Economic Impact of the 2007 East Coast Drought on the Sheep and Beef Sector
On-Farm Drought Impacts
As far as possible, the economic impact analysis of the 2007 East Coast drought provided in this report has taken into account the range of impacts of the drought at the farm level, the response of farmers to the drought and the impact of their actions on the financial situation of their operations.
2006-2007 Year
In terms of the drought period farm-level impacts, a review of MAF farm monitoring information, Meat & Wool New Zealand assessments and other documentation, indicates the impacts as including:
- A prolonged six-month period over January to June 2007 of below-average rainfall in the East Coast, particularly in the Hastings and Central Hawke's Bay districts.
- Deteriorating pasture growth during the period to well below normal levels. Cattle feed was critically short on most farms.
- Deteriorating livestock condition and quality. Most capital stock lost weight. Lambing potential was significantly impacted and finishing farms were unable to purchase normal livestock numbers.
- Autumn 2007 re-grassing programmes were hampered by the lack of rain. The arrival of significant rainfall in mid June was too late to build normal feed covers on farms before winter temperatures took effect.
The main responses of East Coast pastoral farms during the 2007 drought period were:
- Use of on-farm supplementary feed or feed brought in from local sources or from outside the East Coast area. Also, some farms sent stock (eg hoggets) to other regions for grazing.
- Selling of trading and some capital livestock (and at lower weights). Approximately 70% of East Coast farms recorded decreased livestock numbers during 2006/07.
- Reduced purchases of replacement stock (trading and capital)
- Deferred second shearing and therefore reduced wool production.
- Expenditure containment and reduction.
Across the whole East Coast region, the main short-term financial impacts during the drought year (2006/07) were as follows:
- Total Net Cash Income (product sales minus stock purchases) increased by approximately 19% in nominal terms compared to the 2005/06 base year results, due to de-stocking/increased stock sales. Total actual Net Cash Income in 2006/07 was also 14% up on the forecast figure for the year, excluding the impact of the drought.
- Total farm working expenditure fell by almost 4%. Farm expenditure in 2006/07 was 4% down on the forecast pre-drought figure for the year.
2007-2008 Year
The anticipated impacts of the drought on the following year’s activity in the beef and sheep farming sector include as follows:
- A reduced production base of livestock due to the selling of capital and trading stock, during the drought period
- This will be exacerbated by a reduction in both lambing and calving rates, and increased loss of new-born lambs and ewes due to tight feed supplies and poor stock condition.
- Reduced wool clip
- Increased cost of stock purchases
- Significantly increased feed costs
Sheep/beef farmers’ actions during 2007/08 in response to the drought include:
- Purchases of sheep and beef for restocking purposes
- Reduced sales of livestock (the focus will be on building up livestock numbers)
- Reduced hogget lambing and culling of ewes
- Less shearing activity
- Further farm expenditure containment
Table 2 provides details on the total East Coast region sheep/beef farming sector main financial variable changes for the 2007/08 production year, in comparison with the previous two years. Forecasts are also provided for the 2008/09 year. The results cover both the ‘without drought’ and ‘with drought’ scenarios. The base information for the table was provided by Ministry of Agriculture and Forestry staff based in Hastings.
Table 2: East Coast Sheep/Beef Farming Sector 2006-2009 Key Financial Impacts Associated with the 2007 Drought
| Total Financial Results / Farm Categories ($M) | Without Drought | With Drought | ||||||
|---|---|---|---|---|---|---|---|---|
| Production Year Ending June | Production Year Ending June | |||||||
| 2006 | 2007 | 2008 | 2009 | 2006 | 2007 | 2008 | 2009 | |
| Gisborne/Wairoa Large Hill Sheep/ Beef Farming | ||||||||
| - Net Cash Income | 223.32 | 237.08 | 235.71 | 255.4 | 223.32 | 270.38 | 168.21 | 191.31 |
| - Farm Operating Expenditure | 150.81 | 156.20 | 159.70 | 167.19 | 150.81 | 141.88 | 138.93 | 159.16 |
| HB/Wairarapa Hill Country Sheep/ Beef Farming | ||||||||
| - Net Cash Income | 394.90 | 388.98 | 423.58 | 461.34 | 394.9 | 421.27 | 327.54 | 372.00 |
| - Farm Operating Expenditure | 249.36 | 244.06 | 243.87 | 257.80 | 249.36 | 237.61 | 218.44 | 251.13 |
| Eastern Lower North Island Intensive Finishing Sheep/Beef Farms | ||||||||
| - Net Cash Income | 213.65 | 241.74 | 239.78 | 258.20 | 213.65 | 294.53 | 167.36 | 170.03 |
| - Farm Operating Expenditure | 138.09 | 138.64 | 140.42 | 147.11 | 138.09 | 138.45 | 124.69 | 138.80 |
| Total All Farms | ||||||||
| - Net Cash Income | 831.87 | 867.8 | 899.07 | 974.97 | 831.87 | 986.18 | 663.11 | 733.34 |
| - Farm Operating Expenditure | 538.26 | 538.9 | 543.99 | 572.10 | 538.26 | 517.94 | 483.06 | 549.09 |
The results from the table for the 2007/08 year were:
- Total Net Cash Income for the East Coast sheep and beef farming sector with the drought impact, is forecast to be down some $323m or 33% on the 2006/07 year, compared to the forecast of a $31m or 3.6% gain made prior to the drought.
