Agriculture NZ Ltd. The sheep and beef data is supplied by Meat & Wool New Zealand (M&WNZ) from the M&WNZ sheep and beef farm survey. Kiwifruit and viticulture data is collected by Fruition Horticulture Ltd. Pipfruit data is collected by AgFirst Consultants Hawkes Bay Ltd. Arable data is collected by McFarlane Rural Business Ltd.

¹ In 2008/09 Fonterra reduced the deferred payment for the 2007/08 year through a retention. At the time of publication of the 2009 MAF farm monitoring reports there was no indication about retentions relating to other years.

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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