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8.0 IMPACTS OF LAND-USE CHANGE ON FARMING AND MEAT PROCESSING

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Key points

• Over the first ten years of projected land-use change to forestry, the estimated changes in net FTE employment are relatively small.
• Following closure of other east coast North Island meat processing facilities, the projected land-use changes are unlikely to jeopardise the medium-term viability of the Wairoa AFFCO meat processing plant.
• The employment structure of the primary sector will change, and forestry related employment opportunities must be captured by the Wairoa population if the effects of land-use change on local employment and household income are to be minimised.
• Potential increases in total employment are significant over 15 to 30 years as a result of forest expansion.

 

Introduction

The regional impacts associated with the loss of farmland to forestry are discussed in this section. These are the impacts on farming-related activities only, and include on and off-farm direct and indirect employment decreases, expressed as Full Time Equivalents (FTEs), and the decrease in gross household income derived from agriculture in the regional economy. The impacts are discussed under separate headings, and draw from the regional employment input/output analysis contained in Appendix 1 and the representative farm models developed for this study as detailed in Chapter 4.5.

Impacts per 1000 LSUs or 1000 hectares

A summary of impacts on a per 1000 LSUs and per 1000 hectares is presented in Table 8.1. The stocking rate assumed is 9 LSUs per grassed hectare, which converts to 7.7 LSUs per total hectare suitable for forest establishment (i.e. this allows for 85% of the area to be in pastoral use, with a further 15% suitable for forestry not being actively farmed at the time of land-use change).The important coefficients in this table include:-

1. Only 75% of the livestock available for slaughter are killed in Wairoa.

Table 8.1 Agriculture-related indices associated with stock numbers, employment and household income changes

	Per 1000 ha	Per 1000 LSU (7.7 LSU/ha)
Physical Indices
Stock available for slaughter
Lambs	162	1247
Adult sheep	88	678
Adult cattle	16.7	129
Lamb equivalents to slaughter	386	2972
Stock offered for slaughter in Wairoa
75% lambs	122	939
75% adult sheep	66	508
75% adult cattle	12.5	96
Lamb equivalents to slaughter	289	2225
Stock sold live as store stock
Lambs	72	554
Adult sheep	27	208
Cattle	16.2	125
Weight of wool sold (kg)	2610	20100
Employment Indices (full-time equivalents) (source: section 3.0, Appendix 1)
On-farm direct	0.34	2.62
On-farm indirect	0.18	1.39
Processing direct (75% kill)	0.064	0.49
Processing indirect (75% kill)	0.009	0.07
Total FTEs	0.593	4.57
Gross household income (p.a.) (source: section 3.0, Appendix 1)
On-farm direct ($49 420/FTE)	16 800	129 360
On-farm indirect ($31 100/FTE)	5600	43 120
Processing direct ($28 000/FTE)	1790	13 780
Processing indirect ($31 000/FTE)	280	2160
Total household income	24 470	188 420
Livestock valvage value ($)
Livestock salvage value	61118	470

