NEld ZEALAND
LIVESTOCK SECTOR MODEL:
1986 VERSION
VOLUME ONE
T.P.
K.G.
A.C.
Grundy
Lattirnore
Zwart
March 1988
Research R e p o r t No. 192
A g r i b u s i n e s s and Economics Research U n i t
L i n c o l n C o l l ege
Canterbury
New Zeal and
ISSN 0113-4485
The Agribusiness and Economics Research Unit (AERU)
operates from Lincoln College providing research expertise for
a wide range of organisations concerned with production,
processing, distribution, finance and marketing.
The AERU operates as a semi-commercial research agency.
Research contracts are carried out for clients on a commercial
basis and University research is supported by the AERU through
sponsorship of postgraduate research programmes. Research
clients include Government Departments, both within New
Zealand and from other countries, international agencies, New
Zealand companies and organisations, individuals and farmers.
Research results are presented through private client reports,
where this is required, and through the publication system
operated by the AERU. Two publication series are supported:
Research Reports and Discussion Papers.
The AERU operates as a research co-ordinating body for the
Agricultural Economics and Marketing Department and the
Department of Farm and Property Management. Accounting and
Valuation. This means that a total staff of approximately 50
professional people is potentially available to work on research
projects. A wide diversity of expertise is therefore available for
the AERU.
The major research areas supported by the AERU include trade
policy, marketing (both institutional and consumer), accounting,
finance, management, agricultural economics and rural
sociology. In addition to the research activities, the AERU
supports conferences and seminars on topical issues and AERU
staff are involved in a wide range of professional and College
related extension activities.
Founded as the Agricultural Economics Research Unit in 1962
from an annual grant provided by the Department of Scientific
and Industrial Research (DSIR), the AERU has grown to become
an independent, major source of business and economic research
expertise. DSIR funding was discontinued in 1986 and from April
1987, in recognition of the development of a wider research
activity in the agribusiness sector, the name of the organisation
was changed to the Agribusiness and Economics Research Unit.
General policy direction is provided by an AERU Review
Committee which meets annually. An AERU Management
Committee comprised of the Principal, the Professors of the two
associated departments, and the AERU Director and Assistant
Director administers the general Unit policy.
AERU REVIEW COMMITTEE
Professor B J Ross, M.Agr.Sc.
(Principal, Lincoln College)
Professor R H Juchau, B.Com., B.Ed., M.A.
(Professor of Accounting and Finance, Lincoln College)
Professor A C Rayner, B.Com. (Hons), M.Soc.Sc.
(Professor of Agricultural Economics, Lincoln College)
P G Bushnell, B.Agr.Sc., M.Agr.Sc., Ph.D.
(Director, Economics Division, Ministry of Agriculture and
Fisheries)
B D Chamberlain
(President, Federated Farmers of New Zealand)
R T J Clarke, M.Sc., Ph.D.
(Chief Director, Department of Scientific and Industrial
Research)
E J Neilson, C.B.E., B.A., B.Com., F.C.A., F.C.I.S.
(Lincoln College Council)
P J Rankin, M.A., M.P.A.
(Director, New Zealand Planning Council)
P Shirtcliffe, B-Com., A.C.A.
(Nominee of Review Committee)
Professor AC Zwart, B.Agr.Sc., M.Sc., Ph.D.
(Professor of Marketing)
(Director, Agribusiness and Economics Research Unit)
(ex officio)
R L Sheppard, B.Agr.Sc. (Hons), B.B.S.
(Assistant Director, Agribusiness and Economics
Research Unit) (ex officio)
.AERU MANAGEMENT COMMITTEE 1988
Professor A C Bywater, B.Sc., Ph.D.
(Professor of Farm Management)
Professor R H Juchau, B.Com., B.Ed., M.A.
(Professor of Accounting and Finance)
Professor A C Rayner, B.Com. (Hons), M.Soc.Sc.
(Professor of Agricultural Economics)
.
Professor A C Zwart, B.Agr.Sc., M.Sc., Ph.D.
(Professor of Marketing)
R L Sheppard, B.Agr.Sc. (Hons), B.B.S.
(Assistant Director, AERU)
S.K. Martin, B.Econ., M.A.(Hons), Ph.D., Dip.Tchg.
(Senior Research Economist, AERU)
AERU STAFF 1988
Director
Professor AC Zwart, B.Agr.Sc., M.Sc., Ph.D.
Assistant Director
R L Sheppard, B.Agr.Sc. (Hons), B.B.S.
Senior Research Economist
S K Martin, B.Econ., M.A. (Hons), Ph.D., Dip. Tchg.
Research Economists
G Greer, B.Agr.Sc. (Hons)
R G Moffitt, B.Hort.Sc., N.D.H.
Research Sociologist
J R Fairweather,B.Agr.Sc., B.A., M.A., Ph.D.
Assistant Research Economists
J E Chamberlain, B.Agr.Sc.
T P Grundy, BSC. (Hons), M.Com.
Secretary
R Searle
C O N T E N T S
VOLUME OFJE
Page
(v)
LIST OF TABLES
LIST OF FIGURES
(vii)
CONTENTS VOLUME TWO
(ix)
PREFACE
(xi1
SUMMARY
(xiii)
CHAPTER
1
INTROUUCTION
2
PASTORAL SECTUR SETTING
2.1 Macro-Economic I n f l u e n c e s
2.2 L i v e s t o c k Numbers and P r o d u c t i o n
2.3 E x p o r t Volume and Returns
2.4 Farm Income, Expenditure and Investment
2.5 P r i c e s P a i d and Received
3
MOUEL STRUCTURE
3.1 Overview o f Model S t r u c t u r e
3.1.1
Farm Income and Investment
3.1.2
L i v e s t o c k Numbers and P r o d u c t i o n Sub-model
3.1.3
Consumption, Stocks and Exports Sub-model
3.2 Equation S p e c i f i c a t i o n
4
3.2.1
L i v e s t o c k Numbers and P r o d u c t i o n
3.2.2
Farm Income, Expenditure and Investment
3.2.3
Consumption and Stocks
DATA
4.1 Sources
4.2 Problems w i t h Data
5
ESTIMATION RESULTS
5.1 L i v e s t o c k Numbers and P r o d u c t i o n
5.2 Income and Expendi t u r e
5.3 Consumption and Stocks
6
VALIDATION
7
POLICYSIMULATIONS
7.1 Exogenous V a r i a b l e s
7.2 L i n k Sub-model
7.3 P r e p a r i n g a Model Run
7.4 Base1 ine F o r e c a s t
8
MODEL RESPONSE TO PRICE SHOCKS
8.1 Wool P r i c e Shock
8.2 Lamb P r i c e Shock
8.3 Mutton P r i c e Shock
8.4 Beef P r i c e Shock
8.5 M i l k f a t P r i c e Shock
9
CONCLUSIONS
REFERENCES
APPENDIX ONE
Summary o f E s t i m a t i o n R e s u l t s
LIST OF TABLES
Page
Tab1 e
1
Representative Equation S p e c i f i c a t i o n s
14
2
E s t i m a t i o n R e s u l t s f o r R e p r e s e n t a t i v e Equations
20
3
Val i d a t i o n S t a t i s t i c s f o r Key V a r i a b l e s
28
4
Exogenous V a r i a b l es f o r Basel ine P r o j e c t i o n
34
5
Resul t s of Basel ine P r o j e c t i o n
35
6
% Change i n Endogenous V a r i a b l e s f o r a 1%Change i n
44
Farm-gate P r i c e s
LIST OF FIGURES
Figure
Page
1
T o t a l Sheep and Beef Numbers: 1964-1985
5
2
Terms o f Exchange a t Farm Gate
8
3
Overview o f Model S t r u c t u r e
4
T o t a l Sheep Numbers
Equation Resul t s
5
Comparison of Actual t o P r e d i c t e d : H i s t o r i c a l
Si mu1a t i on 1965-1984
6
Overview o f L i n k Sub-model
-
Comparison o f Re-estimated
ao
22
CONTEIJTS
VOLUME TWO
APP~NUIX A
L i s t o f v a r i a b l e d e f i n i t i o n s and equations
APPElJUIX B
Equations and Estimated C o e f f i c i e n t s
APPENDIX C
H i s t o r i c a l ex-post s i m u l a t i o n v a l i d a t i o n s t a t i s t i c s
APPENUIX D
Graphs o f h i s t o r i c a l ex-post s i m u l a t i o n comparing
a c t u a l t o p r e d i c t e d f o r key v a r i a b l e s
APPEIdUIX E
Baseline Projection
APPENDIX F
L i nk Sub-model
PREFACE
The development o f an econometric model o f an economic system
provides
the o p p o r t u n i t y f o r a n a l y s t s
t o both
improve
their
understanding o f t h e o p e r a t i o n o f t h e system and t o t e s t t h e i r
e x p e c t a t i o n s through a r i g o r o u s a n a l y s i s o f system r e l a t i o n s h i p s . The
Agribusiness and Economics Research U n i t has s t r o n g l y supported t h i s
approach and t h e development o f t h i s model o f t h e New Zealand l i v e s t o c k
s e c t o r i s t h e major example o f t h i s t y p e o f work.
This
Research Report p r o v i d e s
i n f o r m a t i o n on a f u r t h e r
r e f i n e m e n t of t h e model, which was f i r s t e s t a b l i s h e d i n 1981. I n o r d e r
f o r such a model t o r e t a i n i t s usefulness, i t i s i m p o r t a n t t h a t r e g u l a r
u p d a t i n g be undertaken and areas o f d e f i c i e n c y improved. T h i s model
has proven t o be v e r y r o b u s t i n i t s e x p l a n a t i o n of t h e r e l a t i o n s h i p s
w i t h i n t h e l i v e s t o c k s e c t o r and t h e outcome o f t h e i n t e r a c t i o n s between
t h e v a r i a b l e s which a f f e c t l i v e s t o c k o u t p u t . As w e l l as u p d a t i n g t h e
model, some steps have been taken t o improve i t s ' u s e r f r i e n d l i n e s s '
t h r o u g h t h e development o f a sub-model p r o v i d i n g l i n k a g e s between t h e
major exogenous v a r i a b l e s and t h e f u l l s e t o f exogenous v a r i a b l e s upon
which t h e model depends.
I t i s hoped t h a t t h i s model w i l l be u t i l i s e d by o t h e r a n a l y s t s
i n t e r e s t e d i n t h e New Zealand l i v e s t o c k s e c t o r . One o f t h e b e n e f i t s of
model development i s t h e use o f t h e model t o e x p l o r e d i f f e r e n t
p o s s i b i 1 it i e s w i t h r e s p e c t t o f u t u r e 1eve1 s o f exogenous v a r i a b l e s .
T h i s model would be o f b e n e f i t t o farmer groups, producer boards,
academics and government a n a l y s t s and
i t s w i d e r use i s h i g h l y
recommended.
The Report has been p u b l i s h e d i n two volumes.
Volume 1
p r o v i d e s a d e s c r i p t i o n o f t h e b a s i c model and t h e main r e s u l t s o f t h e
analyses c a r r i e d o u t .
Vol ume 2 p r e s e n t s d e t a i l s o f t h e model, a
d e t a i l e d p r e s e n t a t i o n o f t h e v a l i d a t i o n r e s u l t s , s i m u l a t i o n comparisons
of p r e d i c t e d and a c t u a l r e s u l t s and t h e b a s e l i n e p r o j e c t i o n s . Volume 2
i s i n t e n d e d as m a t e r i a l f o r t h e more s e r i o u s a n a l y s t , and i s a v a i l a b l e
upon a p p l i c a t i o n t o t h e AEKU a t L i n c o l n College.
A C Zwart
Ui r e c t o r
T h i s r e p o r t d e s c r i b e s an updated v e r s i o n o f an econometric
model o f t h e New Zealand p a s t o r a l 1 i v e s t o c k s e c t o r which has e v o l v e d
over a number o f y e a r s . Taking e a r l i e r work by L a i n g and Zwart as a
s t a r t i n g p o i n t , t h e i r model i s r e - e s t i m a t e d u s i n g e x t r a d a t a now
avai 1a b l e .
The e q u a t i o n speci f ic a t i o n s d e s c r i b e d i n L a i ng and Zwart
(1983a) a r e r e t a i n e d b u t t h e i n d i v i d u a l parameter c o e f f i c i e n t s a r e
r e v i sed.
The p a s t o r a l s e c t o r has t r a d i ti onal l y been o f m a j o r importance
Zealand
economy.
As a background
to
the
model
i n t h e New
s p e c i f i c a t i o n , t h e r e c e n t h i s t o r y and c u r r e n t s t a t e o f t h e p a s t o r a l
s e c t o r i s b r i e f l y reviewed arld key f a c t o r s f o r model s p e c i f i c a t i o n a r e
identified.
Kesul t s o f t h e new e s t i m a t i o n a r e r e p o r t e d and v a l id a t i o n
stal;i s t i c s generated from an ex-post dynamic h i s t o r i c a l s i m u l a t i o n of
t h e f u l l model a r e presented. Some comparisons w i t h t h e o r i g i n a l
e s t i m a t e s a r e made and, i n
general, e s t i m a t i o n r e s u l t s
appear
s a t i s f a c t o r y and n o t i n c o n f l i c t w i t h e a r l i e r c o e f f i c i e n t s r e p o r t e d by
L a i n g and Zwart. The v a l i d a t i o n procedure i n d i c a t e s a good degree o f
f i t f o r key endogenous v a r i abl es i n t h e h i s t o r i c a l s i r n u l a t i on c o n t e x t .
A need i s p e r c e i v e d t o make t h e model more a c c e s s i b l e t o
p o t e n t i a l users.
To t h i s end p r e p a r a t i o n o f p o l i c y s i m u l a t i o n model
runs i s discussed and t h e r e s u l t s o f a b a s e l i n e f o r e c a s t r u n a r e
presented f o r illu s t r a t i ve purposes. A so-cal 1ed "1 i n k " sub-model
developed t o simp1 i f y t h e s p e c i f i c a t i o n o f exogenous data t o t h e model
i s a l s o described.
A s e r i e s o f ' s h o c k ' s i m u l a t i o r i runs a r e a l s o
performed t o examine the impact of changes i n a range o f farm-gate
commodity p r i c e s .
I n conclusion, t h e r e - e s t i m a t i o n procedure appears t o have been
successful i n improving t h e model performance. The i n c o r p o r a t i o n of up
t o d a t e d a t a i n t h e e s t i m a t i o n i n c r e a s e s t h e time1 i n e s s o f f o r e c a s t s
f o r p o l i c y purposes. F u t u r e extensions t o t h e model would i n c o r p o r a t e
in t h e dai r y
p r o c e s s i n g s e c t o r and examine
product constrai n t s
re-speci f ic a t i o n o f o t h e r model equations.
T h i s r e p o r t has been broken i n t o two volumes t o enable e a s i e r
p r e s e n t a t i o n o f t h e r e s u l t s . The main body o f t h e r e p o r t i s c o n t a i n e d
i n Vol ume One, w i t h t h e Appendices, i n c l u d i n g d e t a i l e d t a b l e s and
r e s u l t s , i n Volume Two.
(xiii)
CHAPTER 1
INTKOOUCTIOM
T h i s r e p o r t d e s c r i b e s t h e u p d a t i n g and r e - e s t i m a t i o n o f t h e
econometric model of t h e New
Zeal and p a s t o r a l s e c t o r developed
A.C.
Zwart.
Econometric models
o r i g i n a l l y by M.T.
L a i n g and
r e p r e s e n t a combination o f economic t h e o r y and mathematical s t a t i s t i c s
and are designed t o r e f l e c t t h e s t r u c t u r a l r e 1 a t i o n s h i p s w i t h i n an
economic system. T h i s model has evolved over a number o f y e a r s ( L a i n g
and Zwart (1981), h a i ng (1982) and L a i n g and Zwart (1983a)). I t i s t h e
l a t e s t model s p e c i f i c a t i o n d e s c r i b e d i n L a i n g and Zwart (1983a) which
i s t h e b a s i s f o r t h e c u r r e n t study. No re-speci f i c a t i o n o f t h e model
out1 i n e d i n t h a t paper has been attempted i n t h e c u r r e n t research;
however, w i t h t h e a d d i t i o n a l t h r e e y e a r s o f t i m e s e r i e s data now
a v a i l a b l e t h e model database has been updated and t h e model e q u a t i o n s
re-estimated.
