AN E C O N O M I C S U R V E Y
OF NEW Z E A L A N D WHEATGROWERS:
FINANCIAL ANALYSIS
R.D.
LOUGH
P-J. MCCARTIN
RESEARCH REPORT NO.
November
143
9 983
A g r i e u l % u r = a % Economics R e s e a r c h U n i t
Eineo%n C o l l e g e
C a n t erbury
New Z e a l a n d
111Li A U 1 \ 1 C I U L I
UI\LI&
L L U I Y U I I I I C I L ) I\LL)LIIL\bII
V I Y I I
Lincoln College, Canterbury, N.Z.
The Agricultural Economics Research Unit (AERU) was established in 1962 a t Lincoln
College, University of Canterbury. The aims of the Unit are to assist by way of economic
research those groups involved in the many aspects of New Zealand primary production
and product processing, distribution and marketing.
Major sources of funding have been annual grants from the Department of Scientific
and Industrial Research and the College. However, a substantial proportion of the
Unit's budget is derived from specific project research under contract to government
departments, producer boards, farmer organisations and to commercial and industrial
groups.
The Unit is involved in a wide spectrum of agricultural economics and management
research, with some concentration on production economics, natural resource
economics, marketing, processing and transportation. The results of research projects
are published as Research Reports or Discussion Papers. (For further information
regarding the Unit's publications see the inside back cover). The Unit also sponsors
periodic conferences and seminars on topics of regional and national interest, often in
conjunction with other organisations.
The Unit is guided in policy formation by an Advisory Committee first established in
1982.
The AERU, the Department of Agricultural Economics and Marketing, and the
Department of Farm Management and Rural Valuation maintain a close working
relationship o n research and associated matters. The heads of these two Departments
are represented on the Advisory Committee, and together with the Director, constitute
an AERU Policy Committee.
UNIT ADVISORY COMMITTEE
G.W. Butler, M.Sc., Fil.dr., F.R.S.N.Z.
(Assistant Director-General, Department of Scientific & Industrial Research)
B.D. Chamberlin
(Junior Vice-President, Federated Farmers of New Zealand Inc.)
P.D. Chudleigh, B.Sc. (Hons), Ph.D.(Director, Agricultural Economics Research Unit, Lincoln College) (ex officio)
J. Clarke, C.M.G.
(Member, New Zealand Planning Council)
J.B. Dent, B.Sc., M.Agr.Sc., Ph.D.
(Professor & Head of Department of Farm Management & Rural Valuation, Lincoln College)
E.J. Neilson, B.A.,B.Com., F.C.A., F.C.I.S.
(Lincoln College Council)
B.J. Ross, M.Agr.Sc.,
(Professor & Head of Department of Agricultural Economics & Marketing, Lincoln College)
P. Shirtcliffe, B.Com., ACA
(Nominee of Advisory Committee)
Professor Sir James Stewart, M.A., Ph.D., Dip. V.F.M., FNZIAS, FNZSFM
(Principal of Lincoln College)
E.J. Stonyer, B.Agr. Sc.
(Director, Economics Division, Ministry of Agriculture and Fisheries)
UNIT RESEARCH STAFF: 1983
Director
P.D. Chudleigh, B.Sc. (Hons), Ph.D.
Research Fellow in Agriczlltural Policy
J.G. Pryde, O.B.E., M.A., F.N.Z.I.M.
Senior Research Economists
A.C. Beck, B.Sc.Agr., M.Ec.
R.D. Lough, B.Agr.Sc.
R.L. Sheppard, B.Agr.Sc.(Hons), B.B.S.
Research Economist
R.G. Moffitt, B.Hort.Sc., N.D.H.
Assistant Research Economists
L.B. Bain, B. Agr., LL.B.
D.E.Fowler, B.B.S., Dip. Ag. Econ.
G. Greer, B.Agr.Sc.(Hons) (D.S.1.R Secondment)
S.A. Hughes, B.Sc.(Hons), D.B.A.
G.N. Kerr, B.A., M.A. (Hons)
M.T. Laing, B.Com.(Agr), M.Com.(Agr) (Hons)
P.J. McCartin, B. Agr.Com.
P.R. McCrea, B.Com. (Agr)
J.P. Rathbun, B.Sc., M.Com.(Hons)
Post Graduate Fellows
C.K.G. Darkey, B.Sc., M.Sc.
Secretary
C.T. Hill
CONTENTS
Page
LIST
TABLES
PREFACE
(v)
ACKNOWLEDGEMENTS
SUMMARY
INTRODUCTION
1.1
1.2
2-
2.2
2.3
3.3
4.2
S o u r c e a n d D i s p o s i t i o n of C a s h
Financing the C a s h D e f i c i t
ECONOMIC I N D I C A T O R S
5.1
5.2
6
Gross Farm Profit
Gross Farm Expenditure
Net Farm Profit Disposition
C A S H FLOW S T A T E M E N T
4.1
5.
Farm Assets
Farm L i a b i l i t i e s
Movement i n C a p i t a l Structure
and F a r m E q u i t y P e r E f f e c t i v e H e c t a r e
I N C O M E AND E X P E N D I T U R E
3.1
3.2
4.
B a c k g r o u n d and Survey D e s c r i p t i o n
P h y s i c a l C h a r a c t e r i s t i c s of F a r m s
C A P I T A L STRUCTURE
2.1
3.
(vii)
(ix)
CHAPTER
1.
(iii)
Financial Productivity
Financial Stability
T R E N D S I N F I N A N C I A L PERFORMANCE
6.1
6.2
6.3
C a p i t a l Structure
G r o s s F a r m P r o f i t and E x p e n d i t u r e
Cash Flow Statement
A P P E N D I X A:
Survey D e f i n i t i o n s and D a t a ~ r e a t m e n t
A P P E N D I X B:
Profitability A n a l y s i s
LIST OF TABLES
Title
No.
Page
1.
Farm G r o u p s
2
2.
P h y s i c a l Farm C h a r a c t e r i s t i c s
2
3.
Capital Structure
4.
Capital Structure per Effective Hectare
5.
G r o s s Farm P r o f i t a n d E x p e n d i t u r e
6.
G r o s s Farm P r o f i t - E n t e r p r i s e
7.
G r o s s Farm E x p e n d i t u r e p e r E f f e c t i v e H e c t a r e
8.
N e t Farm P r o f i t D i s p o s i t i o n p e r E f f e c t i v e H e c t a r e
9.
C a s h Flow S t a t e m e n t
10.
F i n a n c i n g t h e Change i n Working C a p i t a l
11.
Economic I n d i c a t o r s
12.
C a p i t a l S t r u c t u r e Comparisons
13.
G r o s s Farm P r o f i t a n d E x p e n d i t u r e C o m p a r i s o n s
14.
Cash Flow S t a t e m e n t Comparisons
15.
E c o n o m i c Farm S u r p l u s
16.
R e t u r n t o Land
17.
R e t u r n t o L a b o u r a n d Management
18.
Return t o Capital
1 9 . R e t u r n t o Farm E q u i t y
Analysis
PREFACE
economic
T h i s R e p o r t i s t h e f i f t h i n a n a n n u a l s e r i e s of
s u r v e y s w h i c h c o n c e n t r a t e on f i n a n c i a l a s p e c t s o f N e w Z e a l a n d
wheatgrowing f a r m s . These s u r v e y s h a v e been undertaken by
the
A g r i c u l t u r a l Economics R e s e a r c h U n i t
a t L i n c o l n C o l l e g e on
b e h a l f of t h e Wheat G r o w e r s S u b - S e c t i o n o f
Federated Farmers
o f New Z e a l a n d I n c .
The p r i n c i p a l o b j e c t i v e o f t h i s s u r v e y i s t o e s t a b l i s h ,
from farm a c c o u n t s
and p e r s o n a l i n t e r v i e w s , f i n a n c i a l d a t a
p e r t a i n i n g t o wheatgrowing farms i n
the
1981-82
financial.
year.
Such d a t a w i l l a l l o w a more c o m p r e h e n s i v e p i c t u r e of
w k e a t g r o w i n g i n New Z e a l a n d , i n l i n e w i t h t h a t
available for
o t h e r rna j o r New Z e a l a n d f a r m i n g i n d u s t r i e s .
o u t b y Roger L o u g h ,
The a c c o u n t s a n a l y s i s was c a r r i e d
computer programming by P a t r i c k McCartin,
and t h e r e p o r t
c o m p i l e d b y R o g e r Lough a n d P a t r i c k M c C a r t i n .
P.D. C h u d l e i g h
Director.
ACKNOWLEDGEMENTS
The A g r i c u l t u r a l
Economics
Research Unit
gratefully
acknowledges t h e c o - o p e r a t i o n o f t h e wheat growing farmers and
t h e i r a c c o u n t a n t s who p a r t i c i p a t e d i n
this
s u r v e y and m a d e
t i m e and i n f o r m a t i o n f r e e l y a v a i l a b l e t o f i e l d s t a f f .
SUMMARY
No one
single factor
can a d e q u a t e l y a s s e s s f a r m o r
interfarm p r o f i t a b i l i t y .
'It
i s t h e r e f o r e t h e i n t e n t i o n of
t h i s r e p o r t t o e v a l u a t e t h e f o l l o w i n g f a c t o r s which
influence
the
profitability
of
wheat
producing p r o p e r t i e s
i n New
Z e a l a n d ' S a r a b l e s e c t o r namel y:
a ) C a p i t a l s t r u c t u r e and a s s e t growth
b ) A d j u s t e d farm income and e x p e n d i t u r e
C ) Cash r e s o u r c e s and farm l i q u i d i t y
CAPITAL STRUCTURE AND ASSET GROWTH
l.
T o t a l farm c a p i t a l f o r t h e
a v e r a g e New
Zealand
survey
farm amounted
to
$566,825.
However
t h e working c a p i t a l
$16,279
exceeded p r o d u c e on hand by
$3,576
d e f i c i t of
resulting in
total
farm a s s e t s i n c l u d i n g w o r k i n g c a p i t a l of
$563,249.
2.
T o t a l f a r m l i a b i l i t i e s f o r t h e a v e r a g e New Z e a l a n d s u r v e y
f a r m were
$102,232 o r
18.1
percent
of
t o t a l farm a s s e t s
i n c l u d i n g n e t working c a p i t a l .
3.
The c a p i t a l v a l u e of l a n d and b u i l d i n g s f o r
t h e average
New
Zealand
s u r v e y farm i n c r e a s e d from $2,407 p e r h e c t a r e t o
$3,547 p e r h e c t a r e i n t h e 1981-82 p e r i o d .
Marginal
increases
i n t h e v a l u e of p l a n t and machinery o f f s e t a s m a l l d e c l i n e i n
t h e v a l u e of c a p i t a l s t o c k a l l o w i n g t o t a l
farm c a p i t a l
to
i n c r e a s e by
$1,153 p e r
hectare.
This
c a p i t a l growth was
t h e working c a p i t a l
o f f s e t by a $9 p e r h e c t a r e i n c r e a s e i n
d e f i c i t and a
$ 3 7 p e r h e c t a r e i n c r e a s e i n farm l i a b i l i t i e s ,
r e s u l t i n g i n f a r m e q u i t y i n c r e a s i n g by $ 1 , 1 0 7 p e r h e c t a r e .
