The golden era? Not quite

Compared to the mid-1980s, sheep farming has reached its golden era. But new and constant changes present challenges, Graham Butcher writes.

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Compared to the mid-1980s, sheep farming has reached its golden era. But new and constant changes present challenges, Graham Butcher writes.

was posed the question “is this the sheep farming golden era?” It caused me to flick through old newspaper cuttings, from when I was new in the business of consulting, to get a perspective on farming sheep today.

Let’s go back to the mid 1980s. There will be folk still farming today who endured those years when farming was in turmoil.

Wool, 37 micron good fleece, was worth just under $4.94/kg in March 1986. CPI adjusted for today that’s $13.98. CPI adjusted dags were 45c/kg ($1.27/kg CPI) which prompted a Southland journalist to write that dags/kg were worth more than lamb/kg. To be fair, the Wool Board was bidding at auctions and buying some bales on offer. But prices rose by about 80c/kg going into 1988.

This prompted a move to suggest all wool farming was the way to go and meat production had no future. I wrote at the time suggesting there were no circumstances where all wool farming was more profitable, but it was a close thing.

Lambs, published schedules went to “over 16.5kg WX” and values were about $1.60/kg before killing charges and freight or $4.40 CPI adjusted. Heavier than 16.5kg carcaseweight (CW) was a bit unusual.

Ewes were not that good either, to put it mildly. I had a copy of a kill sheet where the farmer received a bill from the processor for the privilege of using their facilities, but it has been lost. The sheet I did find was for 148 ewes at 21.4kg and the net paid to the farmer was $17.97, and that was the total for the sheet. If we CPI adjust for today, that’s 34c/ewe. Unbelievable, but true.

This of course prompted Sid Slee and his mates to run old ewes up Invercargill’s main street to meet their end. An example of good affirmative action of the sort we need today. Not that we would dispose of valuable ewes these days.

Back then, sheep farm budgets were under enormous pressure and I remember attending Rural Bank discounting meetings that created some equity for farmers having to exit farming. In effect, debt was written off to create some equity for those getting out.

In February 1986, Federated Farmers (Southland) worried that the meat industry was on the ‘brink of extinction’.

Interest rates during these times were also unbelievable. I had one client who peaked at 33% for bank term loans and 20% was not uncommon.

These were the conditions the parents of today’s younger farmers endured and survived and were the result of a major reset of economic policy in New Zealand which exposed the flaws in farming policies at the time.

Spending on inputs miserly

I have a copy of the MAF Class 7 (190ha/2650su finishing farm near Gore) actual performance for 1985/86. We had a $1735 surplus with only 89c/su spent on fertiliser, drawings restricted to $10,000 and no capital/development expenditure. Interest rates were 25% for the working account and 12% for term at the bank. If you want to know about tough – just reflect on these figures.

But, sheep farmers survived.

Management of sheep and sheep farms has made phenomenal gains in this generation. Right now, we have about 26 million sheep in NZ. That’s less than we had in 1936 and about 44m less than the early 1980s peak. But, over the time from peak numbers to now, export volumes of lamb and mutton have been more or less maintained. If you want a golden era of sheep farming, then this is it. What an amazing achievement.

So, here we are in 2022, a generation later, and change is constant.

We have some new issues to deal with, notably continual attrition of property rights, environmental rules designed by folk remote from farming and with a poor understanding of what works and what doesn’t. Increasingly intrusive reporting and consenting requirements that can become public information as soon as they are lodged. And, make no mistake, proposed National Policy Standards have the potential to put some farmers out of business.

Economic settings appear hostile to farming as well. For example, Reserve Bank rules make farming an unattractive lending option for banks and Government policy allows full offset of carbon emissions against forestry, gobbling up prime grazing land.

Inflation could be added here.

We all know about increasing costs, and it’s probably worse than reported. Onfarm inflation is measured by the increasing costs of a basket of inputs, the number and type of which is fixed. There is no account taken of additional costs that arise from new animal health threats, consenting costs and the like. Unless they are in the basket, they are not measured. Hence, onfarm inflation is most likely higher than reported.

Hostile agendas threatening

What has also changed is that farming is not only fully exposed to the reality of the world marketplace, but also the realities of the agendas of mega companies and small, but vocal, lifestyle/ethical groups. Their agendas are hostile to livestock farming.

It’s not that sheep farming has never had to deal with bureaucracy.

The very earliest grazing licenses issued had rules and inspections were made to ensure those rules were followed. Today, though, it is more intense and threatening. Fortunately, farmers are finding their voice and increasingly saying no to rules and policy that can’t work and provide no advantage to marketing our products.

From the first imports of sheep, there have always been challenges. Nothing has changed, so we can’t judge it to be a golden era by the absence of challenges. They will always be there.

Let’s have a look at a broad measure of sheep farming success. The average All Class Sheep and Beef farm average before tax profit for the 1990s was $44,800, For the period 2000 to 2010 it rose to $65,100 and for the 2010 to 2020 it was $96,900 – all this is inflation-adjusted. Things have improved but this surplus needs to cover drawings, principle and tax. Sheep farm budgets are still under pressure

The one big factor missing is, of course, wool. Just imagine if wool kept pace with inflation since its peak, we now would receive $13.98/kg for fleece wool. When you consider how little the cost of raw wool is to the retail value of carpet, it’s almost believable to think we could regain what we had. That’s about $60 to the value of the fleece wool clipped off each ewe and that mostly will go straight to the bottom line – less a bit taken off for shearers because they work that hard. Now there is something to strive for.

So, not a golden era.

My two requirements to judge now as the golden era would be the return of wool and central government, in particular, listening to farmers and forming policy in collaboration so they will actually work and achieve the desired outcomes. Two big requests,but if we can get there, sheep farming would be well placed to adapt to almost anything that comes along.

The challenge is deciding what are the long-term significant threats. Today’s correct decision may turn out to be tomorrow’s wrong move. Today’s farmers need to understand the world to a far greater degree than ever. But there are so many competing forces at work that gut feeling and personal preference will probably rule the day when it comes to designing farm policy. Accuracy is only available in hindsight.

  • Graham Butcher is a Gore-based farm consultant.