Strategy to lift farm income

Gains of more than $40 a lamb could flow back to farmers from the way the meat industry operated, according to a paper from Beef and Lamb New Zealand.

The paper, presented by the organisation's former economist Con Williams to the Lincoln sheep and beef seminar in June, highlighted gains from efficiencies, better management of in-market margins and improving farmer share of pelt prices.

Mr Williams estimated that lifting supply chain capacity utilisation from the current 50% to 80% would be worth an extra $5-$10 a lamb, increasing or holding farmer meat returns as a percentage of end retail value at 45% could add a further $20 a lamb, while capturing more of the retail value of pelts could add a further $10 a lamb.

Mr Williams told the conference that other gains, which could not be quantified, were possible from better use of transport, 12-month contracts between farmers and exporters, lifting the volume of chilled exports to 75%, reducing industry debt and managing the exchange rate.

Meanwhile, analysis from the Ministry of Agriculture and Forestry (Maf) said farmers were in for mixed times, while Beef and Lamb New Zealand expected Otago farm profits to be similar to last season's at about $54,000 before tax.

Forecasts for sheep, beef and deer farmers were more varied.

Maf uses representative farm models for the analysis.

It said South Island high country and Otago dry hill country sheep and beef farmers were pessimistic due to the lingering effects of last summer's drought.

Intensive sheep and beef farmers and Southland-South Otago hill country sheep and beef farmers and deer farmers were more optimistic.

Dairy farmers were expecting a 4% increase in production and average cash income to be similar to last year at $1.365 million, which was 28% higher than 2008-09.

Farmers were expected to spend more on working expenses which would increase from $3.18 a kg of milk solids to $3.32 kg/ms, which would see farm profit drop 7% from $383,200 last year to $356,800 in the coming year.

Hill country farmers were expecting to benefit from improved lamb prices and stock numbers, with farm profit likely to improve from $146,100 last season to $157, 200.

Maf said morale was "upbeat" due to stable returns, but the structure of processing industries was of concern.

High country farmers were less optimistic.

Maf said sheep were making a higher contribution as a percentage of total revenue due to strong store prices last season, and dry weather in summer and autumn meant many younger cattle were sold in store, instead of prime, condition.

Intensive Southland and South Otago sheep and beef farms were also optimistic, expecting a 7% lift in cash operating surplus to $132,900 on the back of better product and dairy grazing income.

Last season lamb prices fell $12.80 a head on the previous year to reduce cash income by $19,900, and a cool, moist summer made lamb finishing a challenge.

Farm working expenses were down 3% and lower interest rates meant interest costs were 14% lower.

Despite this, Maf said the lure of dairying remained strong.

Deer farmers were confident as prices for venison and velvet remained strong, but they were watching the exchange rate.

Production in 2009-10 was below average with a 9% drop in net cash income per stock unit to $92.

The velvet price rose 57% during the year to $91 a kg.


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