The economics and feasiblity of farming red deer on dry east coast hill farms

Abstract

A linear programming model was developed to determine the feasibility and economics of farming red deer on dry east coast hill farms as an alternative to marginally economic sheep and beef farming. The traditional dry east coast hill farms of New Zealand are struggling financially in the current economic climate of low world prices for wool, sheep meat and beef. These farms are traditional sheep and cattle properties, with the main emphasis placed on breeding sheep and cattle and selling wool. Dry east coast hill farms concentrate production on breeding store lambs and cattle because of the uncertainties in pasture growth. Due to the stock policies the low returns are affecting the profitability of dry east coast hill farms. Overall sheep and beef farmers on the dry east coast hill farms recorded a poor net cash result for the 1997 year (of $2,908). This follows on from net cash deficits for the previous two years of $7,731 and $15,598. The forecast returns for wool, lamb and beef are not encouraging. Diversifying into deer is suggested as an option to increase profitability on dry east coast hill farms. The deer industry is returning significantly better profits than the sheep and beef industry. Average venison returns rose over 9 percent in the 1997 season following an increase of 35 percent in the 1995-96 season. The long term outlook for the venison industry is favourable, because of aggressive international marketing of New Zealand venison by the New Zealand Game Industry Board. The current returns for velvet are below previous seasons'levels, due to an oversupply on the world market. The returns from velvet are not expected to improve significantly in the near future. A simple linear programming model was developed to simulate a dry east coast hill farm. The model was used to find the optimal combination of sheep, beef cattle and deer to maximise the farm gross margin. The optimal solution given by the model involved carrying a breeding hind mob, and finishing weaner stags at 1 year of age, along with a cow breeding herd and finishing all cattle progeny. The combination deer and cattle returned a slight gross margin advantage of $7,400, over the model output from a sheep and beef enterprise. However, with the cost of interest removed from the deer and cattle enterprise the model gave a significantly greater cash surplus of $46,706, over the traditional sheep and beef enterprise. There is a large amount of capital in livestock and development costs, required to stock deer on a traditional sheep and cattle property. A second option was run in the linear programme constraining deer numbers to a maximum of 30 percent. In this model the optimal solution involved stocking breeding hinds, finishing stags, ewes, cows and finishing cattle. The model also resulted in a significant average cash surplus over the traditional sheep and beef model of $25,237. Significantly less capital is required to implement the second deer model, so it may be considered a better finical option for dry east coast hill farms. With a stable outlook for wool, sheep, beef, velvet and venison prices, the optional solution appears stable to changes. When an internal rate of return analysis was preformed on the cash surpluses, the deer model results compared favourably to the sheep and beef model, at around 6.5 to 6.8 percent. Farming breeding hinds and finishing stags is therefore, a feasible and profitable alternative for dry east coast hill farms. Farming breeding hinds and finishing stags will improve the financial viability of marginally economic dry east coast hill sheep and beef farms.