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New Zealand Agricultural Policy Reform and Impacts on the Farm Sector

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New Zealand Agricultural Policy Reform and Impacts on the Farm Sector NEW ZEALAND AGRICULTURAL POLICY REFORM AND IMPACTS ON THE FARM SECTOR: Detailed Historical Analysis Addressing the Issue of the Specificity of the Farm Sector Daniel-M. Gouin Noella Jean JohnRFa~eather Research Report No. 230 December, 1994 Agribusiness & Economics Research Unit PO Box 84 Lincoln University CANTERBURY Telephone No: (64) (3) 325 2811 Fax No: (64) (3) 325 3847 ISSN 1170-7682 ISBN 0-909042-03-9 AGRIBUSINESS & ECONOMICS RESEARCH UNIT The Agribusiness and Economics Research Unit people is potentially available to work on research (AERU) operates from Lincoln University providing projects. A wide diversity of expertise is therefore research expertise for a wide range of organisations available for the AERU. concerned with production, processing, distribution The major research areas supported by the AERU finance and marketing. include trade policy, marketing (both institutional and consumer), accounting, finance, management, The AERU operates as a semi-commercial research agricultural economics and rural sociology. In addition agency. Research contracts are carried out for clients on to the research activities, the AERU supports a commercial basis and University research is supported conferences and seminars on topical issues and AERU by AERU through sponsorship of postgraduate research staff are involved in a wide range of professional and programmes. Research clients include Government University related extension activities. Departments, both within New Zealand and from other countries,. international agencies, New Zealand Founded as the Agricultural Economics Research Unit companies and organisations, individuals and farmers. in 1962 from an annual grant provided by the Research results are presented through private client Department of Scientific and Industrial Research reports, where this is required, and through the (DSIR), the AERU has grown to become an publication system operated by the AERU. Two independent, major source of business and economic publication series are supported: Research Reports and research expertise. DSIR funding was discontinued in Discussion Papers. 1986 and from April 1987, in recognition of the development of a wider research activity in the The AERU operates as a research co-ordinating body agribusiness sector, the name of the organisation was for the Department of Economics and Marketing, changed to the Agribusiness and Economics Research Department of Farm and Horticultural Management Unit and the Department of Accounting and Valuation. This means that a total staff of approximately 50 professional AERU MANAGEMENT COMMITTEE 1994 Professor AC Bywater, RSc., Ph.D.) (Professor ofFann Management) Professor A C Zwart, B.Agr.Sc., M.Sc., Ph.D. (Professor of Marketing) AERU STAFF 1994 Director Professor A C Zwart, BAgr.Sc.> M.Sc., Ph.D. Senior Research Officer J R Fairweather, B.Agr.Sc., B.A., Ph.D. Research Officer G Greer, BAgr.Sc. (Hons) C Peebles, B.P & R Mgt, P.G. Dip. P R & T Visiting Research Officen Daniel-M. Gouin, BAgr.Sc., M.Sc., Doctorat (Grenoble) Noella Jean, B.Agr.Sc., D.E.A. (Grenoble) Secretary JGClark CONTENTS LIST OF TABLES ............................................................................... i LIST OF FIGURES ............................................................................ iii PREFACE .. ...................................................................................... vii ACKNOWLEDGEMENTS .................................................................. .ix SUMMARy ....................................................................................... xi CHAPTER 1 INTRODUCTION ......................................................... 1 CHAPTER 2 THE CRISIS OF REGULATION IN THE NEW ZEALAND ECONOMy ....................................................................... 5 2.1 Introduction .......... '" .............................................................. 5 2.2 The Origin of the Crisis ............................................................. 5 2.3 A Keynesian Reaction to the Economic Crisis ................................... 7 2.4 Public Debt Out of Control ........................................................ 11 2.5 The Farm Sector at the Front Line of Economic Reform ....................... 15 CHAPTER 3 THE DISMANTLING OF AGRICULTURAL POLICIES ... 17 3.1 Introduction .......................................................................... 17 3.2 The Cost of Agricultural Policy ................................................... 18 3.3 Agricultural Policy at the Beginning of the Reforms ........................... 22 3.3.1 Programmes to Develop Investment.. ................................. 