Farmers’ returns are struggling to keep up with the mainly inflation caused cost price squeeze, a new Lincoln University survey has found.
In recent times just over a quarter of farms obtained 30 per cent or more of their income from ‘off-farm’ to help bolster the books.
The farm survey obtained data on contemporary net capital ‘gains’ and returns from 400 farmers.
Analysed and reported on in an article* by Lincoln academics Bruce Greig, Peter Nuthall and Kevin Old, it “provides food for thought and debate over the overall profitability of farming, and the consequent future of family farms which have traditionally been the cornerstone of rural society.”
Associate Professor Nuthall said off-farm income was “surprisingly high with an average across all farms of nearly 25 per cent of net income. In an increasingly uncertain world, this diversification is sound.”
“Annual net cash returns and net capital gains provide farmers with their actual and potential monetary rewards, which respectively on average are not as high as might be imagined.”
He said over time farmers need to become more efficient just to cover the cost price squeeze, which is a constant feature of contemporary agriculture and horticulture.
“The Consumer Price Index indicates an annual compound change of 5.1 per cent. The survey shows the farm cash surplus is barely holding its own.”
He said the best performers in this survey were arable, dairy support and some horticultural operations.
The ‘all farms’ averages also showed real net capital gains have been close to zero on average, over the long term.
“Given the low level of annual return (2.5 per cent on capital in recent years), and virtually zero net real capital gains, it is clear farmers, and their families, must obtain many side benefits from farm life compensating for the low returns.
“Rural living seemingly does suit many families. The real issue is whether they cover their cash costs and have sufficient income left for a reasonable way of life.”
Net cash returns per full time labour input including the manager was $74,000.
There was considerable variability with 14% showing a cash surplus of $200,000 or greater, while 8.1 per cent returned a cash loss.
“However, given the non-monetary benefits from primary production farmers are most unlikely to become purely economically rational. There is no reason to believe this situation is likely to change in the foreseeable future, leaving rural societies to carry on much as they are today, except perhaps with smaller populations as farms amalgamate.”
* Bruce Greig, Peter Nuthall & Kevin Old (2018): The reality of net capital gains and annual profit on NZ primary producing businesses: data from a recent survey of all farm types,Kōtuitui: New Zealand Journal of Social Sciences Online, DOI: 10.1080/1177083X.2018.1489291