ADJUSTED FARM I N C O M E AND E X P E N D I T U R E
4.
Gross f a r m p r o f i t f o r t h e a v e r a g e New Z e a l a n d s u r v e y f a r m
was
$98,431.
The p r i n c i p a l
components were l i v e s t o c k ( 5 9
p e r c e n t ) , wheat ( 1 8 p e r c e n t ) and o t h e r c r o p s i n c l u d i n g b a r l e y ,
p e a s and s m a l l s e e d s (26 p e r c e n t ) .
5.
E x p e n d i t u r e of $86,916 f o r t h e a v e r a g e New Z e a l a n d s u r v e y
f a r m was made up of
farm w o r k i n g
expenses ( 4 3 p e r c e n t ) ,
tractor
and v e h i c l e
expenses
including depreciation
(24
p e r c e n t ) and d e b t s e r v i c i n g (17 p e r c e n t ) .
6.
Net f a r m p r o f i t f o r t h e a v e r a g e New Z e a l a n d
survey farm
was
$11,595
or
n e a r l y 12 p e r c e n t of g r o s s farm p r o f i t .
The
h e c t a r e was
a c h i e v e d on
h i g h e s t n e t f a r m p r o f i t of $82 p e r
t h o s e f a r m s w h e r e o v e r 50 p e r c e n t of g r o s s f a r m p r o f i t came
from c r o p p r o d u c t i o n .
C A S H R E S O U R C E S A N D FARM L I Q U I D I T Y
7. T o t a l a v a i l a b l e c a s h f o r t h e a v e r a g e New Z e a l a n d
survey
farm of
$45,683
came from d i r e c t farm t r a d i n g (51 p e r c e n t ) ,
i n c r e a s e i n t e r m l i a b i l i t i e s (26 p e r c e n t ) , s a l e of a s s e t s
(93
p e r c e n t ) a n d non f arm-income
(
10 p e r c e n t ) .
Total cash d i s p o s i t i o n f o r t h e average New Zealand survey
f a r m of
$47,184
comprised c a p i t a l e x p e n d i t u r e (46 p e r c e n t ) ,
and
loan
repayments
( 10
personal expenditure (44 percent)
percent).
8.
9,
The a v e r a g e c a s h d e f i c i t of
$1,501
was
f i n a n c e 8 by
a
increase i n
snndry
debtors
of
$649, a d e c r e a s e i n c u r r e n t
a decrease i n
a c c o u n t a t t h e s t o c k f i r m a n d bank of $ 1 , 8 7 6 ,
sundry
creditors
of
$78
and withdrawals
f r o m t h e Income
E q u a l i s a t i o n Scheme o f $196.
10.
The a d j u s t e d c a s h s u r p l u s f o r
the
a v e r a g e New
Zealand
is,
t h e cash surplus a d j u s t e d f o r unsold
survey
farm,
that
produce
and
change
in
livestock
numbers
was
$2,057.
A
d e c r e a s e i n t h e v a l u e o f l i v e s t o c k o f $ 3 5 4 , w o o l $187 a n d c r o p
on h a n d o f $15 w e r e t h e p r i n c i p a l r e a s o n s f o r t h e d i f f e r e n c e
between t h e c a s h d e f i c i t and a d j u s t e d c a s h s u r p l u s .
1 %,.
The c a s h d e f i c i t o f f a r m s w i t h l e s s
than
5 percent
of
gross
f a r m i n c o m e f r o m c r o p was $ 1 , 4 2 6 w h i c h , a f t e r a d j u s t i n g
hand,
fell
to
an
adjusted cash
f o r c h a n g e s i n p r o d u c e on
$ 783.
T h o s e f a r m s w i t h 5 t o 24 p e r c e n t o f g r o s s
deficit
of
cash
deficit
of
$637
but an
farm p r o f i t from c r o p had
a
inventory
c h a n g e o f $344 r e s u l t e d i n a n a d j u s t e d c a s h d e f i c i t
o f $333.
F a r m s w i t h 2 5 t o 49 p e r c e n t
of
gross
profit
from
crop had a
cash
d e f i c i t o f $ 1 , 9 5 0 b u t t h i s was o f f s e e by a
$540 i n c r e a s e i n
livestock
and
c r o p on
hand
to
g i v e an
adjusted
cash
d e f i c i t of $1,410.
Farms w i t h o v e r 50 p e r c e n t
of g r o s s farm p r o f i t
from c r o p
showed
a
cash
deficit
of
$1,728.
A
reduction
in
t h e v a l u e o f l i v e s t o c k a n d c r o p on
h a n d o f $ 2 , 9 2 4 compounded t h i s d e f i c i t w i t h
the
result
that
t h e a d j u s t e d c a s h d e f i c i t was a s s e s s e d a t $ 4 , 6 5 2 .
ECONOMIC INDICATORS
1 % . T h e r e t u r n on t o t a l f a r m
capital
for
the
a v e r a g e New
Zealand
survey
f a r m was
5.1 p e r c e n t a n d t h e r e t u r n on f a r m
F a r m s w i t h 5-24 p e r c e n t
of
their
gross
equity 3.0 percent.
f a r m p r o f i t f r o m c r o p h a d a r e t u r n on c a p i t a l o f 4 . 6 p e r c e n t .
T h o s e f a r m s w i t h 25- 49 p e r c e n t o f g r o s s f a r m p r o f i t f r ~ mc r o p
showed a
5.1
p e r c e n t r e t u r n on c a p i t a l w h i l e f o r t h o s e w i t h
on
above 50 p e r c e n t of g r o s s farm p r o f i t from c r o p t h e r e t u r n
f a r m c a p i t a l was 5 . 8 p e r c e n t .
Farms w i t h b e l o w 5 p e r c e n t 0 %
t h e i r g r o s s f a r m p r o f i t f r o m c r o p showed a r e t u r n
on
capital
of 3 . 8 p e r c e n t .
1 3 e When a d j u s t e d f o r
capital
growth
the
return
on
farm
capital
varied
from
37.3 p e r c e n t i n g r o u p 2 t o 51.5 p e r c e n t
f o r group 4 farms.
The r e t u r n t o
farm
equity
adjusted
for
capital
growth
varied
from 43.5 p e r c e n t i n group 1 t o 60.3
growth
in
farm
p e r c e n t i n group 4 farms i n d i c a t i n g t h a t t h e
c a p i t a l o f f s e t t h e i n e f f i c i e n t u s e of b o r r o w e d c a p i t a l .
CHAPTER 1
INTRODUCTION
1.1
Background a n d Survey D e s c r i p t i o n
is
t o provide
The p u r p o s e o f t h i s economic
analysis
financial data
relating
t o t h o s e New Z e a l a n d w h e a t g r o w i n g
farms t h a t p a r t i c i p a t e d
in the
1981-82
wheat
enterprise
survey.
The
a n a l y s i s was b a s e d upon t h e a n n u a l f i n a n c i a l
statements p r e p a r e d f o r wheatgrowers by t h e i r accountants.
Farm a c c o u n t s
for
the
1981-82
f i n a n c i a l year
were
c o l l e c t e d f o l l o w i n g t h e farm v i s i t i n 1983.
Those a v a i l a b l e
f o r a n a l y s i s were g r o u p e d , a s shown i n T a b l e l , a c c o r d i n g t o
t h e degree of
c r o p p i n g i n t e n s i t y w h i c h was d e t e r m i n e d b y
e x p r e s s i n g c r o p income a s a p e r c e n t a g e o f g r o s s farm p r o f i t .
Crop income i n c l u d e d income from wheat, b a r l e y , s m a l l s e e d s
and other crops.
1981-82
New
Zealand wheat
Of t h e 1 8 0 f a r m s i n
the
e n t e r p r i s e s u r v e y , 58 p e r c e n t p r o v i d e d f i n a n c i a l s t a t e m e n t s
suitable for
analysis,
8
percent
provided
financial
statements unsuitable
f o r a n a l y s i s because of i n s u f f i c i e n t
i n f o r m a t i o n w h i l e 34 p e r c e n t e i t h e r were u n a b l e , o r r e f u s e d ,
f o r varying
reasons
t o provide financial statements.
W11
farms
suitable
for
analysis
were
"owner-operator"
properties.
Since t h e
1980-89
financial
analysis
the
various
used,
terminology, and procedures have
f i n a n c i a l measures
been s t a n d a r d i s e d . Minor
changes have
therefore
resulted
from previous
r e p o r t s (1977-78 t o 1 9 7 9 - 8 0 ) . D e f i n i t i o n s o f
t e r m i n o l o g y a n d p r o c e d u r e s u s e d a r e d e t a i l e d i n A p p e n d i x A.
1.2
P h y s i c a l C h a r a c t e r i s t i c s of Farms
The p h y s i c a l c h a r a c t e r i s t i c s o f t h e f o u r f a r m i n g g r o u p s
a r e s u m m a r i s e d i n T a b l e 2.
The t a b l e shows t h e emphasis on
l i v e s t o c k production i n group
1 and
an
increasing area
d e v o t e d t o c r o p p i n g i n g r o u p s 2 , 3 a n d 4.
4
The w h e a t
enterprise survey
is
an
annual
survey
undertaken
by
t h e A g r i c u l t u r a l Economics Research U n i t on
b e h a l f of t h e Wheatgrowing Sub-Section of F e d e r a t e d Farmers
of
New
Zealand
Inc.
Results
for
the
1981-82 y e a r a r e
c o n t a i n e d i n R e s e a r c h R e p o r t No. 131 a n d
for
the
1982-83
y e a r , i n R e s e a r c h R e p o r t No. 942
TABLE 1
Farm Groups
.............................................................
C r o p I n c o m e a s P e r c e n t a g e of G r o s s
Farm Profit
Group
N u m b e r of
Farms
P _ _ - - - - - - O - - - - - - - - - - - - - - - - ~ - ~ ~ - - - - - ~ - - - - - ~ - - - - - - - - - ~ ~ ~ - ~ - - ~ ~ ~
Range
4
50
Average
and above
Number
32
71.6
37.6
.............................................................
A l l Farms
105
TABLE 2
Physical F a r m C h a r a c t e r i s t i c s
.............................................................
Group
T o t a l Area
l
(ha)
Effective Area
(ha)
Stock U n i t s ( n o )
Wheat Area
Barley Area
'
2
3
4
A 1 1 FZL~P~PS
25504
203.8
196.0
168.4
195,8
250.5
996.9
185.7
163.8
188.8
3184
2545
1800
1143
1936
(ha)
2-3
12c0
18.4
30.9
18,9
(ha)
O00
4 04
42.7
22.0
1%*2
O08
0o 0
2.8
13.6
5.1
Pea A r e a ( h a )
S m a l l Seed A r e a
(ha)
006
3 o1
2.5
29.5
18.7
Other Crop Area
(ha)
9 .Q
107
4.2
4.9
3 4
61 ,6
26 ,6
C r o p A r e a ( % of
Effective Area)
106
1006
21 - 9
.............................................................
.............................................................
6
CHAPTER 2
CAPITAL STRUCTURE
The
capital
s t r u c t u r e of
wheatgrowing
farms i n New
Zealand
is d e t a i l e d i n Table 3.
