The agricultural sector in New Zealand : a joint farm-industrial perspective

Abstract

Two issues which have attracted the attention of economists and policymakers in New Zealand in recent years are a decline in the size of the farming sub sector relative to the New Zealand economy, and slow rates of growth of real net output and labour productivity in New Zealand when compared with rates achieved overseas. Insight into the question of why the farming sub sector has declined in size relative to the rest of the economy can be gained by looking at the Agricultural Sector in New Zealand (consisting of industries supplying inputs to farming, farming itself and the processing, distributing and retailing of farm products). The relative decline in the farming sub sector has reflected both a compositional change within the Agricultural Sector, with the PDR sub sector becoming relatively more important, and a decline in the relative size of the Agricultural Sector itself. In Sections 3 and 4 of this Discussion Paper some attempt is made to explain why these changes have occurred. It is suggested that an increase in the profitability of processing as opposed to producing farm products, differences in the government assistance received and differences in the nature and rate of technological change have been responsible for the compositional changes noted within the Agricultural Sector. A decline in the size of the Agricultural Sector relative to the New Zealand economy is considered to be potentially due to declining terms of trade for Agricultural Sector exports, increasing protection overseas and again, to differing levels of government assistance. The Agricultural Sector is large in relation to the New Zealand economy (e.g. producing 21 per cent of total real net output in 1976/77), hence, one can expect the growth performance of the Agricultural Sector to be reflected in the growth performance of the economy as a whole. It is found in Section 3 that the Agricultural Sector has performed worse than the New Zealand economy in the two periods 1959/60 to 1965/66 and 1965/66 to 1971/72, although the Sector performed better than the New Zealand economy in the period 1971/72 to 1976/77. It is also found that significant differences in the rates of growth of real net output and labour productivity (and in changes over time in these rates) have existed between the three sub sectors of the Agricultural Sector. Although some work has been done on the determinents of labour productivity in New Zealand, identifying the factors responsible for the differences (and changes) noted requires further research. Attention is drawn to the possibility that rates of growth in the Agricultural Sector may decline in the future. This is thought to be likely given that rates of growth in the increasingly important PDR sub sector have declined over time. Further research into the determinants of compositional change and growth is required however. To complete the picture of the agricultural Sector, the three sub sectors of the Agricultural Sector are disaggregated into component industries and the relative size of these industries in terms of real net output and employment is examined. In addition, estimated annual rates of growth of real net output and labour productivity in these industries are given. A number of questions are raised in the study: what factors have been responsible for the compositional change which has occurred in the Agricultural Sector? What technological changes have occurred, for example, and how have government policies affected relative profitability? what factors have had Agricultural Sector relative profitability, the relative policies as they have affected the most effect on the size of the to the New Zealand economy relative stability of profits, or government each of these? what factors have determined rates of growth of labour productivity in the three sub sectors of the Agricultural Sector? Has technological change been important or has an increasing capital intensity exerted a greater effect? It is proposed that these questions be addressed in future research.