Drought costing farmers $1.24 billion

The drought currently dogging many parts of rural New Zealand is forecast to cost farmers around $1.24 billion this financial year, Agriculture Minister Jim Anderton said today.

A Ministry of Agriculture and Forestry (MAF) report estimates the impact of recent extreme dry weather across New Zealand as removing $1.24 billion from the farmgate, as a result of falls in production and increases in unexpected costs such as feed supplementation.

The report says the cost is based on the change in “farm profit before tax” between the original budgeted positions prepared in July last year and an updated budget prepared in February this year. Those budgets were compiled as part of MAF’s Farm Monitoring model.

The analysis shows that the cost of the 2007-08 drought is $894 million for dairy farming and $345 million for sheep and beef farming. That works out as $25,200 for the average sheep and beef farm and $79,400 for the average dairy farm. However, as these are average estimates across New Zealand, farmers in more acutely affected regions are facing much larger losses.

Some individual sheep and beef farmers are forecast to have income reductions in excess of $100,000, resulting in overdrafts being capitalised back into mortgages and reducing equity at a time when interest rates are high.

Jim Anderton said that while the cost of the drought was significant for dairy farmers, their overall financial position in this financial year was still significantly better than last financial year, because of the much higher dairy milksolids payout.

“Sheep and beef farmers are in a very weak financial position, following two years of poor profitability. The drought couldn’t have come at a worse time in the commodity price cycle for our dry stock farmers.

“Significant flow-on effects are likely next financial year because of expected lower lambing percentages, reduced wool production, reduced capital stock, and animals in poorer condition going into next spring.

MAF’s Farm Monitoring models do not estimate the cost to the country, or the impact on GDP, from the drought. This is significantly more complex to model and will not be known until the financial year is complete.

“There can be no question that the impacts of this drought on farming families, rural communities and the rest of New Zealand are severe and will be felt for several years to come.”