The aims o f L a i ng and Zwart i n t h e i r i n i t i a l research and model
development were " t o a i d i n
the understanding o f t h e economic
i n t e r - r e l a t i o n s h i p s i n t h e p a s t o r a l l i v e s t o c k s e c t o r and t o p r o v i d e an
i n s t r u m e n t which c o u l d be used t o m o n i t o r developments and a i d p o l i c y
deci s i o n maki ng i n t h a t s e c t o r . " Whi 1e t h e model b u i 1d i n g process
i t s e l f i n p a r t accomplishes t h e o b j e c t i v e o f g a i n i n g i n s i g h t s i n t o t h e
economic i n t e r - r e l a t i o n s h i p s i n t h e p a s t o r a l s e c t o r , i t i s from i t s use
as a p o l i c y making a i d t h a t t h e model would y i e l d i t s g r e a t e s t
p r a c t i c a l b e n e f i t s . Appl i c a t i o n o f t h e model f o r p o l i c y a n a l y s i s has
t o d a t e been 1 irni t e d t o a study o f t h e Supplementary Minimum P r i c e
scheme r e p o r t e d i n L a i n g and Zwart (1983b) which was f o l l o w e d up more
r e c e n t l y by Johnson (1986a and b ) , and by Griffi t h and Grundy (1988).
I n view o f t h e s i g n i f i c a n c e o f t h e p a s t o r a l s e c t o r t o t h e New
Zealand economy t h e r e i s c l e a r l y scope f o r a s e c t o r a l rnodel o f t h i s
t y p e t o be used f o r a n a l y s i s o f p o l i c y impacts and f o r medium term
f o r e c a s t i n g t o a i d p o l i c y decisions, s i n c e p o l i c y which a f f e c t s t h e
p a s t o r a l s e c t o r has i m p o r t a n t i r n p l i c a t i o n s f o r t h e economy as a whole.
I t i s t h e d e s i r e t o a p p l y t h e model i n t h i s p o l i c y s i m u l a t i o n framework
which has m o t i v a t e d t h e c u r r e n t r e v i s i o n o f t h e model. There a r e c l e a r
b e n e f i t s t o be d e r i v e d f o r those i n v o l v e d i n d e c i s i o n making i n t h e
p a s t o r a l s e c t o r i f such models a r e more w i d e l y avai 1 able.
However, t h e desi r a b i 1 it y o f econoinetric and o t h e r model s must
be balanced a g a i n s t t h e problems o f s p e c i f i c a t i o n , e s t i m a t i o n and
v a l i d a t i o n i n v o l v e d i n model development. A range o f measures and
s t a t i s t i c s a r e avai l a b l e w i t h which t o analyse econometric model s.
Resul t s o f t h e r e - e s t i m a t i o n procedure a r e d i scussed and v a l id a t i on
s t a t i s t i c s f o r a dynamic ex-post h i s t o r i c a l s i m u l a t i o n a r e presented i n
Chapters 5 and 6 which g i v e a measure o f t h e performance o f t h e f i n a l
model
.
The need t o rnake t h e nlodel more a c c e s s i b l e t o p o t e n t i a l u s e r s
has a1 so been a concern i n t h e p r e p a r a t i o n o f t h i s r e p o r t .
It i s
f r e q u e n t l y t h e case t h a t models, once developed, a r e seldom used.
Consequently a s o - c a l l e d "1 i n k model" has been c r e a t e d t o e x p l i c i t l y
1 i n k p r i m a r y exogenous v a r i a b l e s t o a s e t o f c l o s e l y r e l a t e d "1 i n k "
variables
using
a s e r i e s of equations and thus
s i m p l i f y the
i n c o r p o r a t i o n o f assumptions r e l a t i n g t o exogenous data v a r i a b l e s . I n
a d d i t i o n , a l i s t of t h e exogenous v a r i a b l e s which must have values
s p e c i f i e d before attempting a model run, and t h e i r d e f i n i t i o n s , i s a l s o
given. Results of a b a s e l i n e forecast are reported i n Chapter 7 i n
o r d e r t o i l l u s t r a t e how e x p e c t a t i o n s about economic t r e n d s may be
i n c o r p o r a t e d i n t o a f o r e c a s t and t o demonstrate the c a p a b i l i t i e s o f t h e
model.
F u l l d e t a i 1 s of the re-estimated model , in c l u d i ng v a r i a b l e
definitions,
the model equations and the estimated c o e f f i c i e n t s a r e
i n c l u d e d i n t h e appendices contained i n Volume Two.
The e s t i m a t i o n
procedure r e s u l t s a r e presented i n summary f o m ~ i n Appendix One
contained i n t h i s volume.
CHAPTER 2
PHSTOKAL SECTOR SETTING
The performance of t h e a g r i c u l t u r a l s e c t o r has a major impact
on t h e o v e r a l l performance o f t h e New Zealand economy and the p a s t o r a l
l i v e s t o c k s e c t o r has h i s t o r i c a l l y been a v e r y s i g n i f i c a n t p a r t o f b o t h
t h e a g r i c u l t u r a l s e c t o r and t h e economy as a whole.
Mew Zeal a n d ' s
f o r e i g n exchange revenue has t r a d i t i o n a l l y been dependent on e x p o r t s o f
meat, wool and d a i r y products, which generate over 5 0 % o f t o t a l
merchandise e x p o r t r e c e i p t s i n most y e a r s . I n 1986-87 these p r o d u c t s
accounted f o r 62% o f merctiandi se e x p o r t s . The a g r i c u l t u r a l s e c t o r i n
If
t o t a l accounts f o r about 8% o f t h e economy's t o t a l n e t o u t p u t .
c l o s e l y r e l a t e d o p e r a t i o n s i n t h e i n p u t supply and o u t p u t p r o c e s s i n g
and d i s t r i b u t i o n sub-sectors a r e i n c l u d e d i n a more b r o a d l y d e f i n e d
a g r i c u l t u r a l s e c t o r t h e n a g r i c u l t u r e accounts f o r almost 20% o f GDP.
The p a s t o r a l l i v e s t o c k s e c t o r c o n t i n u e s t o p r o v i d e t h e b u l k o f t h i s
o u t p u t , i n s p i t e of r e c e n t t r e n d s towards d i v e r s i f i c a t i o n i n t o o t h e r
1ess t r a d i t i o n a l types o f farming
.
As a background and m o t i v a t i o n f o r t h e model s p e c i f i c a t i o n ,
then, i t i s i m p o r t a n t t o review b r i e f l y t h e r e c e n t h i s t o r y and c u r r e n t
s t a t e o f t h e p a s t o r a l s e c t o r . The f o l l o w i n g r e v i e w discusses some o f
t h e Inore i m p o r t a n t aspects o f t h e s e c t o r , i n c l u d i n g macro-economic
i n f l u e n c e s , 1i v e s t o c k numbers, p r o d u c t i o n , e x p o r t v o l ume and r e t u r n s ,
and farm incomes and expenditures.
2.1 MACRO-ECONOMIC INFLUENCES
Government p o l i c y and t h e w o r l d economy a r e t h e two major
macro-economic i n f l u e n c e s on t h e p a s t o r a l s e c t o r .
The Government
l a r g e l y determines t h e c o n d i t i o n s o f t h e domestic economy and i s
c u r r e n t l y i n t h e process o f i n s t i t u t i n g a s e r i e s o f economic reforms.
The p a s t o r a l s e c t o r has n o t escaped t h e consequences o f r e c e n t changes.
O f most immediate importance t o farmers have been moves such as t h e
removal o f Supplementary M i nirnum P r i c e s (SPlPs) and o t h e r s u b s i d i e s , t h e
removal o f c o n t r o l s i n t h e f i n a n c i a l s e c t o r l e a d i n g t o h i g h e r i n t e r e s t
r a t e s , i n c l u d i n g concessionary r a t e s o f f e r e d by t h e Rural Bank, and t h e
f 1oa t i ng o f t h e exchange r a t e . Other measures i n c l u d e c h a r g i ng f o r
i n s p e c t i o n s e r v i c e s a t meat works and a change t o t h e b a s i s o f t a x a t i o n
f o r 1i v e s t o c k .
an t h e past, t h e Government promoted schemes such as t h e Land
Development Encouragement Loan scheme ( L D E L 1, t h e L i v e s t o c k I n c e n t i we
Scherne (LIS) and SlvlPs have sought t o support farm incomes and encourage
p r o d u c t i o n and c a p i t a l development. However t h e emphasi s o f p r e s e n t
p o l i c y i s t o improve e f f i c i e n c y , f l e x i b i l i t y and competitiveness i n t h e
economy by removal o f c o n t r o l s and a r e d u c t i o n i n d i r e c t support.
The f l o a t i n g exchange r a t e has had a s i g n i f i c a n t impact on
agriculture.
Since t h e d o l l a r was f l o a t e d i n March 1985, p r i o r t o
which t h e Reserve Bank t r a d e weighted exchange r a t e i n d e x s t o o d a t
62.7, t h e value o f t h e d o l l a r has f l u c t u a t e d , b u t g e n e r a l l y has
a p p r e c i a t e d w i t h t h e i n d e x s t a n d i n g a t 65.1 i n March 1986 and 7 5 . 4 a t
t h e end o f September 1987. T h i s exchange r a t e movement, combined w i t h
l i t t l e o r no growth i n overseas p r i c e s , o r even a f a l l i n t h e p r i c e o f
some commodi t i e s on w o r l d markets, has r e s u l t e d i n reduced r e t u r n s f o r
p a s t o r a l producers. The A g r i c u l t u r a l Review Committee i n i t s r e p o r t t o
t h e M i n i s t e r o f A g r i c u l t u r e i n February 1986 estimated t h a t a 10 p e r
c e n t d e p r e c i a t i o n of t h e do1 l a r a g a i n s t a1 1 c u r r e n c i e s a t t h a t time
would l i f t sheep and beef farm incomes by 13 per cent.
Domestically, c o n t i n u i n g i n f l a t i o n a t 1eve1 s h i g h e r than t h a t
o f major t r a d i n g p a r t n e r s has meant b o t h increased i n p u t c o s t s and
reduced r e t u r n s f o r producers.
A t t h e same time, New Zeal and has experienced i n c r e a s i n g
d i f f i c u l t y i n marketing i t s t r a d i t i o n a l p a s t o r a l products. Since t h e
e n t r y o f t h e United Kingdom t o t h e EEC t h e t r a d i t i o n a l UK markets f o r
New Zealand p a s t o r a l produce have contracted.
EEC subsidies and
s t o c k p i l e s , i n p a r t i c u l a r i n t h e d a i r y sector, have k e p t p r i c e s low and
l i m i t e d e x p o r t s t o s e t quota l e v e l s . Much o f t h e r e s p o n s i b i l i t y f o r
marketing fa1 1 s upon i n s t i t u t i o n s such as t h e Wool Board, t h e D a i r y
Board and t h e Meat Producers' Board. However, a t t h e end o f December
1985 t h e Meat Producers' Board announced t h a t i t was r e t u r n i n g t h e
marketing o f meat t o p r i v a t e exporters. A1 though i t was g e n e r a l l y
agreed t h a t t h e Meat Board's marketing was n o t v e r y successful, t h e
I n the d a i r y
f u l l imp1 i c a t i o n s o f t h i s move have y e t t o be f e l t .
i n d u s t r y t h e D a i r y Board r e t a i n s v i r t u a l l y complete c o n t r o l o f b o t h
p r o d u c t i o n and m a r k e t i ng deci s i ons.
A l l these macro-economic f a c t o r s have l e d t o some s e r i o u s
repercussions i n t h e p a s t o r a l s e c t o r and c l e a r l y a guide t o t h e impacts
of f u t u r e p o l i c y i n i t i a t i v e s would be a t t r a c t i v e . Nonetheless t h e r e
are o t h e r c h a r a c t e r i s t i c s o f the p a s t o r a l s e c t o r and i t s s e t t i n g which
must be taken i n t o account i n model s p e c i f i c a t i o n , and these a r e
d i scussed f u r t h e r be1ow.
2.2 LIVESTOCK NUMBERS ANU PRODUCTION
T o t a l sheep numbers reached a peak o f 70 m i l l i o n i n t h e e a r l y
1980's and a r e p r e s e n t l y fa1 1ing. However, beef c a t t l e numbers, which
have been d e c l i n i n g g r a d u a l l y over t h e l a s t decade, increased 2 p e r
c e n t i n 1985 and over 5% i n 1986, r e f l e c t i n g an improvement i n t h e
p r o f i t a b i 1 it y of beef re1 a t i ve t o sheep and dai ry e n t e r p r i ses. F i g u r e
1 i l l u s t r a t e s these trends i n sheep and beef stock numbers.
The number o f d a i r y cows i n m i 1k o r i n c a l f increased i n t h e
cent
years ended June 1985 and June 1986 by 2.2 and 2.7 p e r
r e s p e c t i v e l y , b u t the n a t i o n a l t o t a l o f d a i r y cows has remained
r e l a t i v e l y s t a b l e over t h e p a s t 15 t o 20 years. However, t h e s t r u c t u r e
and processing technology o f the d a i r y i n d u s t r y has been anything b u t
s t a b l e , and changes i n the processing s e c t o r amount t o a v i r t u a l
r e s t r u c t u r i n g o f t h e d a i r y i n d u s t r y . Since t h e mid-1960's the number
o f f a c t o r y supply d a i r y producers has decreased r a p i d l y , w h i l e t h e
average herd s i z e has increased. I n 1962-63 t h e r e were 33400 s u p p l i e r s
compared t o 15000 i n 1984-85. Correspondingly, average herd s i z e has
increased from 67 head t o 143 head over t h e same p e r i o d . A t t h e same
time, i n c r e a s e s i n e f f i c i e n c y i n t h e processi ng s e c t o r have r e s u l t e d in
economies o f scale , w i t h numerous amalgamations o f d a i r y companies.
This has been caused t o a 1 arge e x t e n t by pressures t o m a i n t a i n r e t u r n s
I n 1960-61 180 companies r a n 268 f a c t o r i e s ; by 1981-82 36
t o farmers.
companies r a n 87 f a c t o r i e s . There has a1 so been a t r a n s i t i o n from
cream t o whole-milk c o l l e c t i o n from farmers w i t h the growth i s n mi1 k
t a n k e r c o l 1e c t i on.
Whi 1e the herd number has remained re1 a t i v e l y
s t a t i c, improved management and b r e e d i ng techniques and f avourabl e
c l i m a t i c c o n d i t i o n s have seen increases i n m i l k f a t p r o d u c t i o n p e r head,
w i t h a r e c o r d l e v e l o f p r o d u c t i o n o f m i l k f a t i n the 1986 season.
Production f o r t h e 1987 season has been s l i g h t l y lower.
C l i m a t i c c o n d i t i o n s a f f e c t i n g p a s t u r e growth i n f l u e n c e numbers
o f l i v e s t o c k o f a l l types, and a l s o a f f e c t carcase weights, wool
weights and m i l k f a t production. T o t a l meat p r o d u c t i o n reached a r e c o r d
l e v e l o f 1,263,000 tonnes i n t h e 1985 season, when c l i m a t i c c o n d i t i o n s
were g e n e r a l l y favourable. Meat p r o d u c t i o n f e l l by approximately 10%
i n 1986 b u t i s estimated t o be 1,198,700
tonnes f o r 1987.
Wool
p r o d u c t i o n i n 1986-87 was the l o w e s t 1eve1 recorded since 1978-79,
r e f l e c t i n g t h e r e d u c t i o n i n stock numbers, a1 though p r i c e s were a t
h i s t o r i c a l l y high levels.
2.3 EXPORT VOLUME AND
RETURNS
The volume o f exports depends both on domestic p r o d u c t i o n and
on overseas demand and market condi l i o n s . Returns t o fanners, s i n c e
t h e f l o a t i n g o f the exchange r a t e , have been h i g h l y dependent on t h e
value o f t h e New Zealand d o l l a r and o t h e r macro-economic i n f l u e n c e s
discussed i n s e c t i o n 2.1 such as t h e l e v e l o f subsidies p a i d t o f o r e i g n
farmers, p a r t i c u l a r l y i n the EEC and US. Domestic stocks o f p a s t o r a l
products a l s o have an impact on e x p o r t volumes and r e t u r n s .
Department o f S t a t i s t i c s f i g u r e s i n d i c a t e a s i g n i f i c a n t decl ine
i n e x p o r t volumes and values o f most p a s t o r a l products i n 1986 over
1985 l e v e l s ;
however i n 1987 volumes and r e t u r n s recovered. For t h e
y e a r ending June 1987, exports o f meat, wool and d a i r y products
accounted f o r 62% o f t h e t o t a l value o f New Zealand merchandise
value o f meat exports rose from $1.7
exports.
The t o t a l f.0.b.
b i l l i ~ ni n 1986 t o $2.2 b i l l i o n i n 1987 w h i l e the value o f d a i r y
e x p o r t s rose s l i g h t l y from $1.37 b i l l i o n t o $1.4 b i l l i o n i n t h e same
period.
