Farm Incomes Likely To Fall In 2002

Monday 4 March 2002

It is likely that farm incomes will fall from the spectacular levels seen in the last couple of years, according to WestpacTrust’s quarterly agribusiness publication Agribiz, released today.

The tentative recovery in New Zealand’s main trading partners will mean subdued commodity prices for the rest of the year and the improved domestic economic outlook is likely to mean higher interest rates later in the year. February’s Agribiz examines how both trends will affect farm income and land prices.

WestpacTrust Agriculture Economist Richard Sullivan said: “Despite a likely fall in farm income, returns will still be relatively good when compared to the last decade. What farmers do have to be wary of is the likelihood of the capital value of their farms falling in line with commodity prices.”

February’s Agribiz examines how land prices have risen rapidly recently and asks if this is in fact a double-edged sword. While the recent surge in land prices has strengthened farm balance sheets, it can have the opposite effect when land prices decline, particularly for those who purchase at the higher price level.

It also examines how falling commodity prices, falling land prices and higher interest rates effect farm profits and capital structure.

“While farm incomes are expected to drop, profitability should remain good,” said Mr Sullivan. “But, the capital structure of the farm business may be undermined, and as such some financial prudence may be advisable.”

WestpacTrust forecasts New Zealand’s economy to grow above 2% this year on the back of strong domestic activity, in particular housing and retail. This level of growth should see New Zealand near the top of the OECD growth ladder as our major trading partners struggle out of recession.

“The good incomes earned over the last couple of years from exporters will be spent and invested in New Zealand, ensuring New Zealand gets through the global economic slowdown in good shape,” said Mr Sullivan.

ENDS

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