23 3.3.2 Income Support and Stabilisation Programmes ...................... 24 3.3.3 Programmes for Input Subsidies ...................................... 26 3.4 Agricultural Policies in Revision .................................................. 27 3.4.1 The New Macro-economic Context ................................... 29 3.4.2 The Transition Programmes ............................................ 32 3.5 Agricultural Policies in the 1990s ................................................. 34 3.6 Conclusion ........................................................................... 35 CHAPTER 4 STRUCTURAL CHANGES ........................................... 37 4.1 Introduction .......................................................................... 37 4.2 Concentration in the Production Sector .......................................... 38 4.2.1 The Number of Farms .................................................. 38 4.2.2 The Utilisation of Agricultural Land .................................. .42 4.2.3 An Analysis of the Farming Area and of Livestock by Size of Farm ............................................................................. 46 4.3 The Use of Labour in Farming .................................................... 50 4.4 Change in the Levels of Production and Agricultural Exports ................. 53 4.4.1 The Increase in Production Stopped ................................... 53 4.4.2 The Lowered Value of Food Exports ................................. 56 4.5 Conclusion ........................................................................... 58 CHAPTER 5 THE EVOLUTION OF FARM INCOME. ......................... 61 5.1 Introduction ............................................................... '" ........ 61 5.2 The Terms of Exchange for the Farm Sector .................................... 61 5.3 The Economic Results for Sheep Farms ......................................... 65 5.3.1 The Long-Term Evolution of Incomes .. '" ........................... 66 5.3.2 An Increase in Productivity ............................................. 69 5.3.3 Incomes and Expenditures ........................ '...................... 73 5.3.4 High Pressure on Cash Flow .......................................... 77 5.3.5 A General Strategy of Adaptation ...................................... 78 5.4 The Economic Results of Dairy Farms ........................................... 79 5.5 The Evolution of Farm Incomes in Relation to Average Income in New Zealand Economy ......................................................................... 82 5.6 Conclusion ........................................................................... 85 CHAPTER 6 GENERAL CONCLUSION ........................................... 87 6.1 Introduction .......................................................................... 87 6.2 The limitations of this Research ................................................... 87 6.3 Summary ............................................................................. 88 6.4 The Specificity of the Farm Sector Questioned .................................. 91 REFERENCES ................................................................................. 97 ANNEX 1 ...................................................................................... 101 List of Annex 1 Tables ................................................................. 103 Annex 1 Tables ......................................................................... 105 ANNEX 2 The Deregulation of the Domestic Market the Case of the Town Milk Industry ............................. ........................................... 135 Too Many Regulations Until 1984 ................................................... 135 Gradual Deregulation from 1985 to 1993 ........................................... 136 Did the Partial Deregulation Benefit the Consumer ? .............................. 137 Total Deregulation as of 1993 ......................................................... 137 Conclusions to Be Drawn from the New Zealand Deregulation Experience .... 138 LIST OF TABLES Table 3.1. Change to Agricultural Programmes Since 1984 ................................. 29 LIST OF FIGURES Figure 2.1. Current Account Balance of Payments, New Zealand, 1960-1993 ............ 6 Figure 2.2. Unemployment Rate, New Zealand, 1970-1993 ................................. 7 Figure 2.3. Contribution of Farm Sector to GDP, New Zealand, 1972-1993 .............. 8 Figure 2.4. Agrifood Sector as a Percentage of Total Exports, New Zealand, 1970- 1993 .................................................................................................. 9 Figure 2.5. Annual Government Surplus as % of GDP, New Zealand, 1960-1992...... 11 Figure 2.6. Total Public Debt in Current Dollars, New Zealand, 1960-1993 .............. 12 Figure 2.7. Total Public Debt as % ofGDP, New Zealand, 1960-1993 ..................
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