New Zealand agriculture and oil price increases

Abstract

This paper is based on the assumptions that world oil resources are finite and that world oil production will peak sometime in the 1980s or 1990s (Hughes & Mesarovic 1978 : 139). Such a scenario is now widely accepted and is robust to alternative assumptions on oil prices and reserves. Increases in the real world price of oil are therefore likely to occur. Because of New Zealand's almost complete dependence on imported oil for liquid fuel purposes and New Zealand's continuing balance of payments problems, the situation could become serious for New Zealand resulting in policies designed to reduce use of oil based fuels, such as substantial domestic fuel price increases, or government regulation of fuel use, such as rationing. This paper attempts to give an indication of the implications that an oil price rise could have for New Zealand agriculture. A large part of the paper is concerned with transport, since the transport industry is the largest user of liquid fuels in New Zealand. The paper concentrates on the effects of fuel price rises as opposed to physical rationing of liquid fuels. In describing the potential effects of fuel price rises, particular attention has been given to how farm costs and farm product prices may be affected by fuel price increases. Most attention is given to effects on and responses from the farm production sector of agriculture, although some consideration is also given to the agricultural freight and product processing sectors. Some brief comments are also made on the demand for transport in rural areas so that equitable fuel pricing or rationing systems can be devised and implemented if, and when, necessary.