The New Zealand pastoral livestock sector : an econometric model

Abstract

New Zealand's farming system is largely pastoral-based. Sheep, beef cattle, and dairy cattle graze grass and clover pastures, converting the pasture into meat, wool, milk fat, and other animal products.

For convenience, sheep, beef and dairy farms are defined as comprising the pastoral livestock sector of New Zealand's economy. While in recent years the growth rate of the sector in terms of livestock numbers has recovered, the sector's performance during the 1970s did not match the optimism created by strong growth throughout the 1960s. The performance of the pastoral livestock sector both initiates government policy measures affecting it, and is determined by current government policy. In the interests of the national economy, government intervention in the pastoral sector has been widespread, and largely uncoordinated.

A need is seen for the development of a formal model of the pastoral livestock sector. An econometric model is seen as a valuable aid in describing the sector's structure explicitly, predicting the future implications of current trends, and exploring the effects and consistency of alternative government policies. The description of an attempt to develop such a model is reported in the chapters that follow.

Chapter 2 provides an overview of the economic importance of the pastoral livestock sector to the national economy. The response made by government to the economic importance and performance of the pastoral sector is also reviewed. Chapter 3 then describes the role of an econometric analysis of the pastoral livestock sector, and concludes with specific research objectives.

A brief overview of the model's theoretical structure is provided in Chapter 4. Also, the scope of the research is narrowed to, specific components of the complete theoretical model. Chapters 5, 6 and 7 then develop more precise theoretical model specifications for the model components identified in Chapter 4. Chapter 5 specifies a model for investment in farm capital; Chapter 6, a model for livestock numbers and pastoral production; and in Chapter 7, a model specification for the generation and use of farm income.

Having specified a theoretical model, its estimation is reported in Chapter 8. Individual equations are presented, together with their summary statistics and a brief discussion of the estimated equations in relation to their theoretical specifications. Chapter 9 then reports on analyses of the complete, estimated models validity. The validity of the estimated model's structure is tested by carrying out a recursive historical simulation of the model (i.e., simulated over the period in which it was estimated). Also, Chapter 9 presents results of simulations carried out to generate the dynamic multipliers and elasticities that underlie the dynamic behaviour of the estimated model's structure.

Finally, Chapter 10 draws several conclusions about the results obtained from the research, and suggests the direction that model development and applications should take.