Liquid fuel demand on New Zealand agriculture

Abstract

The second "oil shock" in 1979, and the fuel restrictions which followed, highlighted the dependence of farming on liquid fuels. In particular the diesel quota system illicited an immediate response from farmers requesting additional fuel, to the point where the system became virtually unworkable. Amongst other things, implementation of the 1979 demand restraint measures identified a clear need for greater understanding of the liquid fuel demand features of the farming sector. This report has two main objectives, to identify the determinants of liquid fuel demand; and to provide a detailed data base on current liquid fuel consumption patterns. During 1978/79, 17% of the diesel and 9% of the petrol used in New Zealand was used by farmers and the farm servicing sector. Two thirds of the fuel was used for transportation. Production type, technology and activity demand are identified as primary determinants of fuel demand. Detailed fuel use analysis of each of these determinants is outlined in the Appendices. The most fundamental determinant of demand though is relative fuel cost. An examination of farmers' responsiveness to fuel price increases indicates a reduction in fuel demand since 1979 (partially in response to fuel price increases) mainly resulting from technology changes. However, the combination of rising fuel prices and declining terms of trade have pushed average relative fuel costs (cost of fuel as a percentage of gross income) from about 2% during the 1960s and early 1970 to an estimated 5.4% in 1982. Most other sections of the community in New Zealand now have cheaper, alternative fuels available for transport and other mobile applications (e.g. CNG and LPG). However, on the surface at least, farmers' access to the advantages of these fuels appears to be quite limited because of the storage and transport costs associated with these fuels. This issue deserves closer attention because it implies that farmers will continue to be heavily reliant on imported fuels in the forseeable future. Data reliability will be a continuing problem for further farm fuel demand studies. Some suggestions are made for improving the data base.