Valuations
of l a n d and
at the
b u i l d i n g s , l i v e s t o c k , p l a n t and machinery
apply as
start
of
the
1981-82
financial
year.
Definitions
of
t e r m i n o l o g y a n d p r o c e d u r e s u s e d a r e d e t a i l e d i n A p p e n d i x A.
2.1
Farm A s s e t s
T o t a l f a r m a s s e t s on t h e a v e r a g e N e w Z e a l a n d s u r e v y f a r m
v a l u e d a t $579,528; 78 p e r c e n t of t o t a l f a r m a s s e t s w e r e
i n v e s t e d i n l a n d a n d b u i l d i n g s , 19 p e r c e n t
in
livestock
and
3
percent
in
c r o p on h a n d .
Current l i a b i l i t i e s
plant
and
exceeded c u r r e n t a s s e t s r e s u l t i n g i n a working c a p i t a l d e f i c i t
of
$16,279.
Total
farm a s s e t s
i n c l u d i n g working c a p i t a l
t h e r e f o r e amounted t o $563,249.
were
2.2
Farm L i a b i l i t i e s
T o t a l f a r m l i a b i l i t i e s on t h e a v e r a g e N e w Z e a l a n d
survey
farm w e r e valued
a t $102,272.
The two m a i n s o u r c e s of f a r m
lenders
liabilities
in
order
of
importance w e r e p r i v a t e
i n c l u d i n g s o l i c i t o r s (52.0 p e r c e n t of t o t a l f a r m l i a b i l i t i e s )
a n d t h e R u r a l Bank ( 2 3 - 1 p e r c e n t o f t o t a l f a r m l i a b i f i t i e s ) .
Group 2 f a r m s h a d t h e h i g h e s t l e v e l o f
farm
liabilities
a t $1 1 9 , 8 1 9 , t h i s b e i n g 57 p e r c e n t h i g h e r t h a n g r o u p 1 .
P l a n t a n d m a c h i n e r y were v a l u e d a t
historical
cost
ex
the
financial
s t a t e m e n t s w h i l e m a r k e t v a l u e s were u s e d f o r
livestock.
2
TABLE 3
, C a ~ i t a lS t r u c t u r e ( a t S t a r t o f Y e a r 1
.............................................................
.............................................................
Group
l
2
3
4
A l l
Farms
446,318
477,249
404,174
493,490
454,600
28,937
8,396
69,597
26,343
0
35 9 2 1
15,684
60,591
13,272
0
38 048
16,068
42,504
3,229
2,426
57,923
22,679
22,519
1, 164
410
42,604
17, 180
43,903
7,604
Land a n d
Buildings
T r a c t o r , Truck,
Header
Other P l a n t
sheep
Cattle
other
-----P-
T o t a l Farm
Capital
579,591
-_---_602,319
_ _ _ - - _ P
506,449
-----_-
934
----P--
598,185
566,825
10,661
2,806
l, 720
8,388
6,872
1,280
524
2,960
545
522
P r o d u c e on Hand
Wheat
Barley
peas
Small Seeds
Other Crops
Wool
40 0
0
0
182
127
6380
5,027
1 19
0
454
Q
-----
-----
2,009
6,393
T o t a l Farm A s s e t s 581,600
T o t a l Produce
793
6#865
1,182
Q
802
9 18
369
74 l
693
-----
-----
10,136
24,509
12,703
689,110
516,585
622,694
579,528
-5,849
-5,667
-3,380
-10,675
-4,524
-6,795
-4,493
-7,286
1,522
3,667
6,256
0
2,828
7,372
703
4,675
13,617
710
3,620
8,830
----m
- m - - -
0 0 _ - _
Working C a p i t a l
-3,343
Bank
Stock Firm
-1,904
Equalisation
Deposits
1, Q 0 0
Sundry Debtors
2,958
Sundry C r e d i t o r s
5,862
-----
Working C a p i t a l
-7,151
T o t a l Farm A s s e t s
I n c l u d i n g Working
Capital
574,449
-12,583
-18,999
W-----
-19,558
596,527
497,586
603,136
.............................................................
-----
-16,279
563,249
( T a b l e 3 Cont .)
TABLE 3
(Cont.)
Capital Structure
.............................................................
Group
2
l
3
4
.............................................................
Farm ~ i a b i l i t i e s
$
$
$
$
A 1l
Farms
$
Fixed L i a b i l i t i e s
R u r a l Bank
Govt. Ag e n c i e s
Other than t h e
R u r a l Bank
C o m m e r c i a l Bank
I n s u r a n c e Coy.
Stock Firm
Private
County C o u n c i l
Hire Purchase
Other Financial
Institutions
Solicitors
Sub T o t a l
S p e c i f i c Reserves
T o t a l Farm
Liabilities
1,000
-----75,825
----09-
Farm E q u i t y
on- arm
498,624
119,819
-_----476,708
------0
81,581
703
-a----
119,194
710
-----102,272
------_
- - _ - 0 - -
--W----
416,005
483,942
460,977
l ,035
3,759
169
9,586
958
8,873
Assets
Personal Assets
Investments
168
16,451
---a--
T o t a l Non-Farm
Assets
16,569
- W - - - -
N e t Worth
1,522
----m-
515,193
2 , 63'7
11,572
- W - - - -
13,709
W-----
490,417
...................................................................
---W--
4,794
----m-
420,799
----m-
9,755
---m--
493,697
v-----
9,831
-----470,808
2.3
Movement i n C a p i t a l S t r u c t u r e a n d Farm E a u i t v
p e r Effective Hectare
A summary o f t h e c h a n g e i n
capital
s t r u c t u r e and farm
e q u i t y p e r h e c t a r d f o r t h e p e r i o d 1981-82 i s g i v e n i n T a b l e
4.
T o t a l f a r m c a p i t a l o n t h e a v e r a g e New Z e a l a n d s u r v e y f a r m
$3002
per hectare
at
the s t a r t of t h e f i n a n c i a l y e a r .
was
T h i s i n c r e a s e d by $ 1 9 5 3 p e r h e c t a r e d u r i n g t h e y e a r
to
$4155
per hectare.
T h e v a l u e o f p r o d u c e on h a n d d e c r e a s e d by $ 1 p e r
$8
per
k e c t a r e and t h e working c a p i t a l p o s i t i o n d e c l i n e d by
hectare to
offset
the
improvement i n f a r m c a p i t a l w i t h t h e
r e s u l t t h a t t o t a l farm a s s e t s
adjusted
f o r working
capital
$ 1 1 4 4 p e r h e c t a r e to $ 4 1 2 7 p e r h e c t a r e o v e r t h e
i n c r e a s e d by
t w e l v e month p e r i o d .
Farm l i a b i l i t i e s , h o w e v e r , i n c r e a s e d by
$37
p e r h e c t a r e t o $599 p e r h e c t a r e w i t h t h e r e s u l t t h a t f a r m
e q u i t y i n c r e a s e d from $2441 p e r h e c t a r e t o $3548
per
hectare
over
t h e t w e l v e month p e r i o d .
Farm e q u i t y a s a p e r c e n t a g e o f
t o t a l farm a s s e t s i n c l u d i n g w ~ r k i n g c a p i t a l
increased
from
8108 percent
a t t h e s t a r t of t h e y e a r t o 8 & e 8 p e r c e n t b y t h e
end,
However, t h e
liquidity
position,
assessed
as
awss%d
produce
less
n e t w o r k i n g c a p i t a l , d e c l i n e d %ram a d e f i c i t of
$19 p e r k e c t a r e a t t h e s t a r t o f t h e y e a r t o a d e f i c i t
of
$28
p e r h e c t a r e a t t h e end of t h e y e a r o
Non-farm
between
$60
increasing t o
%he year.
In
per hectare a
year.
a s s e t s i n groups 1,2
a n d 4 were
similiar a t
a n d $ 7 0 per h e c t a r e a t t h e s t a r t o f t h e year
between $70 and $85 p e r h e c t a r e by
the
end o f
group 3 f a r m s non-farm a s s e t s i n c r e a s e d from $ 2 6
t t h e s t a r t t o $37 p e r h e c t a r e b y t h e e n d o f
the
_ - - - - - - - - 0 _ _ - _ - _ 9 _
3
A l l f i g u r e s a r e on a p e r
effective hectare basis.
TABLE 4
Capital S t r u c t u r e Per Effective Hectare
.............................................................
l
Group
2
3
4
A l l
Farms
e-o----------------------------------------------------------
S t a r t of
$
$
$
$
$
1,782
383
2,424
375
2,176
259
3,012
144
2,407
278
t h e Year
C a p i t a l Value
Land a n d
Buildings
Livestock
P l a n t and
Machinery
149
m----
T o t a l Farm C a p i t a l 2 , 3 1 4
P r o d u c e on Hand
Working C a p i t a l
8
-29
---m-
262
--m--
3,061
2,726
3,651
3,002
32
-64
3,029
609
-----
Farm E q u i t y
1,990
2,420
Non-Farm
66
-----
N e t Worth
3 17
----W
-----
Assets
492
--m--
-m---
T o t a l Farm A s s e t s
I n c l u d i n g Working
Capital
2 ,2 9 3
T o t a l Farm
Liabilities
303
29 1
- - - W -
55
-102
150
-1 19
-----
-----
2,679
3,682
439
---m-
2 ,2 4 0
70
728
----2,954
26
60
6%
-86
---m-
2,983
54 2
-m---
2,441
52
-----
----W
-m---
2,056
2,490
2 266
3,014
2,493
2,672
362
3,451
368
3,103
260
4,662
141
3,547
27 1
566
337
-----
,
- W - - -
End O f Y e a r
C a p i t a l Value
Land a n d
Buildings
Livestock
P l a n t and
Machinery
133
----m
T o t a l Farm C a p i t a l 3,167
P r o d u c e on Hand
Working C a p i t a l
2
-34
T o t a l Farm A s s e t s
I n c l u d i n g Working
Capital
3, 1 3 5
257
304
---a-
----m
--m--
4,076
3,667
5,369
28
-67
4,037
59
- 1 13
3,613
149
-130
5,388
4,155
66
-94
4,127
o--------------o--------------------------------------m------
(Table 4 Cont...)
TABLE 4
(Cont...)
C a p i t a l S t r u c t u r e Per E f f e c t i v e Hectare
.............................................................
.............................................................
Group
1
2
3
A I l.
4
Farms
---o------o_------o--------------------------~--~--~~-~~--~--
S
T o t a l Farm
~ i a b i l i t i e s
Farm E q u i t y
Non-Farm A s s e t s
B e t Worth
324
S
S
$
623
47 0
----a
----m
- - W - -
2,8410
79
3,414
86
3,143
--m--
--*--
m----
2,881
3,500
3,180
3'4
$
805
579
W----
-W---
4,583
74
3,548
65
-----
----m
4,657
3,6413
4,"%48
%,l553
Changes i n :
Total Farm Capital
P r o d u c e o n Hand
Working C a p i t a l
853
T o t a l Farm
Liabilities
Farm E q u i t y
Non-Farm
Ass @$S
N e t Worth
94 1
-4
-4
-1 9
-6
-S
--v--
T o t a l Farm A s s e t s
I n c l u d i n g Working
Capital
1,015
-3
--m--
842
21
82%
5
826
_-___
-- 81
-1
-1 4
---W-
-W-=-
926
4,9986
'1, '144
14
31
77
37
994
895
4,629
1,008
$6
1,010
1%
'14
4,187
13
906
1,643
1, 420
-47
39
49
-19
-28
Capital Ratios
Parm E q u i t y as
P e r c e n t a g e of T o t a l
Farm A s s e t s i n c l u d i n g
Working C a p i t a l
S t a r t o f Year ( % ) 8 G e 8
End o f Y e a r
( % ) 89.6
P r o d u c e on Hand l e s s
Working C a p i t a l
-%I
S t a r t o f Year ( $ )
End o f Y e a r
($)
-32
7g09
8308
-32
-39
-54
.............................................................