The value o f wool e x p o r t s a l s o rose t o $1.5 b i l l i o n i n 1987
from $1.2 b i l l i o n i n 1986. Volumes o f e x p o r t s showed a s i m i l a r trend.
2.4 FARM INCOME, EXPENDITURE AND INVESTMENT
Sheep and beef farm gross incomes i n 1986-87 averaged $115,400
p e r farm, according t o estimates from t h e annual NZMWBES farm survey.
O f t h i s t o t a l , wool c o n t r i b u t e d $49000, c a t t l e $18400 and sheep $29700.
Other farm income has shown a s i g n i f i c a n t upward t r e n d i n r e c e n t years,
w i t h d i v e r s i f i c a t i o n i n t o goats, deer and o t h e r non-tradi t i o n a l sources
o f income.
On f a c t o r y supply d a i r y farms, gross income, which i s
d e r i v e d m a i n l y from m i l k f a t , rose from $97100 i n 1984-85 t o $97552 i n
1985-86 b u t i s expected t o f a l l t o $88224 i n 1986-87, according t o t h e
Mew Zealand D a i r y Board's estimates. D a i r y farm incomes a r e l a r g e l y
t i e d t o t h e m i l k f a t p r i c e which i n t u r n depends on e x p o r t r e t u r n s .
As discussed i n s e c t i o n 2.1, Government pol i c i e s which have
p r e v i o u s l y tended t o support incomes and subsidise c e r t a i n farm
expenditures have been reduced o r removed a l t o g e t h e r . Adjustments and
changes in income and expenditure have been t h e n a t u r a l r e s u l t a1 though
t h e f u l l impact o f t h e p o l i c y i n i t i a t i v e s has y e t t o be determined.
In
the s h o r t term t h e most obvious immediate e f f e c t i s expected t o be a
r e d u c t i o n i n farm expenditures b u t t h e longer term e f f e c t s on income
and investment are as y e t unclear.
Major items o f farm
expenditure i n c l ude debt s e r v i c i n g ,
f e r t i l i s e r , r e p a i r s and maintenance, wages, f u e l and shearing on
sheep-beef
farms, w h i l e on d a i r y farms d a i r y shed expenses and
e l e c t r i c i t y are a1 so l a r g e components o f the t o t a l cash expenditure.
The average expenditure per sheep and beef farm i n 1986-87 was
estimated t o be $95500 per farm, w h i l e i t was $68550 f o r d a i r y farms.
Higher i n t e r e s t r a t e s f o l l o w i n g removal o f c o n t r o l s i n 1984 have meant
t h a t debt s e r v i c i n g c o s t s on e x i s t i n g loans have r i s e n q u i c k l y so t h a t
i n t e r e s t has assumed a much g r e a t e r p r o p o r t i o n o f expenditure than was
p r e v i o u s l y the case. F e r t i l i s e r and maintenance expenses are commonly
viewed as being d i s c r e t i o n a r y items o f expenditure, and can be expected
t o be reduced i f incomes fa1 1 , more so than o t h e r cash expenditure
items which are e s s e n t i a l l y f i x e d o r have l e s s p o t e n t i a l f o r reduction.
I n a d d i t i o n t o cash expenditure items, c a p i t a l expenditure i s
an important f e a t u r e o f t h e p a s t o r a l farm budget. C a p i t a l investment
decisions have wide ra.nging and 1ong term repercussions, a f f e c t i n g
1 i v e s t o c k numbers, production and t h e l o n g term s t a b i l i t y o f the farm
sector.
Bui 1d i ng, 1and development, v e h i c l e s , p l a n t and machi nery a r e
the main items o f c a p i t a l expenditure. D a i r y farming i n p a r t i c u l a r has
seen increasi ng r e q u i rements f o r h i g h 1eve1 s o f capi ta1 investment in
b u i 1dings and dai r y shed techno1 ogy
.
Factors such as a v a i l a b i l ity o f finance, Government subsidies
and tax concessions i n f l u e n c e t h e l e v e l o f capj t a l investment.
The
economic 1i f e o f p l a n t and v e h i c l e s a f f e c t s the frequency w i t h which
replacements must be purchased. Where funds are l i m i t e d , a r a t i o n a l
s e l e c t i o n between d i f f e r e n t forms o f c a p i t a l investment i s made
according t o the re1 a t i v e r e t u r n s o f each type, t h e s e r v i c i n g c o s t s and
t h e expected e f f e c t s on farm incomes.
2.5 PRICES P A I D AND RECEIVED
P r i c e s p a i d by farmers f o r i n p u t s continue t o increase i n l i n e
with inflation.
The p r i c e s p a i d by sheepfarmers index, base 1976
=1000, was 3905 i n 1987, cornpared w i t h 3629 i n 1986 - a 7.6% increase.
S i m i l a r l y , t h e d a i r y farmers i n p u t s p r i c e index published by t h e
Department o f S t a t i s t i c s rose 11%between March 1985 and 1984, and
another 8.6% t o March 1986. However, the index f e l l 1.1%between March
1986 and March 1987 r e f l e c t i n g a drop i n d a i r y c a t t l e l i v e s t o c k p r i c e s .
I f 1 ivestock are excluded, the c o s t o f i n p u t s on d a i r y farms r o s e 4.5%
i n t h i s period.
Terms o f exchange a t t h e farm gate , which expresses
the r e l a t i o n s h i p between p r i c e s received and p a i d by farmers, a r e shown
i n F i g u r e 2.
T h i s i s perhaps more meaningful than l o o k i n g a t e i t h e r
p r i c e s p a i d o r p r i c e s received i n i s o l a t i o n .
P r i c e s received by sheep and beef farmers were supported by SMP
payments over t h e e a r l y .19801s. F o l l o w i n g the phasing o u t o f SMP
support, r e t u r n s t o farmers were s i gni f i c a n t l y 1ower i n 1986, w i t h
i n i t i a l schedule p r i c e s f o r 1amb down by about 40%, mutton p r i c e down
n e a r l y 80% and beef down approximately 8% on 1985 l e v e l s . The schedule
8
FIGURE 2
TERMS
OF EXCHANGE
p r i c e f o r mutton was i n f a c t l e s s than t h e f r e e z i n g works k i l l i n g
charge.
Wool p r i c e s a l s o f e l l , b u t by o n l y about 6% i n 1986 compared
t o 1985 p r i c e s .
P r i c e s f o r meat and wool rose i n 1987, w i t h r e c o r d
wool p r i c e s reached a t times d u r i n g t h e season. I n t h e d a i r y i n d u s t r y ,
SMP's were o f very minor importance; nonetheless t h e D a i r y Board's
t o t a l payment f o r t h e 1986 season was 400c per k i l o g r a m o f m i l k f a t ,
compared w i t h 396c i n 1985. The 1987 b a s i c payment was 320c, a
s i g n i f i c a n t f a l l . T h i s r e f l e c t s t h e i n f l u e n c e o f t h e exchange r a t e and
overseas market c o n d i t i o n s , where EEC and US surpluses have depressed
prices.
CHAPTER 3
MODEL STRUCTURE
3.1 OVERVIEW OF MODEL STRUCTURE
The p a s t o r a l s e c t o r model can be broken i n t o t h r e e sub-models
encornpassi ng
1 ivestock
numbers and
production,
farm
incomes ,
e x p e n d i t u r e and investment, and consumption, s t o c k s and e x p o r t s . There
a r e a t o t a l o f 199 equations i n t h e model o f which 63 a r e estimated,
t h e renlai nder b e i ng i d e n t i t i e s .
The scope o f t h e model i s 1 i m i t e d t o t h e sheep-beef and d a i r y
components o f t h e p a s t o r a l s e c t o r and t h e i r major products. Some o f
t h e key endogenous v a r i a b l e s solved f o r a r e sheep, beef c a t t l e and
dairy c a t t l e
h e r d numbers a r ~ d lamb,
mutton, beef and
mi1 k f a t
production.
I n t h e d a i r y p r o c e s s i ng s e c t o r , p r o d u c t i o n o f cheese,
b u t t e r and m i l k powders from t h e m i l k f a t s u p p l i e d i s modelled.
Gross
and n e t farm incomes f o r sheep-beef and d a i r y farms and major i t e m s o f
farm e x p e n d i t u r e and investment a r e a l s o found, a t t h e farm l e v e l . A t
an aggregate l e v e l , domestic consumption o f p a s t o r a l s e c t o r p r o d u c t s
and e x p o r t volumes and values o f
these p r o d u c t s a r e determined
endogenously.
Farm-gate and e x p o r t p r i c e s remain exogenous and beyond t h e
scope o f t h e model t o determine, as a r e exchange r a t e s , i n t e r e s t r a t e s
and i n f l a t i o n .
I n terms of t h e preceding d i s c u s s i o n , these a r e i n t h e
main macro-economic f a c t o r s .
However, t h e e f f e c t s o f v a r i a t i o n s i n
these exogenous v a r i a b l es on t h e endogenous r e 1 a t i onships can be
a s c e r t a i n e d by t e s t i n g t h e model under a v a r i e t y o f scenarios.
F i g u r e 3 i l l u s t r a t e s t h e general s t r u c t u r e o f t h e model.
Exogenous in f l uerices a r e id e n t i f i ed and t h e f l ow c h a r t a1 so in d i c a t e s
t h e l i n k a g e s and d i r e c t i o n o f f l o w s between b l o c k s o f endogenous
equations i n t h e model.
The t h r e e major components o f t h e model can be i d e n t i f i e d :
1) t h e farm income and investment sub-model
2 ) t h e l i v e s t o c k numbers and p r o d u c t i o n sub-model and
3 ) t h e consumption, s t o c k s and e x p o r t s sub-model.
The l i n k a g e s between these sub-models and t h e i n t e r a c t i o n s
between and w i t h i n t h e i r components a r e discussed i n more d e t a i l i n t h e
f o l l owing s e c t i o n s . However t h e broad f l o w o f t h e model can be t r a c e d
by s t a r t i n g w i t h t h e impact o f farm-gate p r i c e s on gross farm incomes.
The l e v e l o f income determines t h e amount o f funds a v a i l a b l e f o r
expendi t u r e and investrnent; investment deci s i o n s i r i f l uence 1 ivestock
levels;
stock l e v e l s a f f e c t
p r o d u c t i o n and t h e r e f o r e incomes.
P r o d u c t i o n is e i t h e r consumed domesti c a l l y , added t o s t o c k s o r
exported, w i t h m i l k f a t going through a f u r t h e r processing stage b e f o r e
t h e f inal products a r e determi ned.
0VEKVIEI.J O F HODEL STRUCTURE
LNVCSlPICNl'
/
L)EC I S I O N S
IDII'URE
GROSS PAKM
INCOME
-
F A I N INCOME
AND INVESTMENT SUB-MODEL
(FARM LEVEL )
I. IVES'I'OCK NUMBERS
AND PRODUCTION SUB-MODEL
(AGGREGATE LEVEL)
CONSUMPTTON STOCKS
AND EXPORT SUB-MOBEL
,
PROCESS LNG
I
EXPOKT
PRTCES
3.1.1
Farm Income and I n v e s t n i e r ~ t
The farm income and investment sub-model a t t e m p t s t o e x p l a i n
t h e manner i n which farm investment d e c i s i o n s a r e made, a t t h e f a r m
l e v e l . Farm accounts data from t h e Meat and Wool Boards' Economic
S e r v i c e sheep and beef farms survey and New Zealand D a i r y Board's
f a c t o r y supply d a i r y farm survey i s used t o p r o v i d e t h e farm l e v e l
database.
Exogenous i n f l u e n c e s on income and investment d e c i s i o n s a r e
i n p u t p r i c e s (such as t h e p r i c e o f f e r t i l i s e r ) , farm-gate p r o d u c t
p r i c e s , t h e c o s t of c a p i t a l and investment r e t u r n s on t h e v a r i o u s
and
avail able
assets.
Production, from
t h e 1 i v e s t o c k numbers
t h e gross income
equations.
production
sub-model , feeds i n t o
Investment d e c i s i o n s a r e expl i c i t l y model l e d , w i t h farmers i n v e s t i n g
t h e i r avai 1 a b l e n e t income, a f t e r e x p e n d i t u r e and t a x . The p o r t f o l i o
approach used t o model t h e income and investment process i s discussed
a t some l e n g t h i n Chapter 2 of L a i n g and Zwart (1983a).
Through t h i s investment process t h e iricome sub-model 1 i n k s t o
t h e 1 i vestock numbers and p r o d u c t i o n
sub-model
In
particular,
investment i n 1and development i s an i m p o r t a n t determinant o f aggregate
l i v e s t o c k numbers as i t a f f e c t s t h e c a r r y i n g c a p a c i t y o f l a n d .
For
d a i r y farmers, investment i n b u i l d i n g s i s a l s o a major f a c t o r a f f e c t i n g
stock l e v e l s , r e f l e c t i n g t h e importance o f d a i r y sheds and t h e i r
a s s o c i a t e d technology i n d a i r y i n g .
.
3 . 1 . 2 L i v e s t o c k Numbers and P r o d u c t i o n Sub-model
L i v e s t o c k numbers a r e 1 a r g e l y determined by farm p r i c e s ,
c a p i t a l investment deci sions, weather and
begi n n i ng p e r i o d s t o c k
1eve1 s.
The model t r e a t s p r i c e s
and weather exogenously,
but
investment i s determined i n t h e income and investment sub-model and
these investment d e c i s i o n s r e p r e s e n t an i m p o r t a n t 1 inkage i n t o t h e
l i v e s t o c k numbers b l o c k . It i s t h e change i n l i v e s t o c k numbers which
t h e model d e r i v e s , r a t h e r than a c t u a l l e v e l s .
P r o d u c t i o n of t h e major p a s t o r a l p r o d u c t s i s determined as a
f u n c t i o n o f l i v e s t o c k numbers and p a s t u r e growth.
The b e h a v i o u r a l
equations f o r t h e change i n s t o c k numbers p r o v i d e t h e l i v e s t o c k
recursively t o the production
demographic
v a r i a b l e s which 1i n k
equations.
L e v e l s o f p r o d u c t i o n i n t u r n a f f e c t t h e income sub-model
due t o t h e dependence o f gross income on p r o d u c t i o n . P r o d u c t i o n f l o w s
through f o r f i n a l d i s p o s i t i o n i n t h e consumption and e x p o r t s sub-model.
I t should be noted t h a t t h e l i v e s t o c k numbers and p r o d u c t i o n sub-model
The
produces m i l k f a t as t h e o n l y p r o d u c t o f t h e d a i r y s e c t o r .
p r o c e s s i n g o f mi1 k f a t i n t o o t h e r d a i r y products i s model l e d i n t h e
f i n a l sub-model, t h e consumption and e x p o r t s sub-model.
3 . 1 . 3 Consumption, Stocks and Exports
Sub-model
The prime f u n c t i o n of t h e t h i r d sub-model i s t o a l l o w t h e
f o r e i g n exchange imp1 i c a t i ons o f a l t e r n a t i v e p o l i c i e s t o be evaluated.
P r o d u c t i o n may be e i t h e r consumed d o m e s t i c a l l y , added t o s t o c k s o r
exported.
Exports a r e d e r i v e d as a r e s i d u a l a f t e r t a k i n g domestic
consumption and s t o c k s i n t o account.
F a c t o r s governing domestic
consumption a r e r e t a i l p r i c e s and p e r c a p i t a incomes, which a r e
exogenous.
Other exogenous i n f l uences on t h i s sub-model
p r i c e s , w o r l d demand and exchange rates.
are
world
The m u l t i - p r o d u c t nature o f t h e d a i r y i n d u s t r y makes i t
necessary t o lnodel t h e p r o d u c t i o n decisions f o r a range o f products
s i n c e m i l k f a t i s processed i n t o b u t t e r , cheese and milk-powders f o r
consumpti on and export.
The product processing b l o c k model s these
decisions, which a r e under t h e c o n t r o l o f the New Zeal and D a i r y Board
and are determined by a combination o f the l e v e l o f m i l k f a t p r o d u c t i o n
and market
demand,
both
domestic
and
international
Major
i n t e r n a t i o n a l markets such as the UK, EEC, USA, USSR and Japan a r e
i n c l uded exogenously i n t h e model
Other major i n t e r n a t i o n a l market
i n f l u e n c e s a f f e c t i n g d a i r y processing i n c l u d e U n i t e d Kingdom quota
l e v e l s and the r e s t i t u t i o n payments made under t h e EEC's Common
A g r i c u l t u r a l Pol i c y
.
.
.
3.2 EQUATION SPECIFICATION
Having discussed t h e broad f l o w of the model i n terms o f the
t h r e e sub-model s and t h e 1 inkages between them, t h i s s e c t i on examines
i n g r e a t e r depth the s p e c i f i c a t i o n o f the i n d i v i d u a l model equations.
