Item

A review of agricultural credit in New Zealand

Pryde, J. G.
Bain, L. B.
Date
1985-06
Type
Discussion Paper
Fields of Research
Abstract
The following discussion of the agricultural credit market encompasses agriculture in its wider sense. Because most of the available information and data on agricultural credit is concerned with traditional forms of pastoral farming (sheep, beef and dairy) the discussion relates primarily to those sectors. However, the growing importance of other sectors such as horticulture, grain cropping and deer farming is recognised and where possible their credit situation is also considered. The purpose of the paper is to update previous research by the Agricultural Economics Research Unit into the financing of the agriculture industry. In the past the agricultural credit situation has been relatively stable. Because of its large contribution to exports, agriculture (pastoral agriculture in particular) received considerable support from Government in the form of policies aimed at maintaining a steady flow of investment. Credit assistance was one of the cornerstones of these policies. In 1982 the Government began to change its stance. In the Budget of that year interest payments and certain development ceased to be tax deductible where the farm property was sold within 10 years of purchase. Although this steadied inflation in land prices, long term investors particularly pastoral farm investors still enjoyed considerable advantages over investors wishing to borrow capital for diversification into or expansion of enterprises which were capable of better returns on investment. It was not until late 1984 that a wide range of policies were introduced to remove these advantages and promote greater equity between enterprises and industries requiring capital for restructuring or expansion. As a result some of the conclusions reached in Discussion Papers on agricultural and horticultural credit published by the Unit as recently as April and October 1984 have been quickly overtaken by economic events and need updating. This paper begins with a background of trends in the New Zealand economy and then in chronological order details recent changes in Government Policy. This is followed by a discussion of the implications of these changes for the financing of agriculture. Finally the present state of the agricultural credit market is discussed and some conclusions are drawn. The discussion is based on a variety of sources including MAF, Reserve Bank, Treasury, AERU and private economic reports and data. A considerable part of the material was also obtained from personal correspondence and interviews with people directly involved in the finance industry. The views expressed are, of course those of the authors.
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