2. On this basis, a reduction of 2225 lamb equivalents slaughtered in Wairoa annually will occur for each 1000 hectares of land-use change to forestry. Using the employment indices for meat processing (of 0.22 FTEs per 1000 lamb equivalents for meat processing employees, and 0.03 FTEs for related indirect employment), this translates into only 0.49 FTEs and 0.07 FTEs respectively. Thus a relatively low rate of employment loss is associated with the meat processing industry.
3. The direct on-farm loss of employment is much higher than in the processing sector. For each 1000 hectares of land-use change a loss of 2.62 FTEs would occur, on average, although this will vary marginally according to the size of the farm concerned. (The on-farm labour includes owners (one spouse only), managers, farm employees and shearers.) (See section 3.1 of Appendix 1.)
4. The indirect employment associated with farming relates particularly to the farm servicing industries, and amounts to 1.39 FTEs per 1000 hectares of land-use change. (See section 3.1 of Appendix 1.)
5. The total employment loss from the farming, processing and related industries amounts to 4.57 FTEs per 1000 hectares of land-use change to forestry, of which 57% is direct on-farm employment.
6. The loss in gross household income is calculated at $188 400 per 1000 hectares. Nearly 70% of this loss is associated with direct on-farm employment and farm profit. The biggest variable in this calculation is associated with farm product price. A +/-10% change in product prices used in the analysis would change the total loss of gross household income by +/-$26 900 per 1000 hectares of land-use change, excluding any reduction in inputs (source: section 8.3.2).
7. Capital livestock sold as a result of the land-use change would amount to 4512 sheep and 693 cattle per 1000 hectares. At average prices, this would produce a salvage value amounting to $470 600 per 1000 hectares in the year of land-use change. This salvage value exceeds the loss of gross household income in the year of change, and indeed offsets the loss for the first 2.5 years. However, it is expected that the salvage value from livestock (and from any other farm assets) will be treated by the exiting farmer as capital rather than household income, and will be invested elsewhere as a consequence. Therefore, no adjustment is made to the calculated loss of gross household income for salvage values of livestock and other assets, as this could mask interpretation of the likely regional impact in the long-term.
8. Discussion of variations in stocking rate and the percentage of available livestock offered for slaughter at Wairoa plants is included in the following section relating to the base scenario of the rate of land-use change used in this study.
   

8.3 Base scenario of land-use change

To analyse the regional effects from reduced agricultural output, a base scenario of land-use change over 30 years has been developed. This scenario is based on discussions with current and prospective foresters in the district, and is considered to be the most likely rate of change under the current economic conditions (see section 5.5). The rate of land-use change in the scenario is as follows.

Planting Year	Hectares
1995	3500
1996	2500
1997-99	2000	p.a.
2000-2024	1600	p.a.
Total planted area	52 000	(over 30 yrs)
Total reduction in LSUs	400 400	LSU (over 30 yrs)
Total salvage value of livestock ($)	24.5	million

The agriculture-related employment and income losses are summarised in Tables 8.2 and 8.3 and their implications discussed below.

1. The agriculture-related employment loss in total increases from 16 FTEs in 1995 to 237 FTEs at the end of the 30-year period of land-use change. Approximately 57% of the employment loss is associated with on-farm labour (including owners).
2. The loss in gross household income related to the agricultural sector increases from $0.66 million in 1995 to $9.79 million p.a. after 30 years of land-use change. In terms of total gross household income in the WDC area derived from all sources at 1995 (broadly estimated at $72 million p.a. in section 4.0 of Appendix 1), the agriculture-related losses increase from 0.9% to 13.6% of the current District total over the 30-year period.The contribution to the loss of gross household income in the agricultural sector is summarised below. The dollar value of these losses for each of the three components of the total is summarised within Table 8.3.

On farm only	68.7%
Farming indirect	22.9%
Meat processing direct and indirect	8.4%
	100.0%

Table 8.2 Jobs Lost From The Agricultural Sector - Base Scenario

Table 8.3 Summary of farming related impacts

Losses to farming in Wairoa	1995	1999	2004	2014	2024
Total hectares of land-use change	3500	12 000	20 000	36 000	52 000
Total reduction in LSUs	26 950	92 400	154 000	277 200	400 400
Lamb equivalents to slaughter:
To Wairoa plants	7791	26 715	44 525	80 145	115 766
To outside plants	2598	8905	14 842	26 716	38 588
Total lamb equivalents	10 389	35 620	59 367	106 861	154 354
Stock sold live:
Lambs	1940	6652	11 088	19 958	28 828
Adult sheep	727	2494	4158	7484	10 810
Adult cattle	436	1496	2494	4490	6486
Employment: (farming-related only)
On-farm direct FTEs	9	31	52	94	136
On-farm indirect FTEs	5	17	28	50	72
Processing direct FTEs	2	6	10	18	25
Processing indirect FTEs	0	1	1	2	3
Total FTEs	16	55	91	164	237
Household income: (farming-related only) ($million)
On-farm direct.	0.45	1.55	2.59	4.66	6.73
On-farm indirect.	0.15	0.52	0.86	1.55	2.24
Total processing.	0.06	0.19	0.32	0.57	0.82
Total household income ($ million)	0.66	2.26	3.77	6.78	9.79