.............................................................
CHAPTER 3
INCOME A N D EXPENDITURE
Gross farm p r o f i t and e x p e n d i t u r e d e t a i l s , a l o n g w i t h t h e
disposition
of
net
farm p r o f i t ,
a r e given
i n T a b l e 5.
D e f i n i t i o n s of t e r m i n o l o g y a n d p r o c e d u r e s u s e d a r e d e t a i l e d i n
A p p e n d i x A.
G r o s s Farm P r o f i t
average
T a b l e 5 shows t h a t t h e g r o s s f a r m p r o f i t f o r t h e
New
Zealand
s u r v e y f a r m was $ 9 8 , 4 3 1 o f w h i c h 5 9 p e r c e n t came
from l i v e s t o c k p r o d u c t i o n .
The o t h e r s o u r c e s of
income were
wheat
( 1 8 p e r c e n t ) and o t h e r c r o p s i n c l u d i n g b a r l e y , peas and
s m a l l s e e d s ( 26 p e r c e n t ) .
Gross farm p r o f i t
increased with
increasing
crop i n t e n s i t y ;
g r o s s f a r m p r o f i t of $198,373 f o r
g r o u p 4 f a r m s was 48 p e r c e n t g r e a t e r t h a n g r o u p 1 f a r m s .
Table 6 d e t a i l s gross farm p r o f i t f o r various enterprises
It is seen that:
on a p e r h e c t a r e and p e r s t o c k u n i t b a s i s .
l.
Total
gross farm p r o f i t
increased cropping i n t e n s i t y .
per
hectare
increased
with
2.
Livestock gross farm p r o f i t p e r s t o c k u n i t
in
groups
2
a n d 3 was s i m i l i a r a t a r o u n d $ 2 8 t o $30 p e r s t o c k u c i t .
Group
4 f a r m s had a l i v e s t o c k g r o s s p r o f i t p e r s t o c k u n i t of
$26.60
w h i l e on g r o u p 1 p r o p e r t i e s i t f e l l t o $24.40 p e r s t o c k u n i t .
3.
Increased
cropping
intensity
was
associated
with
i n c r e a s e d wheat g r o s s p r o f i t p e r t o t a l farm h e c t a r e .
However,
when w h e a t g r o s s p r o f i t was e x p r e s s e d on a p e r
hectare
of
wheat
grown b a s i s , w h e a t g r o s s p r o f i t p e a k e d on g r o u p 3 f a r m s
a n d t h e n f e l l by n e a r l y 17 p e r c e n t on g r o u p 4 f a r m s .
4.
Income p e r h e c t a r e of o t h e r c r o p s
grown
increased with
increasing cropping
intensity.
I n group 2 o t h e r c r o p income
p e r h e c t a r e was s i m i l a r t o l i v e s t o c k i n c o m e p e r
hectare but
less
t h a n wheat income p e r h e c t a r e of wheat grown.
I n groups
3 a n d 4 , o t h e r c r o p i n c o m e was
higher
than
livestock
gross
income b u t lower t h a n wheat income p e r h e c t a r e .
TABLE 5
Gross Farm P r o f i t a n d E x ~ e n d i t u r e
.............................................................
Group
I
2
3
4
.............................................................
$
$
$
$
all
Farms
$
G r o s s Farm P r o f i t
G r o s s Farm Revenue
wool
35,866
Sheep
36,221
cattle
15,794
Wheat
1,114
Barley
0
Peas
0
Small Seeds
-1%
O t h e r Crops
137
Webates/Subsidies
826
Produce, Milk, Pigs Q
SundryHay, G r a z i n g
305
SUE)
Total
90,i51
Less L i v e s t o c k Purchases
Sheep
Cattle
other
T o t e l Purchases
38,937
12,052
12,418
Gross Farm P r o f i t 8 0 , 1 1 4
94,191
89,286
8 a 956
918,373
11,03Q
98,431
_ - - _ - _ _ _ - - - 9 _ d _ _ _ - _ - - - - - ~ ~ - - - - - - - * - - - - - - - - - - - ~ ~ - - - - - ~ - ~ - ~ ~ - ~ ~
(Table 5 C o n t o , , )
TABLE 5 ( C o n t . . . )
G r o s s Farm P r o f i t a n d E x p e n d i t u r e
.............................................................
Group
2
l
3
4
.............................................................
$
$
$
$
A l l
Farms
$
G r o s s Farm E x p e n d i t u r e
Farm Working Expenses:
Wages
14,862
Animal H e a l t h
1,764
Seed and
7,377
Fertiliser
Freight
2,438
Other
9,399
11,232
2,394
8,120
1,747
10,055
@1,279
10,216
1,773
8,363
2,099
12,276
9,059
1,454
60,890
12,916
2,660
19,458
9,878
2,090
13,701
------ ------
----m-
---P--
-W----
35,840
36,364
31,270
46,363
37,658
6,371
6,996
5,901
7,765
6,800
T r a c t o r & V e h i c l e Expenses:
R e p a i r s & M a i n t . 3,952
Fuel & O i l
3,712
4,469
4,798
5,720
5,276
6,480
7,024
5,445
5,522
Admin., R a t e s
Insurance
5,481
4,936
6,147
5,525
15,306
16,365
------
Sub-Total
R e p a i r s and Maint.
D e b t Servicing
T o t a l Cash
Expenditure
Depreciation
Buildings
Motorised P l a n t
Non-Mot. P l a n t
G r o s s Farm
Expenditure
5,700
10,160
-----65,735
1,148
5,787
839
13,929
----m-
-W----
72,037
68,409
998
7,184
1,737
922
7,605
1,607
-----m
----m-
---a--
73,509
81,956
78,543
90,149
948
11,509
2,268
m-----
14,736
- - - - - m
75,686
973
8,496
1,761
------
104,874
86,946
10,743
13,499
19,595
12.0
19,4
- - - - - - - - - - - - O - - - - O - - - - - - - - - - - - - - - - - - - - - ~ - - - - - - - - - ~ - - - - - - - - - ~
Net Farm P r o f i t
--
6,605
$
%
G r o s s Farm
Profit
8.2
12, 1 5 5
12.9
'81.7
U s e d A s Follows:
Personal
Drawings
Taxation
"Savings"
10,439
3,206
- 7 ,0 4 1
12,568
4,473
-4,888
11,888
5,861
-7,OO 1
12,568
6,177
-5,248
.............................................................
.............................................................
42,448
5,322
-5,924
'
TABLE 6
G r o s s Farm P r o f i t - E n t e r ~ r i s e A n a l y s i s
.............................................................
Group
1
2
3
4
A l l
Farms
G r o s s Farm Profits
L i v e s t o c k ($/ha) 3 1 0
Wheat ( $ / h a )
4
Other Crops ( $ / h a )
1
Sundry ($/ha)
5
T o t a l G r o s s Farm
P r o f i t ($/ha)
388
55
22
---
13
---
320
Livestock
%$/stock unit)
24.40
Livestock
($/ha Pasture)
3I 8
Wheat
($/ha
wheat grown)
484
Other Crops ($/ha
o t h e r c r o p s grown) 7 8
276
101
76
28
186
160
358
I9
m--
m--
- W -
478
48 1
723
522
SO. 0 0
28 50
26 ,6 0
28 QQ
426
320
329
363
90 9
41,022
850
908
474
625
836
750
.
.............................................................
.............................................................
3.2
287
91
125
19
.
G r o s s Farm E x p e n d i t u r e
T a b l e S shows g r s s s f a r m e x p e n d i t u r e f o r t h e a v e r a g e Mew
Z e a l a n & survey f a r m to be $86,916; t h e m a i n c o m p o n e n t s a r e
farm working
expenses
(4% percent),
tractor
and v e h i c l e
expenses
including
depreciation
24
percent)
and debt
s e r v i c i n g ( 17 p e r e e n t 1
.
T a b l e 7 g i v e s a summary of g r o s s f a r m e x p e n d i t u r e
on
a
per
hectare basis.
Gross
farm expenditure p e r
hectare
increased with increasing cropping intensity.
In
group 4,
f a r m w o r k i n g e x p e n s e s w e r e t w i c e t h e f a r m w o r k i n g e x p e n s e s on
g r o u p 1 f a r m s , w h i l e t r a c t o r a n d v e h i c l e e x p e n s e s w e r e two a n d
a half t i m e s greatere
3.3
p e t Farm P r o f i t D i s p o s i t i o n
minus
T a b l e 5 shows wet f a r m p r o f i t ( g r o s s f a r m p r o f i t
g r o s s f a r m e x p e n d i t u r e ) on t h e a v e r a g e New Z e a l a n d s u r v e y f a r m
t o be $ 11,515 or n e a r l y I 2 p e r c e n t
of
gross
farm p r o f i t .
Personal
drawings and t a x a t i o n exceeded t h i s n e t farm p r o f i t
t h e r e b y r e s u l t i n g i n a d e f i c i t p e r f a r m of $ 5 , 9 2 7 0
T a b l e 8 g i v e s a summary
of
t h e disposal
of
net
farm
profit
on
a per
hectare basis.
Gross
farm
expenditure
increased with increasing cropping i n t e n s i t y p a r t l y o f f s e t t i n g
the
increased
gross
f a r m p r o f i t c h a r a c t e r i s t i c o f t h e more
i n t e n s i v e l y cropped p r o p e r t i e s .
This resulted i n the
average
Mew Z e a l a n d
s u r v e y farm h a v i n g a n e t farm p r o f i t p e r h e c t a r e
o f $ 6 3 w h i c h t h o u g h s i m i l i a r t o g r o u p s 2 a n d 3 f a r m s was
$19
per
hectare
lower
than
g r o u p 4 b u t $37 p e r h e c t a r e g r e a t e r
t h a n g r o u p 1.
P e r s o n a l e x p e n d i t u r e a n d t a x a t i o n which
on
the average
New
Zealand
s u r v e y farm amounted t o $92 p e r h e c t a r e e x c e e d e d
all
farm
n e t farm p r o f i t per hectare,
a
factor
common t o
groups.
TABLE 7
E r o s s Farm E x p e n d i t u r e P e r Ef f e c t i v e H e c t a r e
.............................................................
Group
1
2
3
4
A%$.
.............................................................
Farms
$/ha
Farm W o r k i n g E x p e n s e s :
Wages
Animal H e a l t h
Seed and
Fertiliser
Freight
Other
Sub-Total
$/ha
$/ha
$/ha
S/ha
59
7
57
12
44
9
61
8
54
9
29
10
38
43
11
62
49
8
57
79
16
119
52
11
73
---
W--
---
---
--199
143
185
167
283
25
36
32
47
T r a c t o r & V e h i c l e Expenses:
R e p a i r s & Maint.
