Country Could Weather Economic Storm Better Than Cities

The ag-sag of the 1980s influenced my generation as the 1930s depression affected that of my parents. We determined never to be that vulnerable to the vagaries of political and economic cycles again and while many are starting to worry about the economic outlook farmers and rural communities are much better placed than we were 20 years ago.

 

The sudden loss of subsidies plus a high dollar, inflation and interest rates above 20 percent and low commodity prices had a devastating impact in the 80s. Land prices plummeted leaving many of us owing more than the value of what we owned. As we retrenched those who worked for or provided services to us, and processed our produce lost work and customers. Eventually the impact of the ag-sag spread from farms to rural communities and then to towns and cities, and the downturn was then aggravated by the 1987 share crash.

 

Now, interest rates and inflation are higher than desirable, but still well below the levels we faced 20 years ago and not all sectors are getting poor returns. Cropping farmers are enjoying a long awaited upturn and the dairy payout is at record levels. While sheep and beef incomes are dismal it is not like the 80s when farmers received bills for sending stock to the works because the transport and killing costs exceeded the price of the animals.

 

Higher land prices mean most still have good equity in their properties too although rising land values are not going to keep pace with many repeats of last season’s losses. However, while prices have a long way to go to make sheep and beef farming sustainable meat prices are improving and sheep and beef farmers can take heart from what is happening in other sectors.

 

While the rise in dairy and grain prices was anticipated, no-one picked the increase would be as fast and as great as it has been so there is hope for a similar resurgence in the meat industry. Beef prices are on record highs in the United States, it is only the high exchange rate which is diluting the returns to our farmers. The growing demand for protein throughout the world which is helping dairy farmers should transfer into meat prices soon. And the huge decrease in stock numbers in the wake of last year’s drought in Australia and drought and dairy conversions here means demand will outstrip supply and those farmers who have stuck with sheep and beef are well placed to take advantage of that.

 

The ag-sag hit North Otago particularly hard because it coincided with another of the recurring droughts which plagued the district. We’ve had only about 1/4 of our annual rainfall in the first half of the year, but the impact of dry weather will never be as bad as it was 20 years ago because a far greater area is irrigated now.

 

Reserve Bank Governor Alan Bollard is predicting tough  times ahead.

 

Dr Bollard said:

* Household spending – the main driver of economic growth in the 2000s – will contract over the next couple of years, despite the Government’s announced tax cuts.

* Economic growth will come to a virtual standstill this year and will grow well below par at 1.4 per cent in the March 2010 year.

* House prices are forecast to plunge from their peak last year, by 22 per cent when inflation was taken into account.

* Unemployment will almost double to 6 per cent over the next three years and job creation will go backward over the next four years.

In the 80s the recession was felt first and hardest on farms and in the provinces. This time because of the growing international demand for what we produce so well, the outlook for agriculture is brighter which means the provinces may be protected from the worst of what looks like an urban-led downturn.

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