C l e a r l y , as t h e r e a r e over 60 estimated equations i t would be
i m p r a c t i c a l t o examine each i n d e t a i l . A much more d e t a i l e d a n a l y s i s
o f t h e model s p e c i f i c a t i o n i s given by Laing and Zwart (1983a) b u t the
d i scussi on be1ow i s i n t e n d e d t o p r o v i d e a re1 a t i v e l y s t r a i g h t f o r w a r d
i n t r o d u c t i o n t o t h e model. A f u l l l i s t o f the model equations i s given
i n Appendix A, Volume Two.
The equation s p e c i f i c a t i o n s used are
i d e n t i c a l t o those r e p o r t e d i n Laing and Zwart (1983a1, and no attempt
has been made t o a1 t e r o r improve these s p e c i f i c a t i o n s . Table 1 1is t s
some o f the key model r e l a t i o n s h i p s
using s p e c i f i c equations as
r e p r e s e n t a t i v e exampl es.
3.2.1
Livestock Numbers and Production
The l i v e s t o c k number equations a r e expressed i n d i f f e r e n c e form
w i t h change i n stock numbers as t h e dependent v a r i a b l e .
A partial
adjustment process i s assumed t o d r i v e l i v e s t o c k numbers towards some
optimal desired l e v e l , b u t t h e adjustment i s n o t p e r f e c t . The GOVTl
dummy v a r i a b l e i n t h e sheep number equations i s t o c a p t u r e t h e e f f e c t s
o f payments under t h e Stock Retention Scheme i n 1972.
Farm-gate
p r i c e s , r e l a t i v e p r i c e s , weather and investment terms appear i n t h e
l i v e s t o c k number s p e c i f i c a t i o n s i n an attempt t o c a p t u r e t h e e f f e c t s of
these f a c t o r s on t h e adjustment process.
A general s p e c i f i c a t i o n f o r t h e 1i v e s t o c k equations ( f r o m Laing
and Zwart 1983a P50) can be w r i t t e n :
DKL
where
=
(-1)
=
KL
UKL =
LREP =
DLREP=
cO
+
+ cl*PK +
cS*DLKEP(-1)
c2*PS
+
+ c3*LKEP(-1)
cG*NIL(-1)
+
+ c4*KL(-1)
c7*DW
i n d i c a t e s a l a g of one p e r i o d ( y e a r )
l i v e s t o c k numbers f o r a p a r t i c u l a r c a t e g o r y
KL - KL(-1)
l e v e l of replacement stock f o r a p a r t i c u l a r category
LREP - LKEP(-1)
= p r o f i t a b i 1it y o f c o m p e t i t i v e e n t e r p r i s e s
= value o f stock if s l a u g h t e r e d immediately
= change i n t h e c a p i t a l stock o f l a n d
= change i n t h e annual number o f days o f s o i l m o i s t u r e
deficit
cO,cl,c2,c3,c4,c5,c6,c7
a r e parameters t o be e s t i m a t e d
PR
PS
NIL
DW
Interchanges between d a i r y and beef herds a r e c a p t u r e d by
i n c l u d i n g prime beef p r i c e s i n t h e d a i r y h e i f e r s equation, and lagged
d a i r y h e i f e r numbers i n t h e beef h e i f e r equation.
The
production
e y u a t i ons
are
speci f ied
fairly
straightforwardly.
S i x p r o d u c t i o n c a t e g o r i e s a r e used: wool, mutton,
lamb, prime beef, manufacturing beef and m i l k f a t . The l i v e s t o c k number
equations considered above p r o v i d e t h e stock l e v e l s f o r i n p u t t o t h e
p r o d u c t i o n equations, r e f l e c t i n g t h e i n f l u e n c e o f changes i n animal
numbers on f i n a l p r o d u c t i o n . Other v a r i a b l e s a r e i n c l u d e d t o account
f o r changing
p r o d u c t i o n p e r head.
Relative prices a f f e c t
the
a1 1o c a t i o n o f resources amongst v a r i o u s e n t e r p r i ses and s o i l moi s t u r e
d e f i c i t i s i n c l u d e d t o account f o r seasonal v a r i a t i o n s i n p a s t u r e
growth.
The e f f e c t o f c a p i t a l i n t e n s i t y on p e r head p r o d u c t i o n i s
c a p t u r e d "chrouyht t h e i n c l u s i o n i n t h e s p e c i f i c a t i o n o f t h e opening
c a p i t a l stock o f l a n d p e r stock u n i t .
The lamb p r o d u c t i o n e q u a t i o n i n t a b l e 1 i l l u s t r a t e s these
c o n s i d e r a t i o n s , w i t h p r o d u c t i o n b e i n g a f u n c t i o n o f stock l e v e l s ,
r e 1 a t i ve p r o d u c t p r i c e s , c a p i t a l i n t e n s i t y and weather c o n d i t i o n s
.
For d a i ry products, the s p e c i f i c a t i o n o f p r o d u c t i o n e q u a t i o n s
i s a 1it t l e more complicated, s i n c e t h e m i l k f a t produced on t h e farm
may be used f o r a v a r i e t y o f end-products.
As t h e b u t t e r e q u a t i o n
illu s t r a t e s ,
i n t e r n a t i o n a l market c o n d i t i o n s
are
an
important
determinant
in
making
the
f i na1 p r o d u c t i o n
decisions.
The
s p e c i f i c a t i o n s e s t i m a t e o u t p u t i n an unconstrained f a s h i o n which
i g n o r e s t h e j o i n t p r o d u c t i o n n a t u r e o f d a i r y processing.
Prel i m i nary
f o r e c a s t runs w i t h t h e model have i n d i c a t e d t h a t p r o d u c t i o n o f
skim-milk powder i n p a r t i c u l a r tends t o d i v e r g e from t h e l e v e l o f
b u t t e r p r o d u c t i o n t o an ' i m p o s s i b l e ' e x t e n t . The s p e c i f i c a t i o n as i t
stands w i l l tend t o r e f l e c t demand c o n s i d e r a t i o n s r a t h e r t h a n t e c h n i c a l
supply possi b i l it i e s which i m p l i e s t h a t f o r e c a s t s o f p r o d u c t i o n w i l l
e x h i b i t g r e a t e r s e n s i t i v i t y t o exogenous i n f l u e n c e s than t o p r a c t i c a l
p r o d u c t i o n c o n s t r a i n t s . There i s c l e a r l y scope f o r t h e s p e c i f i c a t i o n
t o be a l t e r e d t o account f o r these aspects i n any f u t u r e r e - e s t i m a t i o n
o f t h e model.
3.2.2
Farm Income, Expenditure and Investrnent
The s p e c i f i c a t i o n s of t h e farm income equations a r e a1 1 v e r y
similar.
F o r sheep-beef farmers, t h r e e endogenous sources o f gross
income a r e i d e n t i f i e d as wool, sheepmeats and b e e f and f o r d a i r y
farmers r n i l k f a t and " o t h e r " ( m a i n l y from s a l e o f bobby c a l v e s and c u l l
cows) a r e t h e two c a t e g o r i e s o f income. The gross income e q u a t i o n s
t r e a t income as a f u n c t i o n o f farm-gate p r i c e s and q u a n t i t y o f
production, i l l u s t r a t e d by t h e wool income e q u a t i o n i n t a b l e 1.
The
expenditure
equations t r e a t e x p e n d i t u r e as
depending
on
.......................................................................
TABLE 1 REPRESENTATIVE EQUATION SPECIFICATIONS
.......................................................................
Livestock Numbers
- Breeding Ewes
UKE = ~(KE(-I
,KHGT(-1) ,PKLBPB(-1), D P W R , P M R , U W ~ , N I L ~ B ~ - ~,~G O V T ~ )
Production
Lamb
QL = f(KE(-1) ,PKWLLB,SLDHDSB(-1) ,WS)
Butter
QBUT = f (CHBKPU ,QMLKF ,DSTBR( -1 ) ,UKBKVU,EECBKES(-1) ,BUMKT(-1 ) )
-
Farm Income and Expenditure
- Gross Wool Income, Sheep and Beef Farm
MWBGYW = f(QW,PWR)
- F e r t i 1iser Expendi t u r e , Uai r y Farm
DBFTR = f (DBGYD ,CDBGYD ,PFERTR,FERTWM)
Investment and P o r t f o l i o Assets
- Land Llevelopment, Sheep and Beef Farm
NILSB = f(MWBCANY,CMWBCAY,CKlYCK2,CRA3,CRA4,CRA6,CR7,
MWBINV(-1) ,FMPKSE(-1) ,STKBSB(-1) ,STPMVSB(-l),
STKLSS(-1) ,MWi3SLB(-1) )
- Bui l d i n g s , D a i r y Farm
N I U D Y = f (DBCAdY ,CUBCANY ,CUR1 ,CUKZ,CURA3 ,CURA4,CURA6 ,
5TKBDY (-1) ,STPMVUY ( - 1 ) )
Per Capita Domest i c Consumpti on
- Beef and Veal
PCBV = f(KPBEEF,KPMUTTN,KPCHES,RPCNDY)
Stocks
- Beef and Veal
USTBV = f (STBV ,QBF,PMBSR, PMBUIF )
- Butter
USTBK = f (Dl)BUT,DCBUT ,DUVBK)
income and p r i c e , as shown by the d a i r y farm f e r t i l i s e r expenditure
equation i n t a b l e 1. Stock l e v e l s and c a p i t a l i n t e n s i t y are a1 so
i n c l u d e d i n most o f t h e equation s p e c i f i c a t i o n s , as these f a c t o r s
d i r e c t l y i n f l u e r ~ c e t h e l e v e l o f cash expenditure needed. Four major
c a t e g o r i e s o f cash expenditure are i d e n t i f i e d f o r b o t h sheep-beef and
f e r t i 1 iser, r e p a i r s and maintenance, depreci a e i on and
dai r y farms :
other. I n
t h e d e p r e c i a t i o n equations
gross investment and t a x
d e p r e c i a t i o n a1 1owances a r e a d d i t i o n a l parameters. A dummy v a r i a b l e ,
FEKTUUM, appears i n t h e two f e r t i l i s e r equations t o account f o r t h e
f e r t i 1 i ser t a x concession a p p l y i n g i n 1974.
For sheep and beef farmers o n l y , a t a x e q u a t i o n i s s p e c i f i e d t o
e s t i m a t e t h e l e v e l of t a x paid. A l a c k o f d e t a i l e d survey data
precludes a s i m i l a r equation f o r d a i r y farms. Tax i s considered t o be
a f u n c t i o n o f t h e p r e v i o u s y e a r ' s t a x a b l e n e t income and t h e change i n
gross income t h i s y e a r since farmers u s u a l l y pay t a x based on l a s t
y e a r ' s t a x a b l e incon~e w h i l e t a x may a1 so be p r e p a i d o u t
income as a s t a b i 1 is a t i on measure.
of
current
The s p e c i f i c a t i o n s of t h e investment e q u a t i o n s a r e n o t a b l e f o r
t h e t r e a t m e n t of t h e investment process as a p o r t f o l i o d e c i s i o n .
The
a s s e t demand r e l a t i o n s h i p s i n c l u d e b o t h t h e l e v e l and change i n
a v a i l a b l e n e t income, r e t u r n s t o each o f t h e assets, t h e lagged l e v e l
o f each endogenous a s s e t and i n c o r p o r a t e s a measure o f t h e c o s t o f
assets.
T h i s general s p e c i f i c a t i o n i s c o n s i s t e n t w i t h a number o f
a1 t e r n a t i v e approaches t o v i e w i n g farm investment d e c i s i o n making. The
concept o f a s e r v i c e p r i c e i s used as t h i s p r o v i d e s a u s e f u l means of
measuring t h e t r u e c o s t of o b t a i n i n g t h e s e r v i c e s o f a d d i t i o n a l u n i t s
o f an asset.
An approximate measure o f t h e p r o f i t a b i l i t y o f e x t r a
investment i n any p a r t i c u l a r p h y s i c a l i n p u t can be c a l c u l a t e d from t h e
r a t i o o f r e a l output prices t o the service price.
Compari son of t h e 1and devel opment investment e q u a t i o n f o r
sheep and beef farrns w i t h t h e b u i 1d i ngs investment e q u a t i o n f o r dai r y
farms i n t a b l e 1 shows t h e r e l a t i v e l y g r e a t e r c o m p l e x i t y o f t h e sheep
and beef equations due t o t h e s h o r t e r time s e r i e s a v a i l a b l e f o r
e s t i m a t i o n o f t h e dai ry farm equations.
3.2.3
Consumption and Stocks
The beef and veal consumption e q u a t i o n i n t a b l e 1 i s t y p i c a l o f
t h e consumption equations i n t h e model, where domestic demand i s a
f u n c t i o n o f own p r i c e , p r i c e of s u b s t i t u t e s and p e r c a p i t a income.
Mutton and cheese a r e seen as s u b s t i t u t e s f o r beef, i n t h i s case. The
stock equations a r e s p e c i f i e d i n f i r s t d i f f e r e n c e form and a g a i n t h e
d a i r y p r o d u c t equations d i f f e r s l i g h t l y from t h e r e s t . D a i r y s t o c k s
a r e seen t o depend more on changes i n p r o d u c t i o n and consumption than
on a c t u a l l e v e l s o f e x i s t i n g stoclts arid production, as i n t h e b e e f
equation f o r instance.
CHAPTER 4
DATA
4.1 SOURCES
The d a t a requirements o f a model t h i s s i z e , h a v i n g 199
equations, a r e considerable.
I n a1 1, approximately 230 p r i m a r y d a t a
s e r i e s were r e q u i r e d , w i t h o b s e r v a t i o n s needed f o r each s e r i e s over t h e
e n t i r e e s t i m a t i o n p e r i o d . A wide range o f sources were used t o o b t a i n
t h i s data.
Farm l e v e l income and e x p e n d i t u r e d a t a was suppl-ied by t h e
r e s p e c t i v e farrn surveys o f t h e Pleat and Wool Boards' Economic S e r v i c e
and t h e New Zealand D a i r y Board. These sources a l s o p r o v i d e d d a t a on
farm p r o d u c t i o n and schedule p r i c e s f o r meat and d a i r y products.
of
Various
publications o f the
New Zealand Department
S t a t i s t i c s , such as t h e Monthly A b s t r a c t o f S t a t i s t i c s , A g r i c u l t u r a l
S t a t i s t i c s and E x p o r t S t a t i s t i c s , a r e a major source o f model data.
Uata r a n g i n g from volume and v a l u e o f e x p o r t s t o l i v e s t o c k numbers and
l e v e l s o f c a p i t a l investment was o b t a i n e d from these sources.
Annual
Reports o f t h e v a r i o u s producer boards s u p p l i e d d a t a on p r o d u c t i o n
v o l ume and p r i c e suppl ementati on schemes.
The riodel database was updated t o a t l e a s t 1984 i n t h e case o f
a l l endogenous v a r i a b l e s , and t o 1985 o r 1986 i n t h e case o f exogenous
variables.
T h i s r e p r e s e n t s t h r e e y e a r s data addi t i o n a l t o t h a t
c o l l e c t e d f o r t h e o r i g i n a l v e r s i o n o f t h e model. I t i s i n t e n d e d t o
p e r i o d i c a l l y update t h e s e r i e s t o m a i n t a i n t h e database i n as c u r r e n t a
s t a t e as p o s s i b l e .
A full
t h e authors.
li s t o f t h e data s e r i e s and sources i s a v a i l a b l e
from
4.2 PROBLEMS WITH DATA
Updating t h e database proved a major u n d e r t a k i n g i n i t s
r i g h t , and n o t s u r p r i s i n g l y some problems w i t h t h e data arose.
own
The c h i e f source o f d i f f ic u l t y was a p r o d u c t o f t h e c o n f li c t
i m p l i c i t i n t h e a t t e m p t t o match economic concepts t o a v a i l a b l e data.
Some cornpromi ses were necessary which r e s u l t e d i n t h e s p e c i f i c a t i o n
conforming t o t h e a v a i l a b l e data, o r data b e i n g manipulated t o f i t t h e
specification.
One major concern and d i f f ic u l ty was t h a t several o f t h e t i m e
s e r i e s over t h e p e r i o d under consi d e r a t i on were e i t h e r d i s c o n t i nued o r
rep1 aced by sinli 1 a r , b u t n o t rlecessari l y i d e n t i c a l , s e r i e s . The farm
c a p i t a l p r i c e i n d i c e s and 1 i v e s t o c k nurnber s e r i e s were among t h i s
category, where new s e r i e s had t o be ' s p l i c e d ' w i t h t h e o l d t o g i v e a
consistent series f o r the f u l l period.