16
Fuel and O i l
15
23
24
31
28
40
43
29
29
Admin., R a t e s ,
Insurance
29
27
38
29
82
108
---
Repairs
&
Maint.
Debt S e r v i c i n g
T o t a l Cash
Expenditure
Depreciation
G r o s s Farm
Expenditure
23
41
---
7l
,
36
78
--B
m--
26 3
368
367
55 1
400
31
50
55
90
59
294
418
422
64 1
459
.............................................................
W--
TABLE 8
Net Farm P r o f i t D i s p o s i t i o n Per E f f e c t i v e Hectare
.............................................................
.............................................................
Group
1
2
Q
3
--
Af %
Farms
-
p
-
p
$%ha
$/ha
~ r s s sFarm P r o f i t
$/ha
320
478
l e s s Gross Farm
Expenditure
294
---
N e t Farm P r o f i t
26
60
59
82
63
used a s Follows:
Personal
Drawings
Taxation
seSa~ing~'o
42
64
23
-27
64
32
-37
77
38
-33
64
1%
-
481
$/ha
723
$/ha
522
418
422
64 1
459
e--
W--
m--
W--
-29
.......................................................
-------------------------------------------------------=-----
28
-29
-----
CHAPTER 4
CASH F L O W STATEMENT
The c a s h f l o w p o s i t i o n o f
wheat
growing farms
Z e a l a n d f o r t h e 1981-82 s e a s o n i s g i v e n i n T a b l e 9.
4.1
S o u r c e and D i s p o s i t i o n of
in
New
Cash
T a b l e 9 s h o w s t h a t t h e a v a i l a b l e c a s h on t h e a v e r a g e New
Z e a l a n d s u r v e y f a r m was $ 4 5 , 6 8 3 , 5 1 p e r c e n t o f w h i c h c a m e f r o m
d i r e c t farm trading.
The o t h e r s o u r c e s o f a v a i l a b l e c a s h w e r e
an
increase
i n farm l i a b i l i t i e s ( 2 6 p e r c e n t ) , s a l e of a s s e t s
( 1 3 p e r c e n t ) and non-farm income
(10 p e r c e n t ) .
Total
cash
Zealand
survey
farm
was
disposition .on
t h e average New
$47,184.
The components
of
this
expenditure w e r e
capital
expenditure
(46 percent),
personal expenditure (44 percent)
A reduction i n t h e v a l u e of
and loan repayments (10 p e r c e n t ) .
p r o d u c e a n d c r o p on h a n d . a t t h e e n d o f t h e y e a r compounded t h e
c a s h d e f i c i t o f $1,501.
L i v e s t o c k on hand d e c r e a s e d by
$354,
wool
by
$187,
while
c r o p o n h a n d d e c r e a s e d by $ 1 5 g i v i n g a
decrease i n t o t a l inventory
of
$556
and
an
adjusted
cash
d e f i c i t o f $2057.
I n group 1 t h e cash s u r p l u s from farming covered p e r s o n a l
drawings,
taxation
and 2 p e r c e n t of sundry i n v e s t m e n t s .
The
b a l a n c e of t h e s u n d r y i n v e s t m e n t s ,
e x i s t i n g loan
repayments
and
capital
e x p e n d i t u r e a m o u n t i n g t o $ 1 6 , 3 0 3 was f i n a n c e d b y
an i n c r e a s e i n
farm
liabilities
($7,3391,
s a l e of
assets
($3695),
a n d non-farm income ( $ 3 , 8 4 3 1 , l e a v i n g a c a s h d e f i c i t
of $1,426.
T h i s c a s h d e f i c i t was p a r t l y o f f s e t b y a n i n c r e a s e
in
unsold
produce
on h a n d of $ 6 4 3 l e a v i n g a n a d j u s t e d c a s h
The i n c r e a s e i n
farm
liabilities
($7,339)
d e f i c i t of $783.
an
was
greater
than
loan
repayments
($2,2971,
therefore
i n c r e a s e i n f u t u r e debt s e r v i c i n g i s expected.
I n group 2 t h e cash s u r p l u s from farming covered p e r s o n a l
drawings,
taxation,
sundry
i n v e s t m e n t s and 7 p e r c e n t of t h e
loan repayments.
The b a l a n c e o f t h e l o a n r e p a y m e n t s
and
the
capital
e x p e n d i t u r e a m o u n t i n g t o $ 1 6 , 9 0 8 was f i n a n c e d b y a n
s a l e of
assets
of
i n c r e a s e i n farm l i a b i l i t i e s of
$7,325,
$4,955
and
non-farm income of $3,953, l e a v i n g a c a s h d e f i c i t
of $677.
T h i s c a s h d e f i c i t was
o f f s e t by
an
increase
in
l i v e s t o c k a n d c r o p on hand e s t i m a t e d t o b e $344.
The i n c r e a s e
i n f a r m l i a b i l i t i e s e x c e e d e d l o a n r e p a y m e n t s by $ 3 , 3 7 3 .
I n group 3 the cash s u r p l u s from farming covered p e r s o n a l
drawings,
t a x a t i o n a n d 96 p e r c e n t o f s u n d r y i n v e s t m e n t s .
The
b a l a n c e of t h e sundry i n v e s t m e n t s , l o a n repayments and c a p i t a l
expenditure
amounting
t o $ 2 1 , 8 3 3 was f i n a n c e d by a n i n c r e a s e
i n farm l i a b i l i t i e s ($9,827), s a l e
of
assets
($4,8381,
and
non-farm
income
($5,218),
l e a v i n g a c a s h d e f i c i t of $1,950.
T h i s c a s h d e f i c i t was p a r t l y o f f s e t
by
an
increase
in
the
value
of
p r o d u c e on h a n d e s t i m a t e d t o b e $ 5 4 0 .
The i n c r e a s e
i n f a r m l i a b i l i t i e s exceeded l o a n r e p a y m e n t s by $5,566.
m-CJ
w m o
CJOBm
*
m
-
.
%
-
-
*
*
*
mRCVh*-CVrl
rdm
-
--m
- m u
-m*
h
- 0,
m a N
C
V
C1
.
X
*
"
h
-
*
m-
-
-
I n group 4 t h e cash s u r p l u s from farming covered p e r s o n a l
drawings,
t a x a t i o n , sundry investments, loan repayments and 9
percent of c a p i t a l expenditure.
The b a l a n c e
of
the
capital
expenditure
amounting
i n t o t a l t o $ 3 4 , 6 2 3 was f i n a n c e d b y a n
i n c r e a s e i n f a r m l i a b i l i t i e s ( $ 1 9 , 6 2 2 1 , s a l e of assets($8,@19)'
and
non-farm
income ( $ 4 , 4 5 4 ) . The r e s u l t i n g c a s h d e f i c i t was
decrease
$1,728.
T h i s c a s h d e f i c i t was c o m p o u n d e d b y a $ 2 9 2 4
of p r o d u c e o n h a n d ,
The
i n c r e a s e in f a r m
in
the
value
l i a b i l i t i e s e x c e e d e d l o a n r e p a y m e n t s by $ 9 3 , 1 8 6 .
4.2
F i n a n c i n g t h e Cash D e f i c i t
T a b l e 10 s h o w s
that
the
increase
i n working c a p i t a l
deficit
on
t h e average New Zealand survey farm r e s u l t e d i n a
$ 1 , 8 7 6 d e c r e a s e i n c a s h r e s o u r c e s h e l d in t h e Bank
and
Stock
Firm
current
accounts,
a
decrease of
$196
in
Income
E q u a l i s a t i o n d e p o s i t s , a d e c r e a s e of $ 7 8 i n
sundry c r e d i t o r s
a n d a n i n c r e a s e of $649 i n s u n d r y d e b t o r s .
TABLE
10
F i n a n c i n g t h e Chancre i n W o r k i n g C a p i t a l
.............................................................
Group
l
2
3
4
A l l
Farms
.............................................................
$
$
$
9
$
Changes of Funds i n
Current Account:
Bank
2,545
Stock Firm
-2,490
Sundry D e b t o r s
789
fnesme Equabisation Deposits
364
Sundry
C r e d i t o r s -2,634
-W----
-9,232
2,271
-215
-1
847
300
454
-485
-1,016
------
194
-2,065
- - - - - W
Cash S u r p l u s /
Deficit
-1,426
-677
-1,950
--------------------------=-------------------------------------------------------m---
-3,424
-3s 1 3 %
1,546
-1
-811
865
649
-484
-996
3,752
-78
----m-
---a--
-1,728
-1,501
..................................
CHAPTER 5
E C O N O M I C INDICATORS
This chapter presents
the
financial
s t a b i l i t y of
wheat
Zealand.
The d a t a a r e s u m m a r i s e d
detailed
a n a l y s i s i n A p p e n d i x B.
and p r o c e d u r e s used a r e d e t a i l e d i
5.1
financial productivity
and
growing p r o p e r t i e s
i n New
i n T a b l e 11 w i t h a
more
D e f i n i t i o n s of t e r m i n o l o g y
n Appendix A.
Financial Productivity
The economic f a r m s u r p l u s which
i n c l u d e s an a d j u s t m e n t
f o r unconsidered revenue and d e b t s e r v i c i n g i s r e l a t e d t o t h e
f a c t o r s of p r o d u c t i o n namely l a n d , l a b o u r and c a p i t a l .
5.1.1
E c o n o m i c Farm S u r p l u s .
T h e a v e r a g e New Z e a l a n d s u r v e y f a r m g r o s s f a r m p r o f i t ,
assessed a t
$ 5 2 2 p e r h e c t a r e , when a d j u s t e d f o r u n c o n s i d e r e d
r e v e n u e i t e m s g a v e a g r o s s f a r m income of
$548
per hectare.
Gross
f a r m e x p e n d i t u r e a s s e s s e d a t $ 4 5 9 p e r h e c t a r e when
a d j u s t e d f o r d e b t s e r v i c i n g and unconsidered expenditure
gave
total
f a r m e x p e n s e s of
$328
per
hecatre.
Economic f a r m
s u r p l u s ( g r o s s farm income l e s s
total
farm expenses)
was
a s s e s s e d t h e r e f o r e a t $220 p e r h e c t a r e .
The economic f a r m s u r p l u s i n c r e a s e d w i t h i n c r e a s i n g c r o p
i n t e n s i t y b e i n g $ 1 3 6 p e r h e c t a r e f o r Group 1 f a r m s i n c r e a s i n g
t o $ 2 9 1 p e r h e c t a r e f o r Group 4 f a r m s .
The e x p e n d i t u r e r a t i o
was c o n s t a n t d e s p i t e i n c r e a s i n g c r o p p i n g i n t e n s i t y .
5.1.2
R e t u r n t o Land.
T h e a v e r a g e New Z e a l a n d s u r v e y f a r m s p e c i f i c
land r e n t
r e t u r n was
3.6
p e r c e n t w h i c h i n c r e a s e d t o 4 9 . 8 p e r c e n t when
adjusted f o r t h e c a p i t a l increment associated with
l a n d and
buildings.
