The farming year in review
June 30 is just around the corner and for most farmers it is time to start thinking about getting ready for year end. In this day and age, that does not have to be as daunting as it once was. I thought it timely to provide a commentary of the year to date and future challenges facing farmers.
Sheep, Cattle and Deer: We have seen sustained returns for sheep meat, underpinned by demand for lower-quality cuts. Cattle returns have gone down slightly this year from highs over the past five years, while venison and velvet have continued to provide consistent returns over the same period, bringing stability to a previously changeable market. It is hoped these markets will continue to provide solid returns.
The returns for sheep, cattle and deer are reflected in the national average market values released by the Inland Revenue Department, which are used to calculate taxable income for livestock in the herd scheme. Sheep on average across all classes have increased by 14 percent on last year; cattle on average decreased by 3 percent on last year; red and wapiti deer on average increased by 7 percent on last year.
Forestry: Prices remain strong and the industry has had a period of stability, compared to the past where this market was extremely volatile. The forestry industry continues to face significant challenges in getting the wall of wood pruned, harvested and to market — where it continues to be heavily reliant on China. At the recent Eastland Wood Council Forestry Awards evening, it was evident that there is a focus on training and development of skills.
Horticulture: The region is facing challenges in the horticulture sector. Land that has access to plentiful water is highly sought after, as it can be converted into high-end horticultural crops (ie kiwifruit and/or apples) which are currently achieving spectacular returns. The capital costs of development are significant alongside the need for clean, reliable water. Farmers are looking at capital projects to guarantee water availability and reduce farming risks. Other options such as citrus, viticulture and crop farming have had reasonable returns, but are reliant on favourable climatic conditions to grow good crops.
Apiculture: Manuka honey is an infant industry which is facing a variety of challenges. It has had a positive impact on livestock farming, where unproductive farmland can now earn an income. Industry standards have been introduced to justify quality and value in the marketplace. We will see how this changes a developing industry.
Land values: The market for farmland continues to be strong, with farms selling at record levels. Good hill-country land is being sought after for forestry as there is confidence from subsidies, strong log prices and carbon farming. Flat land with good water access is selling well, with outside farming businesses entering the market to invest in horticulture.
Challenges farming faces:
• Water quality and availability will be an ongoing issue for intensive farming practices
• Government policies such as the One Billion Trees programme and subsidies are driving a change in land use and jobs in the region
• Plans to bring agriculture into the Emissions Trading Scheme will likely put upward pressure on farming costs
• Environmental challenges are likely to mean farmers will face increased compliance costs
• The international markets are unpredictable, with political and economic unrest potentially having a significant effect on export prices
• Technology is changing quickly, and it is up to farmers to embrace the change to ensure farming practices are efficient and effective.
Overall local farming is in good heart with a positive outlook in most of the key sectors. Farmers are likely to face tax challenges this year after experiencing favourable conditions for most operations. I suggest that farmers surround themselves with their various trusted advisers, providing them with greater clarity on their farming returns and any possible tax liabilities.
Richard Briant is an advisory partner working in the agribusiness team at BDO Gisborne. He enjoys working closely with his clients to grow their businesses and achieve their family goals.