KEY POINTS:
Retailers in rural centres could be in for a lean period, with estimates that half the nation's farmers will fail to make a profit this year.
Other farmers are expected to prune their spending on the back of flat product prices to safeguard profits.
Meat and Wool New Zealand's Economic Service has warned that spending on big-ticket items such as fertiliser, repairs and maintenance is slowing as farmers try to improve profitability.
Waikato dairy consultant Peter Floyd warned that 70 per cent of dairy farmers would make a loss this year. For some, it would be the second loss in consecutive years, due to flat returns and high-cost, production-driven farming systems.
Otago-based farm finance sources estimate 50 per cent of southern sheep and dairy farmers will make a financial loss or just break even. Those aiming for a profit have slashed spending.
Federated Farmers said spending would impact on communities reliant on farming.
"Most New Zealand sheep farmers are not making a profit at present, and all the economic and anecdotal evidence points to one thing - sheep farmers have stopped spending until returns improve," said Keith Kelly, the chairman of the organisation's meat and fibre producers council.
Lamb has been hit hard by an export-unfriendly exchange rate and price resistance from key European markets. Since the start of this season, lamb prices have fallen $15 a head, and meat exporters are warning prices could fall further once the lucrative European Easter markets are stocked.
Rod Slater, manager of the New Zealand Beef and Lamb Marketing Bureau, said the retail food sector was competitive and consumers were benefiting from lower meat prices.
Fonterra has forecast a payout of $4.05 per kilogram for milk solids for this season, down 2c on last year and 52c behind 2004-05.
Dairy Farmers of New Zealand chairman Frank Brenmuhl blamed the lack of profitability on higher feed costs, rising compliance costs and inflationary pressure from government spending prompting the Reserve Bank to raise interest rates, which in turn created an exchange rate unsympathetic to exporters.
Economic Service Otago-Southland regional manager Richard Farquhar said an indication of how farmers had pruned spending was a 30 per cent decrease in expenditure on fertiliser, lime and seed in the past five years.
Fertiliser volumes are expected to decline a further 2 per cent this year, to the lowest level in seven years. Spending on repairs and maintenance has fallen 4.5 per cent. Interest and rent costs have increased 3.3 per cent, shearing 5.1 per cent and other working expenses 1.8 per cent.
- OTAGO DAILY TIMES