While groups 2 and 3 f a r m s had s i m i f i a r l a n d r e n t
r e t u r n s o f 3.0 and 3 . 6 p e r c e n t , g r o u p 1 l a n d r e n t
r e t u r n was
9.9
percent while
in
g r o u p 4 i t was 4 . 4 p e r c e n t .
When t h e
l a n d r e n t was a d j u s t e d f o r c a p i t a l g r o w t h t h e l a n d r e n t r e t u r n
increased
f r o m 4 4 . 8 p e r c e n t on g r o u p 2 f a r m s t o 5 7 . 6 p e r c e n t
on g r o u p 4 f a r m s .
5.1.3
R e t u r n t o L a b o u r a n d Management.
T h e r e t u r n t o l a b o u r a n d management h a s b e e n a s s e s s e d on
a r e i n v e s t m e n t b a s i s , t h a t i s , t h e economic s u r p l u s i s r e l a t e d
t o the opportunity cost
of
i n v e s t i n g t h e owner-operator's
e q u i t y i n a n i n v e s t m e n t r e t u r n i n g 1 5 . 5 p e r c e n t p e r annum.
The a v e r a g e New Z e a l a n d s u r v e y f a r m o w n e r ' s
surplus
was
TABLE I I
Economic Indicators
Group
2
il
APE
Fams
4
3
Financial Productivity
320
20
478
25
48 1
26
723
30
562
26
340
503
507
753
54 8
= Total Farm Expenses
204
300
300
462
328
Economic Farm Surplus $/ha
136
203
207
29 1
220
0.60: 1
0.60: 1
0.59: 1
0.61: 1
0.60: 1
49,9
44.8
45.5
57,6
49.8
Return to Labour and Management ($1
OwnervsSurplus
-53,43 1
Wages of Management
11,932
O m e fs Excess
-65,660
Owner's Excess Return Including
Capital Increment
139,766
-47,555
12,490
-60,Q45
-4 1,4 13
12,322
-53,735
-43,632
13,042
-56,674
-44,896
136,835
117,611
216,673
155,096
5.1
5.8
5.1
51.5
42.6
Gross Farm Profit $/ha
+ Unconsidered Revenue $/ha
=
Gross Farm Income
Gross Farm Expenditure $/ha
- Debt Servicing $/ha
Unconsidered Expenditure
-
Expenditure Ratio
Returns to Factors of Production
Return to Land ( % )
Specific Land Rent Return
Land Rent Return Including
Capital Incrercent of
Land and Buildings
12,545
-57,441
Return to Capital ( % )
Return to Capital
Return to Farm Capital Including
Capital Increment
3.8
4.6
39.2
37.3
39.0
2.9
2.6
3.8
44.2
43.8
60.3
Return to Equity ( % l
Return to P a n Equity
Return to Farm E q u i t y Including
CapiCaE Increment
2.4
43.5
Table 1 1 Cont ...l
3 . Cl
49.2
TABLE
Group
Financial Stability
Capital Increment:
Total Farm Capital ($/ha)
Start of Year
End of Year
Working Capital (including
Produce on Hand) ($/ha)
Start of Year
End of Year
Total Farm Liabilities ($/ha)
Start of Year
End of Year
Farm Equity ($/ha)
Start of Year
End of Year
Liquidity:
Financial Gearing ( % )
Start of Year
End of Year
Working Capital Ratio
Start of Year
End of Year
Liquidity Ratio
Start of Year
End of Year
11
(Cont ...I
1
2
3
A1 l
Farms
less
than
if
h e had i n v e s t e d h i s e q u i t y i n a n o t h e r
form of i n v e s t m e n t r e t u r n i n g 15.5 p e r c e n t .
I f the opportunity
c o s t of
t h e owner's
labour
i s v a l u e d a t $12,545 (wages of
management) t h e n t h e o w n e r ' s e x c e s s , t h a t i s ,
the return
to
t h e o w n e r ' s m a n a g e m e n t , was $ 5 7 , 4 4 1 l e s s t h a n t h e o p p o r t u n i t y
c o s t of a n a l t e r n a t i v e form of i n v e s t m e n t .
However,
if
the
capital
i n c r e m e n t was a l s o i n c l u d e d
t h i s t o t a l r e t u r n was
$1558096 g r e a t e r t h a n t h e a l t e r n a t i v e form of investment.
The
owner b e x c e s s
a d j u s t e d f o r c a p i t a l increment i n c r e a s e d from
$117,611 i n group 3 t o $216,673 i n g r o u p 4.
$44,896
5.1-.4
Return t o Capital.
The a v e r a g e N e w Z e a l a n d s u r v e y f a r m ' s r e t u r n t o c a p i t a l
was
5.1
percent
a n d r e t u r n t o f a r m e q u i t y was 3 . 0 p e r c e n t .
T h i s would i n d i c a t e t h a t debt s e r v i c i n g amounting t o $78 p e r
hectare
exceeded
i n c r e m e n t a l p r o d u c t i o n r e s u l t i n g from t h i s
l e v e l of b o r r o w i n g by $41 p e r
hectare
( B a s i s of
assessment
g i v e n i n A p p e n d i x A 13 1 .
Group 4 f a r m s showed a 3.8 p e r c e n t
r e t u r n t o c a p i t a l and a 2 e 4 p e r c e n t
r e t u r n t o farm equity
thereby
i n d i c a t i n g t h a t t h e d e b t s e r v i c i n g o f $44 p e r h e c t a r e
exceeded i n c r e m e n t a l production r e s u l t i n g frsm t h i s
l e v e l of
borrowing by
$23 p e r
hectare.
Group 2 f a r m s showed a 4 . 6
p e r c e n t r e t u r n t o c a p i t a l and a r e t u r n t o farm e q u i t y of
2.9
percent,
thereby
indicating the debt
s e r v i c i n g of $41 p e r
h e c t a r e exceeded incremental. p r o d u c t i o n
frsm t h i s
l e v e l of
b o r r o w i n g b y $31 p e r h e c t a r e .
Group 3 f a r m s showed a 5 . 1 p e r c e n t r e t u r n t o c a p i t a l
and
a r e t u r n t o f a r m e q u i t y of 2.6 p e r c e n t o D e b t s e r v i c i n g of $ 8 2
per
hectare
therefore
exceeded
incremental
production
resulting
from t h i s
l e v e l o f b o r r o w i n g by $ 4 8 p e r h e c t a r e .
G r o u p 4 f a r m s s h ~ w e da 5.8 p e r c e n t r e t u r n
t o capital
and a
return
t o f a r m e q u i t y of % * 8 p e r c e n t ,
D e b t s e r v i c i n g oE $ 1 0 0
per
hectare
therefore
exceeded
incremental
productisn
r e s u l t i n g from t h i s
l e v e l of
b o r r o w i n g by n e a r l y $42 p e r
hectare.
When a d j u s t e d f o r c a p i t a l i n c r e m e n t ,
return t o capital
f o r t h e a v e r a g e N e w Z e a l a n d s u r v e y f a r m was 4 2 Q 6 p e r c e n t w h i l e
indicating that
t h e r e t u r n t o f a r m e q u i t y was 4 9 * 2 p e r c e n t
capital
growth
compensated f o r
t h e poor
utilisation
of
borrowed f u n d s .
5.2
Financial Stability
The c h a n g e i n t o t a l a s s e t s , f i x e d l i a b i l i t i e s a n d w o r k i n g
capital
i s a s s e s s e d o v e r t h e t w e l v e month p e r i o d e n d i n g J u n e
19820
5.2.1
C a p i t a l Growth.
The a v e r a g e New Z e a l a n d s u r v e y f a r m showed a
growth
in
farm c a p i t a l
of
$1153 p e r h e c t a r e .
T h i s was o f f s e t b y a $ 9
per h e c t a r e d e c l i n e i n t h e n e t working c a p i t a l p o s i t i o n and a
$37 p e r h e c t a r e i n c r e a s e i n farm l i a b i l i t i e s r e s u l t i n g i n farm
e q u i t y i n c r e a s i n g by $ 1 1 0 7 p e r h e c t a r e .
5.2.2
Liquidity.
Despite t h e increase i n
farm
liabilities,
financial
g e a r i n g f o r t h e a v e r a g e survey f a r m improved from 18.2 p e r c e n t
the
end o f
the
a t t h e s t a r t of t h e y e a r t o 14.0 p e r c e n t a t
year.
A l l
groups
showed f i n a n c i a l g e a r i n g w h i c h i n c r e a s e d
between t h e s t a r t and t h e end o f t h e y e a r .
The w o r k i n g
capital
ratio
for
all
surveyed
farms
indicates
t h a t c u r r e n t l i a b i l i t i e s exceeded c u r r e n t a s s e t s by
1 7 p e r c e n t a t t h e s t a r t o f t h e y e a r a n d by 2 3 p e r c e n t
at
the
end of t h e y e a r , i n d i c a t i n g a d e t e r i o r a t i o n i n t h e n e t w o r k i n g
capital position.
The l i q u i d i t y r a t i o i n d i c a t e s t h a t t h e c a s h
resources
a v a i l a b l e t o c o v e r c u r r e n t a c c o u n t l i a b i l i t i e s was
o n l y 6 c e n t s i n t h e d o l l a r a t t h e s t a r t of t h e y e a r
and t h a t
t h i s f e l l t o 4 c e n t s i n t h e d o l l a r b y t h e end o f t h e y e a r .
Working c a p i t a l
improved
with
increasing
cropping
intensity.
However, l i q u i d i t y r a t i o s d e c l i n e d w i t h i n c r e a s i n g
c r o p i n t e n s i t y i n d i c a t i n g t h e g r e a t e r l i q u i d i t y problems f a c e d
by i n t e n s i v e l y cropped p r o p e r t i e s .
CHAPTER 6
TRENDS I N FINANCIAL P E R F O R M A N C E
This
chapter
compares
the
financial returns
of
the
a v e r a g e New
Zealand wheatgrowing
farm a s
determined from
wheatgrowers' f i n a n c i a l s t a t e m e n t s .
A
direct
comparsion
is
made b e t w e e n t h e p e r i o d 1981-82 a n d t h e p r e v i o u s y e a r 1980-81.
The b a s e y e a r f i g u r e s (1977/78) h a v e b e e n i n c l u d e d f o r f u r t h e r
c o m p a r i s on.
Definitions
of
t e r m i n o l o g y and p r o c e d u r e s u s e d
a r e d e t a i l e d i n Appendix A.
6.1
Capital Structure
T a b l e 12 shows t h a t t o t a l f a r m a s s e t s
including working
c a p i t a l i n c r e a s e d 23.9 p e r c e n t o v e r t h e p r e v i o u s y e a r t o $2983
p e r h e c t a r e , w h i l e t o t a l farm l i a b i l i t i e s
i n c r e a s e d by
22.9
percent
to
$542 p e r
hectare.
T h i s r e s u l t e d i n farm e q u i t y
The m a j o r
factor
i n c r e a s i n g f r o m $1967 t o $2441 p e r h e c t a r e .
a f f e c t i n g t h e i n c r e a s e i n t o t a l f a r m a s s e t s was a 30.7 p e r c e n t
i n c r e a s e i n t h e v a l u e of l a n d and b u i l d i n g s .