Another problem was t h e compati b i 1 it y and comparabi 1 it y o f d a t a
from d i f f e r e n t sources.
The r e s p e c t i v e farm surveys o f t h e Meat and
Wool Boards Economic Service and t h e New Zealand D a i r y Board do n o t use
t h e same accounting d e f i n i t i o n s o r c a t e g o r i e s o f expenditure, f o r
instance.
T h i s has t h e imp1 i c a t i o n t h a t d i r e c t comparison o f incomes
and expenditures between t h e two farm types based s o l e l y on t h e survey
data i s n o t s t r i c t l y val i d . However, i t i s p o s s i b l e t o compare t r e n d s
over time and remain c o n s i s t e n t t o t h e data sources. With o t h e r data
s e r i e s i t was observed t h a t some s e r i e s a r e expressed i n June years,
some i n September y e a r s and some i n calendar years. And t h e d e f i n i t i o n
of what, e x a c t l y , c o n s t i t u t e s a farm v a r i e s between t h e Uepartment o f
S t a t i s t i c s Census o f A g r i c u l t u r e and A g r i c u l t u r a l S t a t i s t i c s and t h e
o t h e r farm surveys.
These
examples merely i l l u s t r a t e
some o f the
problems
encountered i n a t t e m p t i n g t o o b t a i n time s e r i e s data s u i t a b l e f o r t h e
e s t i m a t i o n of an ecoriornetric model o f t h i s type, and a r e i n a d d i t i o n t o
t h e i n e v i t a b l e problems o f sampling e r r o r i n survey data and o t h e r
p o s s i b l e e r r o r s i n t h e data i t s e l f . I n p r a c t i c e , the c o n s t r a i n t s
imposed by t h e a v a i l a b i l i t y o f data f o r c e s t h e use o f data t h a t i s l e s s
t h e t e s t o f whether the
than i d e a l froin a t h e o r e t i c a l viewpoint;
compromises made a r e j u s t i f i e d comes i n the process o f e s t i m a t i n g and
v a l i d a t i n g t h e model.
The n e x t two s e c t i o n s examine t h e model
e s t i m a t i o n and r e p o r t on v a l i d a t i o n of the model w i t h t h i s end i n view.
CHAPTER 5
ESTIMATION RESULTS
The complete p a s t o r a l s e c t o r model was r e - e s t i m a t e d over t h e
p e r i o d frorn 1960 ( o r 1965 f o r much o f t h e d a i r y farms s e c t i o n ) t o 1984,
w i t h annual d a t a from t h e updated database.
~ a b l l e 2 shows some
F u l l d e t a i l s o f the estimation
r e p r e s e n t a t i we e s t i m a t i o n r e s u l t s .
r e s u l t s a r e presented i n Appendix B o f Vol urne Two, i n c l u d i n g R-squared
and Durbin-Watson t e s t s t a t i s t i c s , and standard e r r o r s . Two e s t i m a t i o n
techniques were empl oyed, namely o r d i n a r y 1e a s t squares r e g r e s s i on
(OLS) and seemingly u n r e l a t e d r e g r e s s i o n (SUR)
T h i s f o l 1 owed t h e
p r a c t i c e o f L a i n g and Zwart i n t h e i r o r i g i n a l e s t i m a t i o n o f t h e model.
.
SUK i s a m u l t i p l e e q u a t i o n technique i n c o n t r a s t t o OLS which
i s a p p l i e d t o s i n g l e equations. Broadly speaking, SUR i s a systems
e s t i m a t o r used i n a s i t u a t i o n where cross-equation contemporaneous
c o r r e l a t i o n of e r r o r terms i s suspected and r e s u l t s i n improved
e f f i c i e n c y o f e s t i m a t e s i n comparison t o a s i n g l e e q u a t i o n approach
I n t h e p a s t o r a l s e c t o r model
such as OLS under such c o n d i t i o n s .
cross-equation e f f e c t s a r e a n t i c i p a t e d t o be p r e s e n t i n l i v e s t o c k
numbers equations, where f a c t o r s such as general envi roninental and
A s i m i 1a r
economic condi t i o n s apply across t h e 1 ivestock types.
s i t u a t i o n e x i s t s w i t h investment deci sions, where general economic and
incorne f a c t o r s a p p l y across a s s e t types, and hence f o r t h e l i v e s t o c k
number and investment equations t h e p r e f e r r e d e s t i m a t i o n technique was
SUR. The remaining model equations were e s t i m a t e d u s i n g OLS.
I n general t h e e s t i m a t i o n r e s u l t s were s a t i s f a c t o r y , w i t h most
c o e f f i c i e n t s having expected s i g n s and b e i n g s i g n i f i c a n t a t a 10 p e r
cent level.
The e x t r a data o b s e r v a t i o n s i n many cases improved t h e
t e s t s t a t i s t i c s f o r i n d i v i d u a l c o e f f i c i e n t s and equations when compared
w i t h those
reported
i n L a i n g and
Zwart (1983a).
Since
the
specification
o f several equations i n c l u d e d
a h i g h degree
of
mu1 t i c 0 1 1 in e a r i t y amongst t h e r i g h t hand s i d e v a r i a b l e s , t h e e s t i m a t e d
c o e f f i c i e n t s i n these equations may have been expected t o be q u i t e
s e n s i t i v e t o t h e new data, and d i s p l a y marked d i f f e r e n c e s from t h e
o r i g i n a l estimates.
However, most o f t h e r e - e s t i m a t e d c o e f f i c i e n t s
were o f t h e same s i g n and o r d e r o f magnitude as those i n t h e o r i g i n a l
estimation.
The d e s i r e t o remain c o n s i s t e n t t o t h e o r i g i n a l v e r s i o n o f t h e
model and i t s t h e o r e t i c a l underpinnings meant t h a t some v a r i a b l e s w i t h
c o e f f i c i e n t s o f d o u b t f u l s t a t i s t i c a l s i g n i f i c a n c e were nonetheless
retained i n the equation specifications.
5.1 LIVESTOCK NUMBERS AND PRODUCTION
I n t h e change i n b r e e d i n g ewes equation, c o e f f i c i e n t s on
f a c t o r s such as lagged stock numbers, weather and l a n d development
investment have t h e expected s i g n s and g e n e r a l l y h i g h l y s i g n i f i c a n t
Other 1 ivestock e q u a t i o n s demonstrated s i m i 1 a r r e s u l t s , i n
t-scores.
t h e main conforming t o p r i o r e x p e c t a t i o n s and n o t d i f f e r i n g g r e a t l y
The
from t h e r e s u l t s p r e v i o u s l y r e p o r t e d i n L a i n g and Zwart (1983a).
e x c e p t i o n was t h e ewe hoggets equation, where a number o f in s i g n i f i c a n t
TABLE 2
ESTIMATION RESULTS FOK REPRESENTATIVE EQUATIONS
.......................................................................
---------------------------------i----------------------------------------
L i v e s t o c k Numbers
- Breeding Ewes
UKE= 1939.97 - 0.46*KE(-1)
(-6.9)
+ 1.46*KhGT(-1)
+ 1867.27*PRLBPB(-1)
(7.7)
(5.3)
P r o d u c t i on
- Lamb
QL = -530.45 + 0.016*KE(-1) + 32.03"PRWLLB + 9.63"SBUPMDY (-1)
(9.3)
(2.6)
(3.2
K-SQUAKED=0.92 D.W.=1.29
F=56.6
- Butter
QBUT= 895.44 - 122.70kCHBRPU + 890.82"QMLKF
(-1.4)
(9.3)
-
-
0.38*WD
(-1.1)
0.071*DSTBR(-1)
(-0.8)
Farm Incorne and Expenditure
- Gross Wool Income, Sheep and Beef Farm
MWBGYW = - 17671.2 + 52.59*QW + 109.33"PWR
(6.0)
(15 .O)
K-St)UHREO=0.92 D.W.=1.18
F=120.53
- F e r t i 1 is e r Expenditure, Uai r y Farm
DBFTR = 53.99 + 0.0018*DBGYD - 0.00046"CDBGYU
(4.1)
(-0.7)
-
1.08*PFERTR
(-5.3)
Investment and P o r t f o l i o Assets
-Land Development, Sheep and Beef Farm
NILSB = -258.8 - 0.00092*MWBCANY + 0.0017*CMWBCAY
(-1.2)
(2.8)
+ 0.29*STPMVSB(-1)
(3.1)
+ 0.082*STKLSB(-1)
(2-1)
S.E.R.=5.22
D.W.=1.75
-
+ 409.44*CR1
(1.1)
0.0014*MWBTLB( -1 )
(-2.7)
c o n t i nued
TABLE 2 c o n t i n u e d
.......................................................................
- B u i l d i n g s , D a i r y Farm
NIBDY = 8.34 + 0.00083"DBCANY - 0.00U60"CUBCANY
(2.6)
(-1-0)
Per C a p i t a Domestic Consumpti on
- Beef and Veal
PCBV = -15.7 - 0.077*RPBEEF + 0.24"RPMUTTN
(-2.6)
(4.6)
+ 662.39"CURl
(4.5)
+ 0.12"RPCHES
(3.1)
Change i n Stocks
- Beef and Veal
OSTBV = -38.36
0.81*STBV(-1) + 0.17"QBF + 0.46"PMBSR
(-3.7)
(3.1)
(2.0)
R-SQUAREU=0.31 O.W.=1.55
F=3.8
-
- Butter
OSTBK = 1503.66 + 0.62"DUBUT - 3.3O"DCCHE
(2.4)
(-0.9)
R-SQUAKED=0.22 D.W.=2.18
-
+ 0.45"PMBUIF
(1.6)
14.38*DUVBR
(-0.6)
F=2.89
.......................................................................
t - s t a t i s t i c s i n parentheses
.......................................................................
t - s c o r e s and anomalous s i g n s were o f concern.
However, as t h e
c o e f f i c i e n t s w i t h t h e 'wrong' s i g n s d i d n o t d i f f e r s i g n i f i c a n t l y from
zero, t h e e q u a t i o n was a l l o w e d t o stand.
The o r i g i n a l e s t i m a t e s
r e p o r t e d by L a i n g and Zwart had shown a h i g h degree o f p o s i t i v e
a u t o c o r r e l a t i on ( D u r b i n-Watson s t a t i s t i c o f 1.O) which suggests t h a t
t h e t - s c o r e s quoted i n L a i n g and Zwart (1983a) may have been upwardly
b i a s e d f o r t h i s equation.
Furthermore,
s i n c e t h e equations a r e
e s t i m a t e d as a system, t h e t h r e e sheep number equations must be
considered j o i n t l y .
F i g u r e 4 illu s t r a t e s t h e improvement o b t a i ned by
t h e r e - e s t i m a t e d model when compared t o
t h e o r i g i n a l model
in
p r e d i c t i ng h i s t o r i c a l sheep numbers in a s i mu1 a t i on run.
As t h e SUR technique was used t o e s t i m a t e t h e l i v e s t o c k number
equations, no R-squared s t a t i s t i c i s a v a i l a b l e , b u t t h e standard e r r o r
o f t h e r e g r e s s i o n i s c a l c u l a t e d . A1 though a d i r e c t comparison w i t h t h e
e a r l i e r e s t i m a t e s may be misleading, i t i s w o r t h n o t i n g t h a t f o r some
equations t h e standard e r r o r was l o w e r than t h e o r i g i n a l b a i n g and
Zwart e r r o r , i n s p i t e o f t h e
e x t r a observations, i n d i c a t i n g an
improvement i n accuracy of t h e o v e r a l l equations.
FIGURE 4
TOTAL SHEEP NUMBERS - CONPARISON OF RE-ESTIMATED EQUATION RESULTS
t
~
t
~
l
~
t
~
l
~
l
l
l
~
l
~
68000
-
------
182 ESTIMATION
-
66000
-
--
RE-ESTIMATED
-
64000
-
-
62000
-
-
--
-
-
0
\
\
/
\
52000
50000
\
-
\
\
~
.
I
1966
~
1968
t
~
1970
I
1972
\
I
l
1974
I
-
.-
-
I
/
' % - - - -
~
-
/ \
/
l
1976
l
I
l
1978
I
1980
I
I
1982
I
1984
I
I
1986
YEAR
The
production
equations
were
estimated
using
OLS.
C o e f f i c i e n t s a1 1 had a n t i c i p a t e d signs, except f o r some o f t h e
in t e r n a t i onal market v a r i abl es i n some
o f t h e dai ry p r o d u c t i o n
equations.
I n p a r t i c u l a r , t h e c o e f f i c i e n t on EEC b u t t e r r e s t i t u t i o n
payments i n t h e b u t t e r p r o d u c t i o n e q u a t i o n had an unexpected p o s i t i v e
sign, a1 though being i n s i g n i f i c a n t ( t - s c o r e o f 0.3).
R-squareds f o r
t h e meat, wool and m i l k f a t p r o d u c t i o n equations were high, r a n g i n g from
0.74 t o 0.94 and Durbin-Watson s t a t i s t i c s i n d i c a t e d l i t t l e o r no
a u t o c o r r e l a t i on problems.
I n accordance w i t h expectations,
t h e major i n f l u e n c e on
p r o d u c t i o n 1eve1 s appeared t o be 1 ivestock demographics, c a p i t a l
i n t e n s i t y and, t o a l e s s e r e x t e n t , r e l a t i v e p r i c e s f o r commodities.
F o r d a i r y products, m i l k f a t p r o d u c t i o n and w o r l d e x p o r t demand were t h e
tnost s i g n i f i c a n t f a c t o r s .
5.2 INCOME AND EXPENDITURE
The
r e s p e c t i v e farm income
equations demonstrated
high
Signs on
c o e f f i c i e n t s o f determination, r a n g i n g from 0.66 t o 0.92.
parameters accorded w i t h t h e o r e t i c a l expectations, and t h e e s t i m a t e d
c o e f f i c i e n t s themsel ves d i d n o t d i f f e r g r e a t l y from the o r i g i nal L a i ng
and Zwart estimates, i n d i c a t i ny t h a t income determinants have remained
r e l a t i v e l y stable.
Table 2 shows t h e wool income equation f o r sheep
and beef farms.
I
t
1
1
~
The cash e x p e n d i t u r e and d e p r e c i a t i o n equations were a l s o
g e n e r a l l y successful i n terms o f R-squared s t a t i s t i c s , a l t h o u g h t h e
f e r t i l i s e r e x p e n d i t u r e on sheep and b e e f farms had an R-squared o f o n l y
.48. The remaining R-squareds ranged from -57 t o .98.
I n general
statistically
s i g n i f i c a n t c o e f f i c i e n t s had
expected
signs
and
Some c o e f f i c i e n t s such as t h a t on t h e dummy i n t h e d a i r y
magnitudes.
f e r t i lis e r e q u a t i o n had v e r y 1ow s t a t i s t i c a l s i g n i f icance and c o u l d
p o s s i b l y have been r e s t r i c t e d t o be z e r o i n t h e s p e c i f i c a t i o n b u t f o r
the desire t o r e t a i n the e x i s t i n g formulation.
The p o r t f o l i o a s s e t s b l o c k s f o r d a i r y and sheep-beef farms
r e p r e s e n t a very complex s e t o f i n t e r - r e l a t i o n s h i p s and i t i s d i f f i c u l t
t o separate o u t t h e e f f e c t s o f each v a r i a b l e .
Hence, j u d g i n g t h e
success o f t h e e s t i m a t i o n procedure i s d i f f i c u l t and i n t h e f i n a l
a n a l y s i s judgemerit must be suspended u n t i l examining how wel 1 these
equations perform i n p r a c t i c e .
The SUR e s t i m a t e s a r e based on
e s t i m a t i n g a complete system o f equations and may i n v o l v e some
t r a d e - o f f between equations i n t h e block. An examination s f t h e
in d i v i dual t - s c o r e s and standard e r r o r s o f t h e r e g r e s s i o n s in d i c a t e s a
reasonable 1e v e l o f s i gni f icance f o r t h e maj o r i t y o f c o e f f i c i e n t s and
equations. Compari son w i t h t h e c o e f f i c i e n t s d e r i v e d by L a i n g and Zwart
shows t h a t these equations a r e r a t h e r l e s s s t a b l e than any o f t h e o t h e r
equations w i t h t h e a d d i t i o n a l d a t a observations, a r e f l e c t i o n o f t h e
c o l l in e a r i t y in h e r e n t in t h e speci f ic a t i o n o f t h e a s s e t s b l ocks.