The loss in agriculture-related employment and gross household income is offset in part over the period from 1995 until harvest begins (after 28 years) from forestry-related employment associated with forest establishment and maintenance. (In addition, existing forest areas at 1995 will generate further employment and regional income opportunities once they reach harvestable age.) For the base scenario, this is summarised in Table 8.4. (More detail concerning forestry-related employment and gross household income is contained in section 2.0 of Appendix 1, and in chapter 9 of the main report).

Table 8.4 Summary of employment FTEs and household income change- base scenario, local wood processing included

In summary, the forestry-related employment and income opportunities decrease the impact substantially, particularly in the first 10 years from 1995. After 28 years from 1995 the net effect from land-use change in the base scenario is a reduction in FTEs of 132 and in gross household income of $6.75 million (9.4% of the estimated gross WDC household income). This offsetting of agriculture-related losses by forestry presupposes that the employment opportunities arising in the forestry sector are captured by employees based in the WDC area rather than by people or contractors domiciled in other regions.

Once the forestry area reaches a harvestable age (after 28 years, the first area being harvested in 2023), a substantial increase in employment and income-related opportunities arises. A nett increase in employment in the base scenario amounting to between 925 and 1574 FTEs (depending on forest area harvested in any one year) will be generated, assuming that wood processing mills are located in the WDC area. The nett increase in gross household income generated over the 1995 level will be in excess of $30 million p.a.Again, this assumes that the WDC-based population captures all the forestry employment opportunities (see section 2.0 of Appendix 1). Without wood processing facilities located in the WDC area, the nett change in employment and income would be restricted to about 350 extra FTEs and extra gross household income of about $13 million p.a.

8.4 Sensitivity analysis

The estimated employment and gross household income losses from the agriculture-related sector with land-use change in the base scenario are sensitive to changes in assumptions made. These assumptions include area planted, stocking rate of areas planted, farm product prices and the proportion of available stock killed by Wairoa-based processing plants. Each is discussed separately in the following subsections.

8.4.1 Changes in stocking rate and area planted

The average stocking rate of 7.7 LSUs per hectare used in the base analysis can be varied to take account of either higher or lower-quality land being planted, or different proportions of grassed area to total area being planted. The area planted can also be varied within the model developed for this study.

A variation in either stocking rate or area planted of the same proportion (e.g. +/-10% in either case) yields the same analytical results. For purposes of testing this sensitivity, a +/-10% variation has been used; the degree of change to the base scenario being is summarised in Table 8.5 (note that this table summarises only the change in respect of agriculture-related employment and income).The total change - including the forestry impact, and assuming wood processing in the WDC area is undertaken - is a little over 10% for the 28 years until harvest, but only a 3.6% change following commencement of harvest. This should be compared with the "no wood processing" scenario which would reduce the post-harvest benefits by approximately 60%. This analysis indicates the importance of local wood processing in comparison to changes in area planted.

Table 8.5 Summary of farming related impacts - sensitivity analysis

Effect of a +/-10% change in stocking rate (0.77 LSUs/ha) or a +/-10% change in the area planted annually.

Losses to farming in Wairoa	1995	1999	2004	2014	2024
Total area of land-use change (ha)	3500	1200	2000	3600	5200
Total reduction in LSUs	2695	9240	15 400	27 720	40 040
Lamb equivalents to slaughter:
To Wairoa plants	779	2671	4452	8014	11 577
To outside plants	259	891	1484	2672	3859
Total lamb equivalents	1038	3562	5937	10 686	15 435
Stock sold live:
Lambs	194	665	1109	1996	2883
Adult sheep	72	249	416	748	1081
Adult cattle	43	149	249	449	649
Employment: (farming-related only)
On-farm direct FTEs	0.9	3.1	5.2	9.4	13.6
On-farm indirect FTEs	0.5	1.7	2.8	5.0	7.2
Processing direct FTEs	0.2	0.6	1.0	1.8	2.5
Processing indirect FTEs	0.0	0.1	0.1	0.2	0.3
Total FTEs	1.6	5.5	9.1	16.4	23.7
Total household income( $million)	0.07	0.23	0.38	0.68	0.98

