Dollar versus Drought

Dollar versus Drought

Bruce Wills is the president of Federated Farmers and a version was published in the Dominion Post

Drought is a low point for any farmer and passing drizzle on the day Hawke’s Bay requested drought be declared seemed like nature’s way of pulling a practical joke.

Our farm joins others as far afield as Northland and the West Coast that are in or fast approaching drought. If you want the economic bill, ANZ puts it at $1 billion and counting.

With anything affecting farmland there is a lot of interest and comment. Some of it has been supportive, some regretfully not. What I can say is that the days of ‘farmer welfare’ are long gone.

It surprises many to discover the biggest thing farmers welcome from an official declaration is psychological. A declaration confirms events have spiralled well beyond your control as a farmer so it is okay to ask for farm advisory and counselling services; largely delivered by the Rural Support Trusts. This is about speeding recovery and helping families to cope with huge business and personal stress.

An official declaration tells the banks just how bad things are and if farmers keep their banks fully informed, I am confident the banks will work with them in return. It also means that Inland Revenue has discretion on things like Income Equalisation, but you are not excused any tax obligations.

While there are ‘Rural Assistance Payments’ I couldn’t get one. These are for genuine hardship and test both farm and off-farm income. In January 2011 during the last major drought, fewer than 100 farmers out of some 25,000 commercial pastoral farms qualified. Support from the Ministry for Social Development and Inland Revenue may prove more beneficial to farm workers as drought reaches into our communities.

We of course activated our 0800 DROUGHT feed line and industry good bodies like Beef+Lamb NZ, FAR, DairyNZ through to the Ministry for Primary Industries have released vital advice.

Like all farmers we adapt to our ever changing climate and on our farm that includes building 60 dams over the past five years. With no water I am digging them deeper to increase storage when it does eventually rain.

But given how tough things are it makes me shake my head at the New Zealand dollar.

Driving to Wellington from the Hawke’s Bay I noticed the condition of livestock seemed to be very good but there wasn’t many about. DairyNZ indicates large swathes of North Island dairy production is now down between 15-20 percent on 2012. We are not anticipating positive news from Beef+Lamb NZ’s coming mid-season update and to top it all off, the latest overseas merchandise trade statistics were ugly.

A gravity defying dollar ignores that with a fair proportion of the dairy season left to run, dairy farmers are either on once a day milking or considering drying their cows off until August. Federated Farmers Grain & Seed is working with feed manufacturers to see if they can economically get South Island feed into the North Island. This could extend the season for dairy and help sheep and beef farmers to get their remaining stock up to target weights.

But when you put dairy together with the way meat and fibre farmers rapidly destocked over summer, New Zealand’s two leading exports are under the gun. What is overlooked is that the drought-hit North Island is now the centre for New Zealand’s sheep and beef cattle industry. .

It is why Federated Farmers agrees with the Reserve Bank Governor Graeme Wheeler; New Zealand’s economic fundamentals provide no justification for the overvalued Kiwi dollar. Of course we could print money but that is like throwing a hand grenade into a confined space.

Like Graeme Wheeler, farmers are telling the Government that it must take the pressure off the dollar through prudent spending choices. While a strong Kiwi is here for a while investors need to know just how risky buying an overvalued Kiwi is. Yes our economy is ‘less bad’ than the sequestered United States or Europe, where dole queues grow daily, but it is still bad. The dollar is why we need policy reform to help exporters become as competitive as they can be; making the best of a rum situation. Following the 2010 Southland snowstorms and with drought in the North Island, we were shocked to learn it was cheaper to freight feed into the North Island from Australia than it was from Bluff. What does that say about productivity?

One positive thing government is doing is supporting regional drought proofing but on a commercial basis. I actually predict 2013 rainfall will be average and floods later this year will prove how much water we do get. But it seems obvious to store water over winter to use in summer; much like we are doing at my farm on a smaller scale.

Right now our dollar is a balloon and drought declarations ought to be the sharp pin. Given the droughts of 2007-9 cost New Zealand $2.8 billion and were tipping points for the last recession, investors buying the Kiwi ignore reality at their peril.

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