However, major s i g n changes o n l y o c c u r r e d i n t h e two l i a b i l i t i e s
equations where t h e p o s i t i ve s i g n on l agged 1 i a b i l iti es i n t h e dai ry
e q u a t i o n i s o f concern. The l i a b i l i t i e s equations a l s o e x h i b i t e d t h e
l e a s t s i g n i f i c a n t t-scores.
Most o f t h e e s t i m a t e d c o e f f i c i e n t s i n t h e
It
assets b l o c k s were o f s i m i l a r magnitude t o t h e e a r l i e r estimates.
i s p o s s i b l e t h a t e f f i c i e n c y o f t h e c o e f f i c i e n t s i n o t h e r equations was
gained a t t h e expense o f t h e two l i a b i l i t i e s equations.
5.3 COdSUMPTION AdU STOCKS
R-squareds f o r t h e consumption equations ranged from 0.46 f o r
t h e lamb consumption e q u a t i o n t o 0.92 f o r t h e mutton e q u a t i o n .
Again
s i g n s and magnitudes of t h e c o e f f i c i e n t s were s i m i l a r t o t h e o r i g i n a l
e s t i m a t e s and c o n s i s t e n t w i t h a p r i o r i e x p e c t a t i o n s . The change i n
s t o c k s equations were t h e 1e a s t successful i n t h e o r i g i n a l e s t i m a t i o n ,
and t h i s proved t h e case again, w i t h g e n e r a l l y l o w t - s c o r e s and
R-squareds.
However, s i g n s were as expected from t h e o r i g i n a l L a i n g
and Zwart r e s u l t s and Uurbin-Watson s t a t i s t i c s c l o s e t o two, which
suggests t h a t a u t o c o r r e l a t i o n i s n o t a problem. Given t h e i m p o r t a n t
r o l e t h a t level s o f s t o c k s p l a y i n p r o d u c t i o n and e x p o r t d e c i s i o n s i t
i s d e s i r a b l e t o i n c o r p o r a t e Lhese equations f o r t h e change i n stocks,
i n spite
of
t h e low s i g n i f i c a n c e o f some o f
the
individual
coefficients.
I n t h e dynarnic s i ~ r ~ u l a t i ocno n t e x t o f model appl i c a t i o n
i t i s t h e i n t e r a c t i o n s between equations t h a t i s i m p o r t a n t as much as
i n d i v i d u a l e q u a t i o n accuracy.
CHAPTER
6
VALIOATION
There a r e a range of t e s t s t a t i s t i c s a v a i l a b l e f o r measuring
t h e performance o f econoinetri c rnodel s. F o r in d i v i dual e q u a t i ons and
c o e f f i c i e n t s measures such as R-squared, F- and t - s t a t i s t i c s and
standard e r r o r s can be used and these a r e discussed i n t h e p r e v i o u s
s e c t i o n . B u t t h e complex i n t e r - r e l a t i o n s h i p s between equations and t h e
e f f e c t s o f compounding e r r o r s over t i m e i n a l a r g e r e c u r s i v e model such
as t h i s means t h a t t o analyse t h e performance o f t h e model as a whole
d i f f e r e n t c r i t e r i a must be used. Some o f t h e more commonly used of
these c r i t e r i a
a r e b r i e f l y discussed
below.
A dynamic ex-post
s i m u l a t i o n o f t h e rnodel over t h e e s t i m a t i o n p e r i o d , 1965-1984, was
c a r r i e d o u t t o measure t h e accuracy o f model generated p r e d i c t i o n s i n
comparison t o t h e a c t u a l h i s t o r i c a l v a l ues o f t h e endogenous v a r i a b l e s
when judged by some o f these c r i t e r i a.
D i f f e r e n t aspects o f t h e ' e r r o r ' , o r d e v i a t i o n o f a c t u a l from
p r e d i c t e d values, can be measured by d i f f e r e n t s t a t i s t i c s . No s i n g l e
s t a t i s t i c of o v e r a l l model p r e c i s i o n e x i s t s , so t h e v a l i d i t y o r
o t h e r w i se o f t h e model must be determi ned by exami n i ng t h e performance
o f each e q u a t i o n i n t u r n i n t h e l i g h t o f a range o f a v a i l a b l e c r i t e r i a *
L a i n g and Zwart (1983a) r e p o r t f o u r s t a t i s t i c s : Mean Absolute
Percentage
E r r o r (MAPE) , c o r r e l a t i o n
coefficient, Thiel U
and
r e g r e s s i o n c o e f f i c i e n t o f a c t u a l on p r e d i c t e d .
MAPE i s t h e rnean o f t h e a b s o l u t e values o f t h e percentage
It i s more
e r r o r ; i t has t h e advaritage o f b e i n g dimensionless.
a p p r o p r i a t e when t h e c o s t o f t h e e r r o r i s more c l o s e l y r e l a t e d t o t h e
percentage e r r o r than t o t h e numerical s i z e o f t h e e r r o r .
The
c o r r e l a t i o n c o e f f i c i e n t i s a number between -1 and +1 which i n d i c a t e s
t h e e x t e n t t o which t h e s i m u l a t i o n i s c o r r e l a t e d w i t h t h e a c t u a l
A c o r r e l a t i o n c o e f f i c i e n t o f + l i m p l ies p e r f e c t p o s i t i v e
values.
correlation
between
t h e two
time series.
Thiel ' s
Inequal it y
C o e f f i c i e n t , o r t h e T h i e l U s t a t i s t i c as i t i s more cornmonly c a l l e d , i s
g i v e n as t h e square r o o t o f t h e r a t i o o f t h e mean squared e r r o r o f t h e
p r e d i c t e d change t o t h e average squared a c t u a l change and hence
measures how successfu1ly a model p r e d i c t s changes i n an endogenous
variable.
T h i e l ' s U i s a p o s i t i v e number; a v a l u e o f 0 i n d i c a t e s a
p e r f e c t f o r e c a s t , w h i l e a v a l u e o f 1 corresponds t o a n a i v e f o r e c a s t o f
'no change'.
The r e g r e s s i o n c o e f f i c i e n t o f a c t u a l on p r e d i c t e d i s a
commonly used e v a l u a t i o n o f a p r e d i c t o r . The slope c o e f f i c i e n t should
be 1 and t h e i n t e r c e p t 0, f o r a p e r f e c t p r e d i c t o r . These c o e f f i c i e n t s
Only
can be t e s t e d f o r s i g n i f i c a n c e u s i n g t h e usual t- and F - t e s t s .
t h e slope c o e f f i c i e n t i s r e p o r t e d i n t h e appendices.
A v a r i e t y o f o t h e r s t a t i s t i c s a r e a l s o a v a i l a b l e and some were
These a r e b r i e f l y
empl oyed in v a l id a t i on o f t h e re-estimated model
described i n the f o l l o w i n g discussion.
.
Percentage Root Mean Squared E r r o r (%RMSE) i s t h e square r o o t
o f t h e mean o f t h e squared percentage e r r o r s . I t i s i n e f f e c t a
measure o f t h e standard e r r o r o f t h e s i m u l a t i o n . The o p t i m a l v a l u e i s
0 ( p e r f e c t p r e d i c t i o n ) . I t impl i c i t l y weights 1 arge percentage e r r o r s
more than s m a l l e r ones. The r a t i o of under-estimates t o over-estimates
i n d i c a t e s whether an e q u a t i o n i s c o n s i s t e n t l y over o r u n d e r e s t i m a t i n g
t h e t i m e t r e n d s . F i n a l l y , t h e percentage o f t u r n i n g p o i n t s p r e d i c t e d
i n d i c a t e s t h e success o r o t h e r w i s e o f an e q u a t i o n i n p r e d i c t i n g t u r n i n g
p o i n t s , which i s p o s s i b l y t h e niost i m p o r t a n t c r i t e r i o n f o r p o l i c y
s i m u l a t i o n s and f o r e c a s t i n g . When working w i t h t i m e s e r i e s data i t i s
common t o f i n d t h a t v a r i a b l e s move t o g e t h e r over t i m e and i t i s t h e
success i n d e t e r m i n i n g where t u r n i n g p o i n t s a r e l i k e l y t o occur t h a t
makes a model t r u e l y u s e f u l i n a f o r e c a s t i n g framework.
Table 3 presents t e s t s t a t i s t i c s c a l c u l a t e d u s i n g t h e above
measures f o r some key model equations. T e s t s t a t i s t i c s f o r t h e f u l l
s e t o f model equations a r e g i v e n i n Appendix C , Volume Two. F i g u r e 5
g r a p h i c a l l y i l l u s t r a t e s t h e model performance f o r t h e sheep numbers
equation, comparing a c t u a l t o p r e d i c t e d v a l ues o v e r t h e h i s t o r i c a l
p e r i o d 1965-84.
Graphs such as t h i s can be used i n a d d i t i o n t o t e s t
s t a t i s t i c s , as t h e y enable a q u i c k one glance a p p r a i s a l o f t h e degree
o f approximation achieved by t h e s i m u l a t e d t o t h e a c t u a l t i m e s e r i e s .
Graphs a l s o g i v e a guide as t o whether p r e d i c t i o n s a r e t e n d i n g t o
d i v e r g e from a c t u a l values over time, a f a c t o r n o t accounted f o r
e x p l i c i t l y by any o f t h e t e s t s t a t i s t i c s . For t h i s reason graphs
comparing p r e d i c t e d t o a c t u a l v a l u e s f o r over 80 key v a r i a b l e s a r e
in c l uded i n t h e Appendix D, Vol ume Two.
Examination o f t h e t e s t s t a t i s t i c s and graphs c o n t a i n e d i n t h e
appendices leads t o t h e concl u s i o n t h a t t h e model general l y performed
v e r y s a t i s f a c t o r i l y . T h i s concl u s i o n i s o f n e c e s s i t y a s u b j e c t i v e one,
b u t supported by t h e evidence o f t h e v a l i d a t i o n s t a t i s t i c s . Most T h i e l
U ' s were l e s s than 0.3, t h e t u r n i n g p o i n t s p r e d i c t e d were over 50% and
i n most o f t h e key v a r i a b l e s g r e a t e r than 80%, and %RMSE was g e n e r a l l y
l e s s than 10.
Judging by these c r i t e r i a t h e model r e s u l t s a r e
encouraging.
Only i n t h e equations re1 a t i n g t o d a i r y p r o d u c t i o n and
were s e r i o u s problems apparent.
stocks
Comparing t h e r e s u l t s t o t h e o r i g i n a l t e s t s t a t i s t i c s o b t a i ned
by L a i n g d Zwart and r e p o r t e d i n t h e appendices t o L a i n g & Zwart
( 1983a) shows t h a t t h e r e was 1 ittl e d i f f e r e n c e i n performance a1 though
a n o t a b l e improvement i n t h e sheep numbers equations was found ( F i g u r e
4 i n t h e p r e v i o u s c h a p t e r ) , w i t h t h e o r i g i n a l model f a i 1 ing t o c a p t u r e
the s i g n i f i c a n t increase i n the national
sheep f l o c k from
the
mid-1970s.
The r e - e s t i m a t e d model succeeded much b e t t e r i n c a t c h i n g
t h i s trend, a1 though s t i 11 u n d e r - e s t i m a t i ng t o a c e r t a i n e x t e n t .
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CHAPTER 7
POLICY SIMULATIONS
I n t h e 1 it e r a t u r e surrounding econometric models, i t i s o f t e n
t h e case t h a t a model , once developed, i s r a r e l y used.
L a i ng and
Z w a r t ' s o r i g i n a l model has t o d a t e been used t o study t h e Supplementary
Minimum P r i c e scheme ( L a i n g and Zwart (1983b) and Johnson (1986a and
b)), but
has o t h e r w i s e enjoyed
l i m i t e d application.
Given t h e
investment o f t i m e and money i n t h e model development process t h i s l a c k
o f use i s d i f f i c u l t t o understand o r j u s t i f y .
T h e r e f o r e a major
o b j e c t i v e o f t h i s study has been t o ensure t h a t t h e model has a
c o n t i n u e d l i f e and t o encourage use o f t h e model i n i t s i n t e n d e d area
o f pol i c y analysis.
There i s some promise t h a t t h i s o b j e c t i v e may be met, as
G r i f f i t h and Grundy ( f o r t h c o m i n g ) have a1 ready used t h e updated model
t o p r o v i d e some r e t r o s p e c t i v e i n s i g h t s i n t o t h e SMP scheme. T h e i r work
l a r g e l y p a r a l l e l s t h a t o f L a i n g and Zwart (1983b), b u t w i t h t h e b e n e f i t
o f h i n d s i g h t i s a b l e t o e v a l u a t e what t h e e f f e c t s o f SMP's were, and t o
ask what would have happened i n t h e absence o f SCIPs; hence an e s t i m a t e
o f t h e n e t benef it s o f SMPs is o b t a i ned.
I t was a l s o d e s i r e d t o s t i m u l a t e a p p l i c a t i o n o f t h e model f o r
forecasting.
L a i n y and Zwart (1983a) s t a t e i n t h e i r c o n c l u s i o n t h a t
. t h e l o g i c a l avenue f o r f u r t h e r a n a l y s i s u s i n g t h e model i s i n t h e
To t h i s
end
a
area o f f o r e c a s t i n g
and
p o l i c y simulations..
p r e l i m i n a r y b a s e l i n e p r o j e c t i o n f o r t h e New Zealand p a s t o r a l s e c t o r f o r
t h e p e r i o d 1985-1990 i s r e p o r t e d below as a demonstration o f t h e
c a p a b i l i t i e s and p o s s i b i l i t i e s o f t h e model. An o u t l i n e o f t h e d a t a
requirements and p r e p a r a t i o n f o r a model r u n i s a l s o presented.
"..
."
7.1 EXOGENOUS VARIABLES
I n o r d e r t o use t h e model f o r p o l i c y s i m u l a t i o n s o r f o r e c a s t i n g
runs, values o f t h e exogenous v a r i a b l e s must be s p e c i f i e d f o r t h e
e n t i r e simul a t i o n p e r i o d . C u r r e n t l y , a c t u a l data is a v a i 1 a b l e f o r a1 l
exogenous v a r i a b l e s up t o 1985, o r i n some cases 1986.
However,
endogenous data i s complete o n l y t o 1984, so t h a t t h e l a t e s t a f o r e c a s t
s i m u l a t i o n can b e g i n i s 1985, i f a c t u a l lagged endogenous d a t a i s t o be
used as a s t a r t i n g p o i n t . To f o r e c a s t o r s i m u l a t e beyond t h i s p o i n t i t
i s necessary t o produce a f o r e c a s t s e r i e s of exogenous v a r i a b l e s .
The exogenous d a t a s e t i s d i v i d e d i n t o two subgroups: a s e t o f
primary v a r i a b l e s and a s e t o f 1 i n k v a r i a b l e s d e s c r i b e d below.
The
process o f developing a s e t o f p r o j e c t e d exogenous
v a r i a b l e s i n v o l v e s making a s e t o f assumptions r e g a r d i n g f u t u r e
economic t r e n d s .
Appendix E i n Volume Two c o n t a i n s a l i s t o f t h e
p r i m a r y exogenous v a r i a b l e s and t h e i r d e f in i t i o n s t o g e t h e r w i t h t h e
data values used i n t h e base1 i n e p r o j e c t i o n .
7.2 LINK SUB-MODEL
The s o - c a l l e d "1 i n k " sub-model has been developed t o reduce t h e
number o f primary exogenous v a r i a b l e s f o r which a user has t o s p e c i f y
values.
These a r e used i n forecast runs when s i m u l a t i o n i s t o take
p l a c e beyond t h e end o f the p e r i o d f o r which a c t u a l data i s a v a i l a b l e .
This subset i s l i n k e d t o the primary exogenous v a r i a b l e s through a
group o f sub-model equations ( l i n k equations). From a s e t o f primary
exogenous v a r i a b l e s , d e r i v e d from t h e assumptions which the model user
wishes t o model, t h e l i n k sub-model c a l c u l a t e s the f u l l s e t o f
exogenous v a r i a b l es r e q u i r e d by the model
.
Appendix E, i n Vol ume Two, l i s t s t h e 1 i n k v a r i a b l e s .
i l l u s t r a t e s t h e o p e r a t i o n o f t h e l i n k sub-model.
Figure 6
FIGURE 6
Overview o f L i n k Sub-model
PRllvlARY EXOGENOUS
VARIABLES
)
--> LINK SUB-MODEL
------
fL-1
rn
ASSUMPTIONS
7.3 PREPARING A MODEL RUN
I n o r d e r t o prepare a model run, o n l y t h e primary v a r i a b l e s
need t o be s p e c i f i e d ; t h e l i n k v a r i a b l e s w i l l be c a l c u l a t e d from them.