8.4.2 Change in farm product prices

Farm product prices used in the analysis were judged to be realistic long-term prices during late 1994 and early 1995. To May 1995, with the exception of the wool price, livestock prices have declined in response to a significant strengthening of the New Zealand currency exchange rate. Rather than select current prices as the likely long-term price levels, sensitivity analysis can be conducted for long-term price change. This sensitivity analysis affects only gross household income, and has no significant effect on employment levels, assuming minimal change in farm expenditure (inputs) made in the Wairoa area.

Long-term product price changes of +/-30% or more would have flow-on effects to indirect District employment and household income. For a 10% average change in farm gate prices received, a change in farm-related gross household income of $3490 per 1000 LSU or $26 870 per 1000 hectares would arise. The total change in the base scenario from a 10% change in farm-gate prices is summarised below.

	+/- Change in	+/- % change in	+/- Change In total
	household income	farm-related	WDC household
Year	($ millions)	household income	income (%)
1995	0.094	14.3	0.1
1999	0.323	14.3	0.5
2004	0.538	14.3	0.8
2014	0.968	14.3	1.4
2024	1.399	14.3	1.2

Note: The percentage change in total WDC household income is calculated from a base of $72 million p.a. plus/minus the change in annual household income derived from the base scenario change in land-use over a 30-year period.

As can be seen from the above indices, the overall net effect on total WDC gross household income of a 10% change in farm-gate prices is small. However, in terms of change to the agriculture-related gross household income, a 10% price change causes a +/-14.3% effect. In conclusion, farm gate prices are not a highly sensitive component of the long-term analysis at the total District level. They are more influential when considering the net annual change in gross household income associated with land-use change for the 28-year period before first harvest.

It is important to note that the farm-gate livestock prices used in this study are higher than those being paid at the time of the study release (May 1995). The prices used are considered to be generally realistic long-run prices. If these are adjusted down to May 1995 levels the associated loss in household income arising from the reduction in area farmed would be reduced until forest harvesting begins. In other words, lower farm-gate product prices reduce the nett cost of the land-use change from farming to forestry.

8.4.3 Change in numbers of livestock slaughtered in Wairoa

The base scenario assumes that 75% of the livestock available for slaughter from farms within the District are currently slaughtered and processed at plants in the WDC area. The total direct and indirect effects of changing this assumption so that 100% of the livestock available for slaughter from farms within the District are slaughtered and processed at plants in the WDC area, are summarised below.

Additional impact of land-use change if 100% of available stock are slaughtered locally

	Employment in	Gross household
	meat processing	income ($ millions)
Year	(FTEs)
1995	-0.65	-0.02
1999	-2.23	-0.06
2004	-3.71	-0.11
2014	-6.68	-0.19
2024	-9.65	-0.27

If it is assumed that only 50% of available stock are killed locally, then the magnitude of the additional impact is identical to that summarised in the table above, but is positive, i.e. a smaller total effect on employment and household income.

The results of this analysis indicate that a change in the current level of kill at Wairoa-based plants has an insignificant effect on total employment and gross household income (less than $300 000 p.a. at the maximum). The base scenario, assuming 75% of available stock is killed locally, estimates a reduction in processing plant throughput in the WDC area from a total land-use change of 52,000 hectares of 116 000 lamb equivalents p.a. This equates to only 7% of the 1995 budgeted kill. Even if it is assumed 100% of available stock are killed locally, the reduction in total livestock in the District in the base scenario would affect local processing throughput by less than 10%.

