The impact of recent government policies on the economics of South Island hill and high country farming

Abstract

The policies of the present Government for the management of the New Zealand economy are clearly 'more market' (Douglas. 1984). The economy, in the judgement of the Government and its economic advisor, The Treasury, is most efficient when there is free competition for resources and prices are determined by the market. The role of Government is, nevertheless, important to provide an administrative and legal framework for the economy and for society; provide those goods and services (such as defence and policing) that cannot satisfactorily be provided by the private sector; and, maintain equity between the members of society (Berthold, 1985). For hill and high country farmers the 'more market' economic policy issues which are of principal concern are inflation, exchange rates, industry assistance, financial controls and prospects for the sheep meats industry. With the rapid rise (albeit with a recent fall) in the value of the New Zealand dollar, many of the advantages to pastoral farmers of the November 1984 devaluation are fading. Other adjustments being made to achieve a 'more market' economy (such as removal of financial controls, renewal of industry assistance etc.) and the imminent prospect of a goods and services tax indicate a moderate level of inflation is likely to continue for at least two years even though present indications show a downward trend.

Fluctuations in exchange rates combined with inflation can only increase business risks and reduce hill and high country pastoral farm incomes even after allowing for a marked (or even total) fall in farm maintenance and development.

Sheep farmers relying on the sale of export lambs for much of their gross income will be acutely aware of likely lower farm gate returns from lambs. Many farmers, wary of four years of an almost collapsed sheep meats industry, will be examining their options for sheep production carefully.

In summary, the principal effects of recent government policies on the economics of South Island hill and high country farming arise from: (a) fluctuations in and devaluation of the NZ dollar (b) removal of output subsidies (c) removal of input subsidies (d) adjustments to income taxation.

This paper is intended to summarise the short term effects of these policy changes and outline some of their potential long term effects on hill and high country farmers.