This simp1 i f i e s t h e task o f s e t t i n g up a f o r e c a s t run, and a1 so ensures
re1 a t i o n s h i p s between primary
and 1i n k v a r i a b l e s
are
t h a t the
e x p l i c i t l y maintained i n the f o r e c a s t data s e t .
I n general, t h e modeler w i l l be in t e r e s t e d in comparing t h e
r e s u l t s of two o r more scenarios, r a t h e r than i n a s t r a i g h t f o r e c a s t
run. Each s c e n a r i o w i l l i n v o l v e a d i f f e r e n t s e t o f assumptions about
macro-economic f a c t o r s such as i n f l a t i o n and growth, and t r a d e and
pol i c y c o n s i d e r a t i o n s . From t h e b a s i c scenari o, t h e exogenous v a r i a b l e
data base of a c t u a l data can be extended t o cover t h e s i m u l a t i o n p e r i o d
by i n c o r p o r a t i n g these assumptions. F o r instance, i n f l a t i o n under one
scenario may be assumed t o be 8% p.a.
f o r the p e r i o d 1986-90 w h i l e
under another scenario i t may increase from 8% t o 12% over t h e same
period.
The CP1 s e r i e s f o r t h e model r u n corresponding t o each
scenari o w i 1 1 be a1 t e r e d t o r e f 1e c t these d i f f e r i ng assumptions.
I t i s i m p o r t a n t t o e x p l i c i t l y consider a1 1 t h e assumptions used
i n extending t h e exogenous data s e r i e s i n t h i s way t o a v o i d confusion
over model r e s u l t s .
7.4 BASELINE FORECAST
A base1 i n e forecast u s i n g the mode1 has been run, u s i n g t h e
u n d e r l y i n g assumptions d e t a i l e d i n t a b l e 4. Table 5 presents t h e
r e s u l t s o f the f o r e c a s t from 1985-90 f o r some o f t h e key endogenous
model v a r i a b l e s .
A 1 i s t o f t h e primary exogenous v a r i a b l e values used
i n the b a s e l i n e p r o j e c t i o n i s given i n Appendix E o f Volume Two.
The
r e s u l t s in general appear reasonably p l a u s i b l e i n compari son w i t h known
o r expected actual l e v e l s o f these v a r i a b l e s f o r the p e r i o d under
c o n s i d e r a t i o n given the assumptions of the b a s e l i n e scenario.
Sheep
numbers d i s p l a y
a
d e c l i n e w h i l e beef
c a t t l e numbers
show
a
corresponding r i s e , r e f l e c t i n g t h e s h i f t i n re1 a t i v e p r i c e s i n h e r e n t i n
the exogenous v a r i a b l e s e t between beef and mutton o r lamb p r i c e s .
Farm incomes continue a gradual decline, o r a t l e a s t show no major
increase in r e a l terms, given the base1 ine assumptions.
These p r e l i m i nary r e s u l t s are merely an i n d i c a t i o n o f t h e
p o t e n t i a l f o r model a p p l i c a t i o n i n t h i s area.
F u r t h e r model runs
covering a v a r i e t y o f scenarios are necessary t o p r o v i d e any u s e f u l
a n a l y s i s f o r p o l i c y purposes. Nonetheless, the r e s u l t s presented here
serve t o demonstrate t h e use o f the model as a f o r e c a s t i n g o r p o l i c y
making a i d .
Re1 iance should n o t be placed on t h e accuracy o f p o i n t
estimates o f v a r i a b l e s generated by a f o r e c a s t b u t on general trends
and re1a t i onshi ps between v a r i ab1 es under d i f f e r i n g assumpti ons
For
instance, as has been mentioned i n the e a r l i e r s e c t i o n s on e s t i m a t i o n
and v a l i d a t i o n , the omission o f c o n s t r a i n t s on t h e d a i r y processing
block has l e d i n some scenarios t o i m p l a u s i b l e l e v e l s o f skim-milk
powder and b u t t e r production. These s o r t o f r e s u l t s do n o t n e c e s s a r i l y
i n v a l i d a t e the model. Rather they should be seen i n t h e c o n t e x t o f t h e
assumptions u n d e r l y i ny t h e p a r t i c u l a r scenario and o f t h e theory
imp1 i c i t i n the equation s p e c i f i c a t i o n s . I n t h i s case, t h e p r o d u c t i o n
f o r e c a s t s can be seen as r e f l e c t i n g demand considerations r a t h e r than
t h e t e c h n i c a l supply possi b i 1 it i e s .
.
Another d i f f i c u l t y w i t h c o n s i d e r i n g i s o l a t e d p o i n t estimates i n
i s t h a t the model demonstrates a degree o f i n s t a b i l i t y .
Laing and
Zwart (1983a) note on PI02 t h a t "Simulations designed a t generating t h e
steady-state
revealed the estimated model t o be i n h e r e n t l y
unstable." This was shown by s t e a d i l y i n c r e a s i n g sheep numbers and
decreasing c a t t l e numbers in t h e o r i g i n a l model
Not unexpectedly, t h e
re-estimated
model a1 so reveal s
some in s t a b i 1 ity, w i t h
mutton
production, f o r instance, showing a steady d e c l i n e i n t h e b a s e l i n e r u n
( see Table 5 ) .
Thi s need n o t i nval i d a t e t h e use o f t h e model f o r
pol i c y a n a l y s i s however, as i t i s s t i l l p o s s i b l e t o compare t h e
...
.
outcomes o f a v a r i e t y o f scenarios on an equal f o o t i n g .
While t h i s i m p l i e s t h e e x i s t e n c e o f c e r t a i n l i m i t a t i o n s on t h e
n t e r p r e t a t i o n of model r e s u l t s , t h i s should be balanced i n t h e 1 i g h t
f s e n s i b l e judgement and t h e l a c k o f any o t h e r comparable source o f
o b t a i n i n g such information.
An econometric model i s n o t intended as a
s u b s t i t u t e f o r i n t e l l i g e n t thought and c r i t i c a l eval u a t i o n i s e s s e n t i a l
when examining t h e r e s u l t s o f a rnodel p r o j e c t i o n .
TABLE 4
BASELINE PROJECTION EXOGENOUS VARIABLES
.......................................................................
International
Austral i a
Real GNP
Inflation
NZ Exchange Rate
United States
Inflation
NZ Exchange Rate
2%
8%
0.77
.
4%
4% p.y. i n c .
A g r i c u l t u r a l Trade V a r i a b l e s
As o f March 1986
e.g. EEC R e s t i t u t i o n e t c .
.......................................................................
New Zeal and
Real GNP
Inflation
Price Milk
Wages
Food Demand P r i c e
Ag. Export P r i c e s
Price Indices
0%
8%
8%
8%
Constant 1986
Prov. March
values up 4% pa
thereafter
8%
.......................................................................
-
BASELINE PROJECTION
Sheep and Beef Farm Sector
-
___________________----_------------------------------------------------------------------------____-______________--------------------------------------------------------------------------------
Variable
___________________--------------------------------------------------------------------------------_
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - - -Units
- - - - - - - - - - - - - - - - -1985
- - - - - - - - -1986
- - - - - - - - -1987
- - - - - - - - -1988
- - - - - - - -1989
- - - - - - - - -1990
---------------Income and Expenditure per Sheep and Beef Farm
..............................................
(1977$)
Gross Sheep Income
Gross Wool Income
Gross Beef Income
Total Gross Income
Fertiliser Expenditure
Repairs and Maintenance
Interest
Other Expenditure
Total Cash Expenditure
Net Farm Income
Drawings
Net Capital Investment
......................
Off-farm Investment
(1977 $ 1
Buildings
(1977 $ million)
Plant, Machinery and Vehicles(l977 $ million)
Land Development
(1977 $ million)
Total Liabilities
(1977 $ )
8220.
14.
22.
-19.
69053.
7982.
8.
14.
-31.
65827.
8410.
21
-2.
-36.
58618.
8541.
12.
-7.
-23.
58509.
7444.
10.
8.
-15.
61309.
.........................................................................................................
.........................................................................................................
continued
...
6964.
16.
19.
-18.
60014.
TABLE 5 continued
-
BASEXINE PROJECTION
-
Sheep and Beef Farm Sector
.........................................................................................................
.........................................................................................................
Variable
Units
1985
1986
1987
1988
1989
.........................................................................................................
Domestic Consumption
....................
1990
(000 t o n n e ~ )
Beef
Mutton
Lamb
Wool
(000 tonnes)
Stocks
------
Beef
Mutton
Lamb
Wool
Export Volume
-------------
(000 tonnes)
143.
111.
424.
357.
Beef
Mutton
Lamb
Wool
180.
67.
445.
461.
185.
48.
438.
475.
191.
38.
414.
463.
211.
29.
402.
45Q.
.........................................................................................................
.........................................................................................................
continued
...
224.
22.
386.
452.
.
a
* * II
M
11
In 0 II
O r I n II
d m II
*Lo
II
Cn b II
d rl II
II
II
II
m a
II
II
II
II
II
II
II
II
11
II
II
II
II
L o r n II
d L o
Nm
0 rl
m a
dl+
*
Lorl
d o 3
Or 0
IX) m
*Lo
m a
* II
II
d rl II
*
P4 0-4 I1
m e
UJN II
O \ N II
d'b 11
r. 0 Il
cnm II
r l d II
II
0
I1
I 0 Il
Ln N II
N 0 II
L o d II
m o II
II
rl rl II
II
II
II
II
II
II
II
II
ll
II
II
II
II
II
II
II
II
II
II
II
II
II
II
tl
ll
II
II
II
II
II
II
II
II
II
II
II
II
II
II
.
*
11 %
11 3
II -5
TABLE 5 continued
-
BASELINE PROJECTION
Dairy Farm Sector
-
_
. . ._
. . ._
. . ._
. ._
. . ._
. . ._
. . ._
. ._
. . ._
. . ._
. . ._
. ._
. . ._
. . ._
. . ._
. ._
. . ._
. . ._
. . .-. -. .-. ._
. . .-. . .-. .-. .-. .-. . .-. .-. .-. .-. -. .-. .-. .-. . .-. .-. .-. .-. . .-. .-. .-. .-. - - - - - - - - - - - - - - - - - - Variable
Units
1985
1986
1987
1988
1989
284281.
129035.
139603.
221174.
28039.
64721.
279082.
119203.
157624.
210957.
26758.
64389.
267276.
119162.
160280.
185985.
24941.
62931.
244883.
108466.
153898.
134405.
21669.
58911.
242759.
109093.
153781.
98718.
21291.
55581.
_---------------_-------------.........................................................................................................
Livestock Numbers
(000 hd or 000 s.u.)
-----------------
Dairy
Dairy
Total
Total
1990
--------------_
Cows
Heifers
Dairy Cattle
Dairy Stock Units
Farm Production
_--------------
(000 tonnes milkfat)
Milkfat
Factory Production
_---_-------------
Butter
Cheese
Whole-milk Powder
Skim-milk Powder
Butter-milk Powder
Casein
(tonnes p.w.1
231246.
103755.
159551.
58182.
19684.
51711.
___________________------------------------------_-----------------------------------------------__________-_-------------------------___________-_______------------------------------------------
continued
...
TABLE 5 continued
-
BASELINE PROJECTION
Dairy Farm Sector
-
.........................................................................................................
____________---_-_------------------------------------------------------------------------------------
Variable
Units
1985
1986
1987
1988
1989
1990
- __-_____- _ _ _ _ -_---------------------------------------------------------------------------------------------------------------------------------------------------------------__________
Income and Expenditure per Dairy Farm
.....................................
(1977$)
Gross Income
Fertiliser
Repairs and Maintenance
Interest
Total Cash Expenditure
Net Farm Income
Net Capital Investment
......................
Off-farm Investment
(1977 $ 1
Buildings
(1977 $ million)
Plant, Machinery and Vehicles(l977 $ million)
Land Development
(1977 $ million)
Domestic Consumption
Butter
Cheese
Milk-Powder
2916.
4.
8.
-11.
3639.
10.
-9.
-10.
3261.
9.
-13.
-7.
2704.
5.
-24.
-8.
1874.
4.
-33.
-2.
-479.
5.
-35,
14.
43066.
29721.
9151.
48228.
31039.
10633.
49118.
32815.
11419.
50002.
34485.
12164.
50910.
36048.
12877.
51809.
37520.
13554.
(tonnes pew.)
.........................................................................................................
continued
...
TAELE 5 continued
-
BASELINE PROJECTION
Dairy Farm Sector
-
.........................................................................................................
___________________---------------------------------------------------------------------------------
Variable
Units
1985
1986
1987
1988
1989
1990
___________________-------------------------------------------------------------------------------Change in Dairy Stocks
......................
(tonne~p.w.)
Butter
Cheese
Whole-milk Powder
Skim-milk Powder
Butter-milk Powder
Casein
Export Volume
-------------
Butter
Cheese
Whole-milk Powder
Skim-milk Powder
Butter-milk Powder
Casein
Export Value
------------
Dairy Products
All Pastoral Products
1843893. 1829277. 1774498, 1626934. 1481189. 1386846.
5081170. 5611468. 5586525. 5342796. 5186650. 5110177.
____________-__-__-------------------------------------------------------------------...........................................................................................................
CHAPTER 8
MOOEL RESPONSE TO PRICE SHUCKS
I n addition t o the p r o j e c t i o n type o f p o l i c y simulations
discussed i n Chapter 7, t h e p a s t o r a l s e c t o r model can be used t o
analyse t h e impacts of o n e - o f f shocks t o exogenous v a r i a b l e s on
endogenous model v a r i a b l e s .
I n o r d e r t o do t h i s a base r u n w i t h o u t a
shock i s f i r s t completed. An exogenous v a r i a b l e ( o r v a r i a b l e s ) can
then be shocked i n a subsequent model r u n and t h e e f f e c t o f t h i s shock
on r e l e v a n t endogenous v a r i a b l e compared t o t h e case w i t h o u t t h e shock.
A s e r i e s o f such shocks were performed f o r farm-gate p r i c e s o f
a range o f p a s t o r a l products. A one p e r c e n t shock was a p p l i e d t o t h e
farm-gate p r i c e s o f each o f t h e major p a s t o r a l p r o d u c t s i n t h e model
The 1985 y e a r was chosen as t h i s was t h e l a t e s t
f o r t h e 1985 y e a r .
y e a r f o r which t h e model c o u l d be r u n u s i n g t h e a c t u a l d a t a a v a i l a b l e .
Associated exogenous v a r i a b l e s , such as r e t a i l p r i c e s , which a r e l i n k e d
t o o r generated from farm-gate p r i c e s were a1 so a d j u s t e d a c c o r d i n g l y
Some o f t h e major impacts on l i v e s t o c k numbers, p r o d u c t i o n , farm
incomes and e x p o r t values and volumes a r e shown i n t a b l e 6, and
discussed below. None of these impacts were s u r p r i s i n g , b u t t h e y g i v e
an i n d i c a t i o n o f t h e e x t e n t t o which changes i n p r i c e s o f p a s t o r a l
p r o d u c t s w i l l i n f l u e n c e farm p r o d u c t i o n and income.
.
8.1 Wool P r i c e Shock
As was expected, t h e o n e - o f f 1%r i s e i n t h e farm-gate p r i c e o f
wool had a m o d i f y i n g e f f e c t on 1 i v e s t o c k l e v e l s , p a r t i c u l a r l y o f sheep.
However, t h e changes were n o t o f g r e a t magnitude. T o t a l sheep numbers
rose by 0.U3%, w i t h ewe and hogget numbers r i s i n g by 0.2% and 0.13%
respectively
i n response t o t h e
improved p r i c e f o r wool.
A
c r o s s - e n t e r p r i se e f f e c t was apparent i n t h e s l i g h t f a l l i n d a i r y
numbers (down by 0.1%) which suggests t h a t d a i r y p r o d u c t s and wool have
some 1i m i t e d s u b s t i t u t a b i 1 ity. tleef c a t t l e numbers showed no change.
The i n c r e a s e i n sheep numbers r e f l e c t e d b o t h i n c r e a s e d b r e e d i n g
and decreased s l a u g h t e r i n g . The l i n k between wool p r i c e , ewe numbers
and mutton p r o d u c t i o n i s an i m p o r t a n t one, as t h e r e t e n t i o n o f sheep
f o r wool meant l e s s sheep were s l a u g h t e r e d f o r meat. Mutton p r o d u c t i o n
f e l l by 0.03% as a consequence. Wool p r o d u c t i o n r o s e by 0.01% and lamb
production
by 0.14% i n response t o the h i g h e r sheep
numbers.
P r o d u c t i o n o f o t h e r mode1 commodities remai ned s t a t i c .