The n e t
working
capital
d e c l i n e d by
38.7
percent
to
a d e f i c i t o f $86 p e r
hectare.
6.2
G r o s s Farm P r o f i t a n d E x p e n d i t u r e
T a b l e 13 shows t h a t a 45.4
percent
increase in
gross
profit
f r o m c r o p s o t h e r t h a n w h e a t was t h e m a j o r f a c t o r w h i c h
c o n t r i b u t e d t o t h e t o t a l g r o s s f a r m p r o f i t i n c r e a s i n g by
18.4
p e r c e n t t o $522 p e r h e c t a r e .
Gross farm e x p e n d i t u r e i n c r e a s e d
T h e s e movements
caused
by 20.5 p e r c e n t t o $459 p e r h e c t a r e .
net
farm p r o f i t
to
i n c r e a s e b y 5.0
p e r c e n t f r o m $60 p e r
h e c t a r e t o $ 63 p e r h e c t a r e .
6.3
C a s h Flow S t a t e m e n t
farm
T a b l e 14 shows t h a t a 24.0 p e r c e n t i n c r e a s e i n c a s h
i n c o m e t o $583 p e r h e c t a r e was p a r t l y o f f s e t by a 20.8 p e r c e n t
i n c r e s e i n cash
farm
expenditure.
The c a s h
surplus
from
f a r m i n g i n c r e a s e d by 37,8 p e r c e n t t o $124 p e r h e c t a r e .
Nonf a r m i n c o m e i n c r e a s e d by 1 4 . 3
percent,
farm l i a b i l i t i e s
by
26.0
p e r c e n t a n d t h e s a f e o f a s s e t s by 45.5 p e r c e n t r e s u l t i n g
i n a 32.8 p e r c e n t i n c r e a s e i n t o t a l a v a i l a b l e c a s h t o $243 p e r
hectare.
The t o t a l d i s p o s i t i o n o f c a s h r e s o u r c e s i n c r e a s e d by 24.4
percent
to
$250 p e r h e c t a r e .
The m a j o r f a c t o r s c o n t r i b u t i n g
t o t h i s s i t u a t i o n were a
25.0
percent
increase in
capital
8.7 p e r c e n t i n c r e a s e i n l o a n r e p a y m e n t s a n d a
expenditure,
a
27.9 p e r c e n t i n c r e a s e i n p e r s o n a l
expenditure.
The
1980-81
cash
d e f i c i t of $18 p e r h e c t a r e was r e d u c e d t o a c a s h d e f i c i t
This cash d e f i c i t
however
was
o f $7 p e r h e c t a r e i n 1981-82.
compounded by a d e c r e a s e i n t h e v a l u e of c r o p a n d l i v e s t o c k on
hand e s t i m a t e d
at
$3
per
hectare.
This
resulted
in
an
adjusted
d e f i c i t of $ 1 0 p e r h e c t a r e , s i g n i f i c a n t l y lower t h a n
t h e $4 p e r h e c t a r e s u r p l u s i n 1980-81.
TABLE 12
Capital Structure Comparisons
Change
1977-18
1978-79
1979-80
S /ha
$ /ha
S /ha
1980-8 1
S /ha
198 1-82
$/ha
1980-8 1
to 198 1-82
(X>
Land & Buildings
Plant & Machinery
Livestock
Total Farm Capital
Plus Crop on Hand
Working Capital
Total Farm Assets
inc. Working Capital
Total Farm Liabilities
Farm Equity
Non-Farm Assets
Net Worth
a
effective hectares
1,120
.
10 1
156
1,337
40
-46
1,37 1
304
1,067
55
1,122
TABLE 13
Gross Farm Profit and Expenditure Comparisons
Change
1977-78
1978-79
1979-80
$/ha
$/ha
S /ha
1980-8 1
S/ha
198 1-82
$/ha
1980-8 1
to 1981-82
(X>
Gross Farm Profit
Livestock
Wheat
Other Crops
Sundry
Total
Gross Farm
Expenditure
Farm Working
Expenses
Repairs and
Maintenance
Tractor & Vehicle
Expenses
Admin. & Rates
Debt Servicing
Depreciation
Total
Net Farm Profit
Used as Follows
Personal Drawings
Taxation
IISavings"
TABLE 14
Cash Flow Statement Comparisons
-
Change
1977-78
1978-79
1979-80
S/ha
S/ha
$/ha
1980-8 1
S /ha
198 1-82
$/ha
1980-8 1
to 1981-82
(Z)
Total Cash Farm Income 291
Total Cash Farm
Expense S
2 10
Cash Surplus from
. Farming
81
Non-Farm Income
18
Increase in Farm
Liabilities
34
Sale of Assets
20
-
Total Available Cash
153
Capital Expenditure
74
Loan Repayments
20
Personal Expenditure
Total Cash
Disposition
Cash Surplus/Deficit
Inventory Change
Adjusted Surplus/
Deficit
69
163
- 10
7
-3
APPENDIX
A
SURVEY DEFINITIONS A N D D A T A TREATMENT
Capital Structure
1.
V a l u a t i o n o f l a n d a n d b u i l d i n g s was t a k e n
from t h e
l a t e s t Government
valuation
figures
and updated u s i n g t h e
"Farmland S a l e s P r i c e Index".
P l a n t and machinery v a l u a t i o n s were t a k e n
a t historical
cost
from t h e d e p r e c i a t i o n s c h e d u l e of t h e 1981-82 f i n a n c i a l
statement. I n previous surveys
( 1977-78
to
1979-80 1
values
w e r e b a s e d on book v a l u e s . T h e p l a n t a n d m a c h i n e r y v a l u a t i o n s
i n c l u d e c a r s b u t e x c l u d e b o a t s a n d c a r a v a n s which a r e i n c l u d e d
under Other Assets.
2.
The f o l l o w i n g p e r h e a d f i g u r e s h a v e b e e n u s e d t o a s s e s s
v a l u e of
livestock
on h a n d a t t h e s t a r t a n d e n d o f t h e
1981-82 f i n a n c i a l y e a r :
3.
the
Canterbury and
South Canterbury
start
End
Sheep:
Cattle:
Ewes
Hoggets
~ambs
Cows
2 yr.
Cattle
Yearlings
Weaners
Bulls
$
20
25
12
$
20
20
14
240
335
290
175
300
210
350
240
140
300
V a l u e s o f c r o p on h a n d
a c c o u n t s f o r t h e 1981-82 y e a r .
4.
were
Southland
Start
End
$
29
28
12
$
25
30
42
obtained
from
the
5.
Off-farm a s s e t s were valued a s p r e s e n t e d i n
f i n a n c i a l statement.
the
Both f i x e d and c u r r e n t l i a b i l i t i e s were a s
t h e b a l a n c e s h e e t a t t h e end of t h e 1981-82 y e a r .
recorded
6,
crop
1981-82
in
S p e c i f i c reserves r e l a t e t o funds recorded i n t h e balance
sheet as specific reserves
e . g, Income e q u a l i s a t i o n d e p o s i t s .
7.
G r o s s Farm P r o f i t
Gross income f o r wool,
sheep,
cattle,
wheat,
barley,
small seeds,
other
crops,
produce
a n d s u n d r y income, w e r e
assessed a s follows:
Cash S a l e s
+
S t o c k on h a n d a t e n d o f y e a r a t m a r k e t v a l u e s
S t o c k on h a n d a t s t a r t o f y e a r a t m a r k e t v a l u e s
Purchases
G r o s s Farm P r o f i t
8.
-
-
9.
R e b a t e s , s u b s i d i e s and c o n t r a c t i n g a r e
t h e f i n a n c i a l s t a t e m e n t s f o r 1981-82.
as
presented
in
G r o s s Farm E x p e n d i t u r e
90.
Gross farm expenditure i s a s p r e s e n t e d i n t h e f i n a n c i a l
statement
for
1981-82
with
the
following adjustments
if
applicable:
% i ) A p p r o p r i a t i o n of p r i v a t e c a r e x p e n s e s .
( f i l D e l e t i o n of m a n a g e r i a l s a l a r i e s
( i i i ) D e l e t i o n of s p e c i a l d e p r e c i a t i o n a l % s w a n e e s
( i v ) D e l e t i o n of i t e m i s e d d e v e l o p m e n t e x p e n d i t u r e
19,
Breakdown o f f a r m e x p e n d i t u r e i t e m s c a n b e s u m m a r i s e d
as
fsfbows:
(h)
R e p a i r s a n d m a i n t e n a n c e i n c l u d e s t h a t d o n e to
buildings,
fences,
tracks, culverts etc.
p l u s any
u n i t e m i s ed development e x p e n d i t u r e
(ii) Tractor
and v e h i c l e
expenses
includes
a%%
expenses
associated with
b o t h m e c h a n i s e d a n d nonmechanised p l a n t and machinery.
( i i i l Administration, r a t e s , insurance includes
aP%
administrative,
power,
telephone
and overhead
expenses
.
( i v ) Debt S e r v i c i n g i n c l u d e s a l l i n t e r e s t and
charges.
92.
Savings is
the residual
a f t e r personal
drawings
t a x a t i o n h a v e b e e n d e d u c t e d from n e t f a r m income.
13.
Economic Indicators.
The f o l l o w i n g a r e t h e d e f i n i t i o n s o f
G r o s s Farm P r o f i t :
S e e Appendix A 8 .
t e r m s used:
rent
and
Unconsidered
Revenue:
An a l l o w a n c e f o r
f a c t o r s of
farm
c a p i t a l f o r which no income i s r e c e i v e d , namely:
F a r m d w e l l i n g r e n t a l , a s s e s s e d a t 10 p e r c e n t o f c o s t
F a r m c a r , a s s e s s e d o n a n a p p r o p r i a t e c o s t p e r km. b a s i s
F a r m p r o d u c e u s e d on t h e f a r m , a d j u s t e d t o r e a s o n a b l e
market value.
G r o s s Farm Income:
unconsidered revenue.
G r o s s Farm E x p e n d i t u r e :
Gross
farm
profit
adjusted
for
S e e A p p e n d i x A 10 a n d 1 1 .
T o t a l Farm E x p e n d i t u r e :
Gross
farm
expenditure
(which
i n c l u d e s u n c o n s i d e r e d e x p e n d i t u r e s e e Appendix A 1 0 ) less d e b t
servicing.
Economic Farm S u r p l u s :
Gross farm income ( g r o s s farm p r o f i t
p l u s unconsidered revenue) l e s s t o t a l farm expenditure ( g r o s s
farm expenditure l e s s debt
servicing)
equals
economic
farm
surplus.
Expenditure Ratio:
T o t a l farm e x p e n d i t u r e : Gross farm income
i s computed a s t h e r e s i d u a l
after
Land R e n t :
This
allowance
is
made f o r t h e r e t u r n
to
labour
(wages
management), and s t o c k and p l a n t ( s t o c k and p l a n t r e n t )
an
of
Stock and P l a n t Rent:
A s s e s s e d a s 10 p e r c e n t o f :
opening stock a t opening values
4opening plant a t opening values
+
p l a n t s a l e s l e s s p l a n t purchases.
