Study explores Kiwi livestock farms' economic resilience to droughts

File Photo / Warren Buckland

A new study has investigated the economic effects of drought on Kiwi livestock farms.

The paper, by Motu Research, is one of the first studies of its kind, and links financial, agricultural and productivity data with historical weather data.

To understand the factors involved with farm resilience to droughts, researchers looked at different farm characteristics and how they changed drought impacts.

They found that the gross output, net profit, and intermediate expenditure of dairy farms fell with increasing drought intensity. At the same time, there was an increase in their current loans.

"Not all the results were what we expected," Levente Timar, one of the authors of the paper said.

"For example, we expected intermediate expenditure to rise as part of dairy farmers' drought response due to increased spending on supplementary feed, but that wasn't what we discovered".

"In the case of dairy farmers our results could suggest that they may be able to reduce other components of expenditure, although this response is not fully explained in our model," he said.

Similarly, for the average sheep and beef farm, an increase in drought intensity led to reductions in gross output and intermediate expenditure.

The results suggested that profits were not significantly affected because, with falling gross output, sheep and beef farmers also reduced their spending. Their current loans were also unaffected by droughts.

While it wasn't possible to observe destocking in the data, the results could be consistent with destocking during droughts in the sheep-beef sector, the study suggested.

There was some evidence that larger farms' profits were less severely affected in droughts, but overall, the research showed that few of the farm characteristics affected drought outcomes strongly and systematically.

In some cases, data resolution and data quality issues likely contributed to these findings.

It was possible that farmers' psychological, social and demographic attributes played a larger role in creating resilience to droughts, than farm characteristics did.

However, demographic information on farmers was not available and therefore this assumption was not verified.

Read more about the study here.