The latest MPI report on the state of NZ agriculture points to another good year ahead – with export revenue from the primary sector expected to rise by 3.3% in the year ending June 2020.
Published late last year, the Situation Outlook for Primary Industries (SOPI) report paints a generally rosy picture for the farming and horticulture sectors. It forecasts the primary industry’s total export revenue will hit $47.9 billion for the coming year.
This revenue increase will come from an 8.4% increase in dairy export earnings – meaning it will earn $19.6 billion dollars. Meat and wool will reach $10.4 billion – up 2.5%. Meanwhile, current sector darling, horticulture’s revenue will increase by 4.7% to reach a total of $6.4 billion.
This is both impressive and vitally important for the future well-being (to use the current Government’s own twee terminology) of New Zealand’s economic future.
However, this same rosy report points to a worrying cloud on the sector’s horizon – dangerously high levels of debt in dairy farming. While it expects dairy export revenue to rise and a combination of factors leading to high farm gate milk prices and robust profitability for the coming season.
However, the report devotes an entire section on the debt issue. Headed: ‘financial vulnerability in the dairy sector’; and notes that while the use of debt to fund business and industry growth can play an important role in economic success. But says it appears that with this expansion, the risk level has in the dairy sector has increased significantly.
It also highlights that more than a quarter of NZ’s dairy farmers have debt to equity ratios of more than 70% — with some having as little as 4% equity in their properties. The report notes that over the last two decades, dairy farm debt has increased by 267% since 2003 – resulting in total dairy sector debt now standing at $41.4 billon.
MPI, quite rightly, warns that with such high debt levels owners of these farms may not be able to meet the challenges and changes which lie in store for the sector. It warns of problems in the future for those farming operations that are heavily indebted to meet the suite of environmental requirements that are already in place or have been signalled by the government.