It is concluded that land-use change away from agriculture of the magnitude considered in this study (52000 hectares of which approximately 44 400 hectares are in pastoral use) will not unilaterally jeopardise the Wairoa-based meat processing plants. However, the possible future construction of a new meat processing works in Gisborne or Hastings/Napier with a capacity of (say) 500,000 lamb equivalents or more would reduce the viability of Wairoa facilities when coupled with land-use change to forestry in both the Wairoa and East Coast districts. The influence of the East Coast Forestry Project (ECFP) on Wairoa meat processing works throughput has not been analysed in this study. A review of the ECFP scheduled for 1995/96 will include research into the reduction in the number of livestock units and farm output as a result of afforestation.

8.5 Effect On Farm Servicing Businesses

The reduction in agriculture-related employment and income in the servicing sector has been included as the indirect component of the analysis. In terms of the effects on specific businesses, the impacts of land-use change are probably best expressed in the expected downturn in demand for farm-related inputs and services. This is calculated as the percentage of grassed area changed to forest over the whole of the WDC region. On this basis, and assuming that the 1995 grassed area on sheep and beef farms is approximately 190 000 hectares, the removal of every 1000 total hectares to forestry will reduce demand for farm-related inputs and services by 0.45%. Under the base scenario assumptions, the reduction in demand is summarised as follows.

% Reduction of Inputs and Services

Year		(Farm Related)
2004	(after 10 years)		- 9.0
2014	(after 20 years)		-16.2
2024	(after 30 years)		-23.4

These are the estimated reductions in farm-related demand from current levels of local business, and are independent of the proportion of goods and services purchased outside the WDC area, on the assumption that the current pattern of purchase inside and outside the District will continue on average. Countering this estimated reduction in farm-related demand will be the increase in demand for forestry inputs and services. However, these are likely to be of smaller quantity owing to the labour-intensive nature of forestry during the establishment and maintenance years.

The businesses likely to be affected most by the land-use change are:

• Veterinary practices and farm consultants
• Fertiliser companies
• Agricultural contractors
• Stock and station agencies
• Transport operators

Other businesses will be less affected owing to a smaller dependence on agricultural clients, and the opportunities to service forestry demands.

Businesses likely to be most affected must monitor the ongoing effects of land-use change and search for diversification opportunities. The opportunities will be much greater if and when wood processing facilities are established in the District.

It is noted that the reduction in demand for agriculture-related inputs and services is already accounted for in the base scenario as the reduction in indirect farming-related FTEs and gross household income (with adjustment for the estimated proportion of local District purchasing).

8.6 Summary of agricultural impacts

The base scenario assumes a total new afforestation area of 52 000 hectares, achieved more or less evenly over the next 30 years. The most significant impact is in the loss of employment on farms - particularly owners, managers, farm labourers and shearers. A total of 136 FTEs will be lost from on-farm employment (out of a June 1992 total of 685 FTEs (Statistics NZ), which included all farming enterprises such as dairying, horticulture and forestry employees). If the 136 FTEs lost is converted to total FTEs on sheep and cattle farms only on the basis of pastoral area, the total FTEs employed would number 582. The land-use change would thus equate to a loss of 23.4% of those on-farm workers at June 1992. The within-District impacts of reductions in the on-farm labour force are discussed in the following subsection.

The next biggest impact is in the agricultural servicing sector, with a total FTE loss of 72 after the 30-year land-use change period. Combined, the on-farm direct and indirect farming-related employment loss accounts for 88% of the total employment loss, and 91.6% of the total gross household income loss from the agricultural sector.

The impact on the processing industry is small under the assumptions made and the current rate of annual kill. The analysis calculates a loss of only 29 FTEs after the 30-year land-use change period, and is less than 8% of the current work force (estimated at about 400 FTEs). It is concluded that land-use change to forestry in the WDC area will have only a marginal effect on meat processing industries. Outside influences, including East Coast afforestation and the possible development of a new meat processing facility in an adjacent region, are more likely to adversely affect meat processing plants in the WDC area, with consequent reductions in employment and District income.

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Contact for Enquiries

Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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