Wages o f M a n a g e m e n t :
C o n s i s t s o f two components:
a ) A m a r r i e d c o u p l e ' s b a s i c wage r e f l e c t i n g t h e r e t u r n t o
labour
b) M a n a g e m e n t a s s e s s e d a s f o l l o w s :
2 p e r c e n t gross farm p r o f i t t o allow f o r
s c a l e and
intensity
+
5 p e r c e n t n e t farm p r o f i t a s a guide t o t h e l e v e l of
financial efficiency.
of
R e t u r n t o L a b o u r a n d Management:
A s s e s s e d on t h e b a s i s
owner's s u r p l u s and owner's excess expressed i n d o l l a r t e r m s Owner's S u r p l u s :
Is t a k e n a s t h e economic farm s u r p l u s
less
debt
s e r v i c i n g less t h e o p p o r t u n i t y
c o s t of i n v e s t i n g t h e
owner's e q u i t y
( t a k e n t o b e t h e w e i g h t e d a v e r a g e of i n t e r e s t s
c h a r g e d on c u r r e n t a c c o u n t d e f i c i t s ) .
In brief, the return t o
l a b o u r a n d management ( o w n e r ' S s u r p l u s ) s h o u l d b e a t l e a s t
as
great
as
t h e opportunity
cost
of
t h e owner's labour and
management i n a non-farming c c c u p a t i o n .
Owner' S E x c e s s :
Owner's s u r p l u s
l e s s wages
of
management,
w h e r e wages o f management r e f l e c t s t h e o p p o r t u n i t y c o s t of t h e
owner' S l a b o u r .
The
residual
after
subtracting
the
opportunity
cost
of l a b o u r and c a p i t a l r e p r e s e n t s t h e r e t u r n
t o t h e owner' S management.
R e t u r n t o Farm C a p i t a l :
The economic f a r m s u r p l u s l e s s wages
of
m a n a g e m e n t ( i n t e r e s t s u r p l u s ) e x p r e s s e d a s a p e r c e n t a g e of
t o t a l farm c a p i t a l .
R e t u r n t o Farm E q u i t y :
The economic f a r m s u r p l u s
less wages
o f management a n d d e b t s e r v i c i n g ( e q u i t y s u r p l u s ) e x p r e s s e d a s
a percentage of farm equity.
The r e l a t i o n s h i p between t h e r e t u r n t o f a r m c a p i t a l a n d
r e t u r n t o farm
e q u i t y i n d i c a t e s t h e e f f i c i e n c y w i t h which
borrowed f u n d s a r e used.
This i n turn
d e p e n d s on i n t e r e s t
r a t e s charged and t h e incremental production r e s u l t i n g from
t h e borrowed f u n d s .
When t h e r e t u r n
to total
farm c a p i t a l
exceeds t h e r e t u r n t o f a r m equity
then
t h e incremental
production r e s u l t i n g from the borrowing
f a i b s t o cover t h e
debt
s e r v i c i n g commitments.
The r e s u l t i n g d e f i c i t c a n b e
quantified a s follows:
A l l Farms Group
T o t a l Farm C a p i t a l
Percentage Distribution
Economic Farm S u r p l u s
Wages o f M a n a g e m e n t
-
Total
Funds
$
5 6 6 , E325
100.0
41,291
=
Equity
Funds
$
464,553
81e8
33,776
9
Borrowed
Funds
$
1028272
18e2
7,514
Basic
Reward
= Interest Surplus
R e t u r n t o T o t a l Farm
Capital
($1
+ Capital Increment
5.1
rB09
6.9
212,537
173,855
38 , 6 8 2
= Interest Surplus including
Capital Increment
241,283
195,549
45,733
14,010
21,694
-7,685
212,537
173,855
38,682
226,547
195,549
30 998
R e t u r n t o T o t a l Farm C a p i t a l
including C a p i t a l Increment
42.8
Interest Surplus
Debt S e r v i c i n g
-
= Equity Surplus
+ Capital Increment
= Equity Surplus including
Capital Increment
F i n a n c i a l Gearing:
Total
liabilities
expressed
as
p e r c e n t a g e of t o t a l farm a s s e t s i n c l u d i n g w o r k i n g c a p i t a l .
a
Working C a p i t a l R a t i o :
Cash r e s e r v e s ,
c r o p on h a n d p l u s
sundry debtors
( current
a s s e t s ) : Current account o v e r d r a f t
plus sundry c r e d i t o r s ( c u r r e n t l i a b i l i t i e s ) .
Liquidity
Ratio:
deposits
(
cash
liabilities).
cash
reserves
including
Equalisation
assets)
: Current account o v e r d r a f t ( c a s h
Cash Flow S t a t e m e n t :
I n a s s e s s i n g t h e c a s h flow s t a t e m e n t , an
a t t e m p t was made t o d e l e t e f r o m t h e f i n a n c i a l s t a t e m e n t :
( i ) A l l non-cash t r a n s a c t i o n s
(ii) A l l current assets subject t o
valuation,
that
is,
l i v e s t o c k a n d c r o p on h a n d .
APPENDIX B
PROFITABILITY ANALYSIS
Economic f a r m s u r p l u s i s a s s e s s e d a s f o l l o w s :
TABLE
15
E C O N O M I C FARM SURPLUS
.............................................................
Group
l
2
3
4
A l l
Farms
-
p
p
-
-
p
-
p
p
6,605
12,155
$
10,743
13,499
11,515
5,071
4,970
4,902
4,980
4,969
11,616
17,065
15,645
18,479
16,484
10,065
10,160
7,915
13,929
5,991
15,306
8,694
16,365
7,736
14,736
2,174
1,355
1,431
4,206
2,335
34,015
40,264
38,373
47,744
41,291
$
Met F a r m P r o f i t
9 Unconsidered
Revenue
= G r o s s Farm
f ncome
p
$
$
-
$
+ Labour and
Management F e e
+ D e b t Servicing
+ Development
Expenses
= Economic Farm
Surplus
..................................................................
The f o l l o w i n g d e t a i l s t h e a n a l y s e s
of
returns
to
the
t h r e e f a c t o r s o f p r o d u c t i o n , namely:
: Land, b u i l d i n g s and improvements.
Land
Labour
: Owner's l a b o u r a n d management r e s p o n s i b i l i t i e s .
Capital
: T o t a l farm c a p i t a l and e q u i t y c a p i t a l
16
TABLE
RETURN TO LAND
.............................................................
Group
1
2
3
4
A11
Farms
~
~
~
~
~
-
-
-
-
-
-
O
O
-
O
P
-
O
~
~
-
-
$
E c o n o m i c Farm
Surplus
34,015
Wages o f
Management
11,932
S t o c k and P l a n t
13,594
Rent
= S p e c i f i c Land
8,489
Rent
-
C a p i t a l Growth i n Land
223,055
and B u i l d i n g s
Development
Expena e s
8,704
= C a p i t a l I n c r e m e n t Lawd
and B u i l d i n g s
244,351
S p e c i f i c Land R e n t
Including Capital
I n c r e m e n t o f Land
a n d B u i l d i n g s 222,840
V a l u e Land a n d
446,318
Buildings
Land R e n t
Return (% 1
1.9
Land R e n t R e t u r n
Including Capital
Increment o f Lawd
a n d B u i l d i n g s ( $ 1 49,9
-
-
-
-
~
~
-
~
~
$
-
-
-
-
-
-
-
~
-
$
-
-
~
-
-
~
-
-
-
~
~
S
-
-
-
~
-
-
~
$
40,264
38,373
44,744
41,291
12,490
12,322
13,042
12,545
13,333
31,373
13,055
12,622
44,441
14,678
21,647
16,424
202,321
172,491
270,132
215,116
2,890
3,157
7,799
5,078
199,431
169,034
262,353
210,038
213,872
183,712
284,080
226,462
477,249
404,174
493,490
454,600
L 0
3.6
4.4
4408
45,5
57.6
.............................................................
.............................................................
3.6
49-8
~
-
-
-
T A B L E 17
RETURN TO LABOUR AND MANAGEMENT
....................................................................
Group
1
2
3
4
.............................................................
$
$
$
A l l
Farms
$
Economic Farm
Surplus
34,015
40,264
38,373
47,744
41,291
Surplus-53,431
73,890
1'3,929
-47,555
64,480
15,306
-41,413
75,011
16,365
-83,632
71,451
14,736
-44,896
12,490
-60,045
12,322
-53,735
13,042
-56,674
12,545
-57,441
199,770
174,503
281,126
217,615
2,990
3,157
7,779
5,078
196,880
171,346
273,347
212,537
636,835
117,611
216,673
155,096
- O p p o r t u n i t y C o s t of
E q u i t y a t 15.5%
77,286
- D e b t S e r v i c i n g 10,160
= Owner's
-
Wages of
Management
11,932
= O w n e r ' s E x c e s s -65,363
Growth T o t a l Farm
213,833
Capital
Development
8,704
Expenses
= Capital
205,129
Increment
Owner's E x c e s s
Including C a p i t a l
139,766
Increment
-
.............................................................
TABLE 1 8
RETURN TO CAPITAL
.............................................................
Group
1
2
4
4
$
$
8
A I ~
Farms
-_----------o----_---------------------------------------w---
$
Economic Farm
34,015
Surplus
Wages o f
Management
11,932
= Interest
Surpl us
22,083
Growth T o t a l Parm
Capital
213,833
Development
Expenses
8,784
= Capital
Inerernewt
205,129
I n t e r e s t Surplus
PnePuding c a p i t a l
Increment
227,212
T o t a b Parm
Capital
579,592
Return to Farm
Capital ( $ 1
3-8
Return to F a r m
Capital I s e l u d i n g
Capital
I n c r e m e n t ( %1 3 9 . 2
-
-
S
40,264
38,373
47,744
41,291
12,490
12,322
93, Q42
12,545
27,774
26,05 l
34,782
28,746
999,770
474,503
289,926
217,615
2,890
3,157
7,779
5,078
196,880
171,346
273,347
212,537
224,654
197,397
308,049
243,283
602,717
506,448
598,187
566,824
4.6
5.1
5.8
5.1
.
51.5
42.6
37.3
39 0
.............................................................
TABLE
19
RETURN TO FARM E Q U I T Y
.............................................................
Group
l
2
3
4
A l l
Farms
_------------_-------*---------------------------------------
$
Economic Farm
34,015
Surplus
Wages of
Management
11,932
Debt S e r v i c i n g
10,160
Equity Surplus
1 1 ,923
Growth T o t a l Farm
213,833
Capital
Development
8,704
Expenses
= Capital
Increment 205,129
Equity Surplus
Including Capital
Growth
217,052
T o t a l Farm
Equity
498,625
Return t o Farm
2.4
Equity ( $ 1
Return t o Farm
Equity I n c l u d i n g
Capital
Increment ( % 1 43 5
S
$
$
$
-
40,264
38,373
47,744
41,291
-
12,490
13,929
13,845
12,322
15,306
10,745
13,042
16,365
18,337
12,545
14,736
14,010
-
199,770
174,503
281,126
217,615
2,890
3,157
7,779
5,048
196,880
171,346
273,347
212,537
240,725
182,091
291,684
226,547
476,709
416,002
483,943
460,974
2.9
2.6
3.8
44-2
43 8
60.3
.
.............................................................
.............................................................
3.0
.
49 2