- Total income for Gisborne/Wairoa Large Hill farms falls by $102m or 38%; by $94m or 22% for Hawke's Bay/Wairarapa farms; and by $127m or 43% for Eastern Lower North Island intensive farms.
- Total income for all East Coast sheep and beef farms in 2007/08 is 26% down on the pre-drought forecast for the year.
- Forecast total farm operating expenditure for 2007/08 is down approximately $35m or 7% on the 2006/07 figure (with the drought) and also down $61m or 11% on the pre-drought figure for that year.
2008-2009 Year
Total Net Cash Income is forecast to increase by $70m or 10% during the 2008/09 production year, in comparison to the result for the previous year (including the drought impact). However, the 2008/09 income forecast is still $242m or 25% down on the 2008/09 pre-drought forecast. Total farm operating expenditure in 2008/09 is up $66m or 14% on the 2007/08 level (with the drought impact), but down $23m or 4% on 2008/09 (excluding the drought impact).
Total Impact 2007-2009
The overall income and expenditure impacts associated with the drought during the 2006/07-2008/09 period are therefore:
- A Net Cash Income fall of $99 million or 12%. (This compares to a forecast pre-drought gain of $143 million or 17%). The total impact of the drought by the end of the 2008/09 year is therefore a Net Cash Income level for the whole East Coast sheep/beef sector which is approximately $242 million below the forecast level for that year without the drought.
- A total Farm Working Expenditure increase of $11 million (compared to a forecast pre-drought gain of $34 million or 6%)
Expenditure Changes
Detailed Table 3 indicates the profile of total on-farm working expenses (excluding labour and overhead expenses) for the East Coast sheep-beef farming sector for the 2005/06 base year and the following two years, incorporating the impact of the drought.
Table 3: East Coast Sheep/Beef Sector Drought Impact Period Farm Working Expenditure Levels 2005/06-2007/08
| Expenditure Item | Expenditure Levels ($M) | ||
|---|---|---|---|
| 2005/06 | 2006/07 | 2007/08 | |
| Animal Health | 33.8 | 31.5 | 29.5 |
| Power | 7.2 | 7.7 | 8.1 |
| Feed | 10.1 | 18.2 | 16.7 |
| Fertiliser | 68.1 | 57.3 | 53.1 |
| Freight | 9.6 | 10.7 | 10.3 |
| Re-grassing | 9.2 | 9.4 | 9.2 |
| Shearing | 46.9 | 43.5 | 42.1 |
| Weed/Pest Control | 12.6 | 10.0 | 10.4 |
| Fuel | 11.2 | 12.3 | 12.8 |
| Other Vehicle Costs | 22.7 | 20.8 | 19.7 |
| Repairs/Maintenance | 50.6 | 39.0 | 29.7 |
| TOTAL | 282.0 | 260.4 | 241.6 |
Total farm working expenditure falls steadily over 2005/06 to 2007/08, overall by 14%. In the 2006/07 drought year, increased spending occurred with power, feed (up 80%), freight, re-grassing and fuel. Noticeable expenditure reductions were recorded for fertiliser and repairs/maintenance. Other items recording reduced levels of expenditure over the year were animal health, shearing, weed and pest control and vehicle running costs (excluding fuel). Over the current 2007/08 year, increased spending is forecast for power, weed/pest control and fuel, whilst farm spending on animal health, feed, fertiliser, shearing and repairs/maintenance (-24%) drops back. Increased spending is forecast for 2008/09 as farmers catch up on deferred maintenance and restore most inputs to near maintenance levels.
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