The importance o f wool t o sheep and b e e f f a r m e r s ' incomes was
r e f l e c t e d i n t h e 0.34% r i s e i n gross income as a r e s u l t o f t h e wool
T h i s r i s e was t h e l a r g e s t income response t o any o f t h e
p r i c e shock.
shocks t o farin-gate p r i c e s , t h e n e x t h i g h e s t b e i n g 0.17% from t h e b e e f
p r i c e shock, a r e f l e c t i o n o f t h e r e l a t i v e s i g n i f i c a n c e o f wool t o f a r m
incornes. Expenditure on sheep and b e e f farms a1 so r o s e - by 0.13%
in
response t o t h e g r e a t e r avai 1 a b i 1 it y o f cash.
-
TABLE 6
I N FARM-GATE PRICES
.......................................................................
.......................................................................
Wool
Lamb
Mutton
Beef
Milkfat
.......................................................................
% CHANGE I N ENDOGENOUS VARIABLE FUR A 1%CHANGE
L i v e s t o c k Numbers
----------------Sheep
Beef
Dai ry
0.03
0.00
-0.10
0.00
0.00
0.00
0.01
0.00
0.00
0.03
-0.01
0.07
-0.03
0.00
0.07
0.01
-0.03
0.14
0.00
0.00
0.UO
0.00
-0.14
-0.36
0.00
-0.01
0.01
0.00
0.00
0.00
0.00
-0.03
0.00
0.43
0.00
0 .oo
0.00
0 .OO
0.00
0.05
0.08
0.03
0.17
0.07
0.00
0.00
Production
----------
Wool
Nut t o n
Lamb
Beef
bli 1k f a t
Sheep and Beef Farm Income and Expenditure
Gross Income
Cash Expend.
0.34
0.13
0.03
0.01
U a i r y Farm Income and E x p e n d i t u r e
Gross Income
Cash Expend.
0.00
-0.02
-0.01
0.00
U. 00
0.00
0.14
0.10
0.32
0.22
0.13
0.00
-0.03
0.10
0.00
0.00
0.OU
-0.47
0.00
-0.10
0.00
0.00
-0.01
0.00
0.02
0.00
0.00
0.00
0.00
0.56
-0.03
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.03
0.06
1.13
0.05
0.00
0.32
0.00
0.28
0.00
0.10
-0.01
0.07
0.00
0.02
0.00
0.63
0.00
0.23
0.00
0.00
0.36
0.13
E x p o r t Vol ume
------------WOO~
Beef
Mutton
Lamb
Butter
Cheese
E x p o r t Value
------------
WOO~
Meat
Uai ry
A l l Pastoral
.......................................................................
.......................................................................
The wool p r i c e shock a l s o had some i m p a c t on t h e volume and
v a l ue o f p a s t o r a l e x p o r t s , p a r t i c u l a r l y o f wool b u t a1 so o f sheepmeats,
w i t h wool e x p o r t v o l ume up 0.13%, mutton v o l ume down 0.03% and 1 amb
e x p o r t v o l ume up by 0.1%. S i m i l a r l y , t h e v a l u e o f p a s t o r a l e x p o r t s
r o s e by 0.32% o v e r a l l
.
8.2 Lamb P r i c e Shock
I n general t h e lamb p r i c e shock had the expected impacts on t h e
endogenous model v a r i a b l e s . However, the response o f lamb p r o d u c t i o n
t o t h e p r i c e r i s e - a 0.14% decrease - was u n r e a l i s t i c and i n c o n s i s t e n t
w i t h t h e r e a c t i o n s o f o t h e r v a r i a b l e s . This suggests t h a t t h e r e may be
an i n t e r n a l
inconsistency w i t h i n t h e
1amb p r o d u c t i o n
equation.
Examination o f the equation i t s e l f , and the estimated c o e f f i c i e n t s ,
shows t h a t a p o s s i b l e e x p l a n a t i o n l i e s i n the estimated c o e f f i c i e n t on
t h e v a r i a b l e PKWLLB, which measures the r e l a t i v e p r i c e o f wool w i t h
respect t o t h a t of lamb, and has t h e opposite s i g n ( p o s i t i v e ) t o t h a t
which would be expected a p r i o r i . This inconsistency o n l y r e v e a l s
it s e l f when t h e r e l a t i v e p r i c e s o f wool and lamb are v a r i e d : i f t h e
re1 a t i v i t i e s a r e h e l d constant, no d i f f i c u l t y occurs.
The lamb p r i c e shock had no impact on e i t h e r sheep o r c a t t l e
l i v e s t o c k numbers. However, i t d i d a f f e c t production o f beef and lamb,
w i t h beef production decreasing by 0.36%. This r e f l e c t s a t r a d e - o f f
between beef and 1 arnb meats. As d i scussed above, lamb p r o d u c t i o n a1 so
fell
.
Farm incornes rose by 0.03% f o r sheep and beef farms.
Cash
expenditure on ttiese farms was 0.01% higher than i n the case w i t h o u t a
shock. These r i s e s are r e l a t i v e l y small when compared t o those
achieved from shocking t h e o t h e r farm-gate p r i c e s .
The value o f meat e x p o r t s rose by 0.28% and o v e r a l l p a s t o r a l
e x p o r t values were 0.1% h i g h e r than w i t h o u t t h e shock. T h i s was i n
s p i t e o f a drop i n e x p o r t volumes ( a r e s u l t of the questionable f a l l i n
lamb production), r e f l e c t i n g t h e impact o f the h i g h e r u n i t value f o r
1amb
.
8.3 Mutton P r i c e Shock
The shock t o t h e mutton p r i c e brought about a small (0.01%)
r i s e i n sheep numbers, b u t had no o t h e r impact on l i v e s t o c k numbers.
The higher mutton p r i c e l e d t o g r e a t e r mutton p r o d u c t i o n (up 0.01%) and
hence l e s s wool production (down 0.01%). This was c o n s i s t e n t w i t h t h e
f i n d i n g s r e p o r t e d e a r l i e r f o r the wool p r i c e shock, where mutton
production f e l l as wool p r o d u c t i o n rose.
Gross incomes on sheep and beef farms were 0.08% h i g h e r as a
r e s u l t o f t h e higher mutton p r i c e s . As a consequence, cash expenditure
a l s o rose, by 0.03%. T h i s r i s e was r a t h e r l e s s than t h a t associated
w i t h the wool p r i c e shock, r e f l e c t i n g the r e l a t i v e importance o f mutton
and wool i n terms o f farm incomes, The mutton p r i c e shock had no impact
on d a i r y farm incornes o r p r o d u c t i o n l e v e l s .
Export vol umes and v a l ues f o l 1 owed the p r o d u c t i o n trends. Wool
exports were s l i g h t l y down w h i l e the volume o f mutton exports was
s l i g h t l y up.
The o v e r a l l value o f p a s t o r a l e x p o r t s was o n l y 0.02%
higher than i n the base case, w i t h no p r i c e shocks.
What t h i s
i n d i c a t e s i s t h a t a 1%r i s e i n mutton p r i c e s would generate very l i t t l e
increase i n e x p o r t r e t u r n s , due t o t h e small volumes involved, r e 1 a t i v e
t o o t h e r p a s t o r a l products, and t h e c u r r e n t low u n i t value o f mutton
exports.
8.4 Beef P r i c e Shock
The beef p r i c e shock had a small negative impact on beef c a t t l e
numbers (down O.Ul%), r e f l e c t i n g t h e increased beef s l a u g h t e r i n g s
( p r o d u c t i o n up 0.43%). O v e r a l l c a t t l e numbers rose, however, s i nce
d a i r y c a t t l e numbers increased by 0.07%. The n a t u r e o f t h e model
equations i s such t h a t t h e beef and d a i r y herds o v e r l a p t o a l i m i t e d
e x t e n t . Some manufacturing beef p r o d u c t i o n may be drawn from t h e d a i r y
c a t t l e h e r d as we1 1 as t h e beef herd, and c l e a r l y t h i s i s t h e case f o r
w h i l e d a i r y p r o d u c t i o n was s t a t i c , d a i r y incomes rose by 0.14%.
This
income r i s e must t h e r e f o r e have come from d a i r y beef production, which
in d i c a t e s t h e p o t e n t i a l f o r dai ry farmers t o supplement t h e i r incomes
i n t h i s manner, p a r t i c u l a r l y i f p r i c e s f o r d a i r y products a r e low.
There appears t o have been a s l i g h t t r a d e - o f f between mutton
and beef production;
mutton p r o d u c t i o n f e l l by 0.03% w i t h beef
p r o d u c t i o n up by 0.43%. This stems from the s u b s t i t u t a b i l i t y of t h e
two p r o d u c t s i n terms o f end use, and a1 so i n terms o f farmers'
resources.
A d e c l i n e was observed i n mutton e x p o r t volumes, w h i l e beef
volumes exported rose 0.56%. The value o f p a s t o r a l e x p o r t s was 0.23%
h i yher o v e r a l l f o l l o w i n g the 1%beef p r i c e shock.
8.5 F l i l k f a t P r i c e Shock
The model 1 ed increase i n farm-gate m i l k f a t p r i c e had 1 ittl e
impact on t h e sheep and beef sectors, w i t h t h e o n l y n o t i c e a b l e change
being a s l i g h t drop ( 0 . 0 3 5 ) i n sheep numbers. D a i r y c a t t l e numbers
rose by 0.07%.
This i s a somewhat g r e a t e r response than t h a t o f sheep
o r beef farmers t o the increases i n wool and meat p r i c e s and arguably
suggests t h a t perhaps d a i r y farmers a r e more s e n s i t i v e t o p r i c e
s i g n a l s , o r t h a t d a i r y herds a r e more f l e x i b l e i n size.
Production o f m i l k f a t rose by 0.05%, and p r o d u c t i o n o f
major d a i ry products a1 so rose a c c o r d i n g l y . M i 1k f a t p r o d u c t i o n
head a l s o rose as a r e s u l t o f t h e i n c r e a s e d p r i c e i n c e n t i v e .
the
per
Gross d a i r y farm incomes had been 1 i t t l e a f f e c t e d by any o f t h e
o t h e r p r i c e shocks, except t o a l i m i t e d e x t e n t by t h e beef p r i c e shock.
However, d a i r y incomes were 0.32% h i g h e r as a r e s u l t o f t h e m i l k f a t
p r i c e r i s e , and correspondingly expenditure rose by 0.22%, r e f l e c t i n g
both t h e p r i c e l e v e l and t h e g r e a t e r p r o d u c t i o n l e v e l s .
B u t t e r and cheese e x p o r t volumes were 0.03% and 0.06% h i g h e r
r e s p e c t i v e l y , and the t o t a l value o f d a i r y e x p o r t s was 0.36% g r e a t e r .
This l i f t e d t h e value of t o t a l p a s t o r a l e x p o r t s by 0.13%.
CHAPTER Y
CONCLUSIONS
T h i s r e p o r t has presented t h e
outcome o f updating
and
r e - e s t i m a t i ng
t h e New Zeal and
p a s t o r a l s e c t o r model
developed
o r i g i n a l l y by Lainy and Zwart. The standard econometric t e s t s a p p l i e d
t o t h e parameters o f t h e re-estimated model gave g e n e r a l l y s a t i s f a c t o r y
results.
Furthermore, t h e va1 id a t i on r e s u l t s presented in Chapter 6
i n d i c a t e t h a t the re-estimated v e r s i o n o f the p a s t o r a l s e c t o r model has
been successful i n c a p t u r i n g h i s t o r i c a l trends i n t h e New Zealand
p a s t o r a l sector. Owing t o the 1 i m i t e d a p p l i c a t i o n o f t h e model i t i s
d i f f i c u l t t o assess how s u c c e s s f u l l y i t can be used f o r f o r e c a s t i n g and
p o l i c y a n a l y s i s i n the f u t u r e b u t i n d i c a t i o n s are t h a t t h e model holds
much promise i n these spheres. The r e s u l t s o f t h e b a s e l i n e p r o j e c t i o n
from 1985-1990 demonstrate the p o t e n t i a l o f the re-estimated model.
The
indicate a
statistics.
r e s u l t s o f the p r i c e shock runs r e p o r t e d i n Chapter 8 a l so
u s e f u l model appl i c a t i o n and r e i n f o r c e t h e v a l i d a t i o n
Bearing these f a c t o r s i n mind, i t seems probable t h a t t h e model
w i l l enjoy more use i n the f u t u r e than has been t h e case t o date.
It
is o n l y through f u r t h e r appl i c a t i o n f o r pol i c y a n a l y s i s and s i m u l a t i o n
t h a t p o s s i b l e problems o r d e f e c t s i n t h e model w i l l be brought t o
l i g h t . C e r t a i n l y use o f the model f o r these purposes, f o r which i t was
designed, should be encouraged as i t appears on t h e evidence o f t h e
a d m i t t e d l y l i m i t e d use t o date t h a t the model performs encouragingly
we1 1 i n p o l i c y s i m u l a t i o n runs.
F u t u r e work may a l s o i n c l u d e r e - s p e c i f i c a t i o n o f some model
The d a i r y processing block i n p a r t i c u l a r c o u l d be improved
equations.
by the e x p l i c i t c o n s i d e r a t i o n o f t e c h n i c a l production c o n s t r a i n t s i n
t h e model equations. Some o f the consumption and stocks equations may
a1 so benef it f roin a reapprai s a l o f t h e i r t h e o r e t i c a l underpi nni ngs.
There may a l s o be scope t o examine t h e question o f whether s t r u c t u r a l
s h i f t s i n t h e p a s t o r a l s e c t o r have occurred as a r e s u l t o f r e c e n t
p o l i c y changes. The p a s t o r a l s e c t o r evolves over time and when changes
occur they have t o be r e f l e c t e d i n t h e model. I n order t o make i t more
r e p r e s e n t a t i v e and t o improve i t s f o r e c a s t i n g performance, as w e l l as
t o keep up w i t h changes i n t h e economy, r e v i s i o n o f t h e model w i l l be
necessary from time t o time. However, on the b a s i s o f the c u r r e n t
study i t seems t h a t t h e t h e o r e t i c a l s t r u c t u r e proposed by Laing and
Zwart i s s t i l l b a s i c a l l y sound and can be used as a s t a r t i n g p o i n t f o r
any f u t u r e model devel opment
.
REFERENCES
AGRICULTURAL REVIEW CUMMITTEE (1986) S t a t e o f A g r i c u l t u r e 1985-86.
t h e A g r i c u l t u r a l Review Commi t t e e t o t h e M i n i s t e r o f A g r i c u l t u r e .
Report o f
AND GKUNDY T.P.
GKIFFITH G.K.
(1988) The Supplementary Minimum P r i c e Scheme :
A Ketrospecti ve Analysis. AERU Research Report No. 191, L i ncol n Col 1ege.
(1986a) Notes on Using t h e Lai ng-Zwart Econometric Model o f
JOHNSON R.W.M.
t h e New Zeal and Livestock Sector. Centre f o r A g r i c u l t u r a l Pol i c y Studies,
Massey U n i v e r s i t y
Unpubl ished note.
.
JOHNSON R.W.M.
(1986b) L i v e s t o c k and Feed P o l i c y i n New Zealand: 1975 t o t h e
Present. A g r i c u l t u r a l Pol i c y Discussion Paper No 8, CAPS, Massey U n i v e r s i t y .
LAING M.T. AND ZWART A.C.
a P r e l iminary Econornetric
Col 1ege.
(1981) The New Zealand Pastoral L i v e s t o c k Sector:
Model. AERU Discussion Paper No.
54,
Lincoln
LAING M.T.
(1982) The New Zealand Pastoral Livestock Sector: An Econometric
Model (Version Two). AERU Research Report No. 127, L i n c o l n College.
LAING M.T.
AND ZWART A.C.
Zeal and Pastoral Sector:
137, L i ncol n C o l l ege.
(1983a) Investment and Supply Response i n t h e New
An Econometric Model
AEHU Research Report No.
.
LAING M.T.
ANLI
ZWART A.C.
(1983b) The Pastoral L i v e s t o c k Sector and the
Supplementary Minimum P r i c e Pol i c y . AERU Discussion Paper No. 70, L i n c o l n
C o l l ege.
NEW ZEALAND
'DAIRY
BOARD (1984) A Survey o f t h e New Zealand D a i r y I n d u s t r y .
NEW ZEALANO DEPARTMENT OF STATISTICS ( v a r i o u s ) Monthly A b s t r a c t o f S t a t i s t i c s .
APPENDIX ONE
Summary o f E s t i m a t i o n Results
Livestock Numbers:
Sheep (1961-1984)
Endogenous
Pre-determined
Breeding Ewes
DKE
Constant
Ewe Hoggets
DKHGT
Other Sheep
DKOS
1939.97
6115.96
8237.76
374.2
2.07
498.6
1.70
386.75
2.10
Livestock Demographics
KE (-1)
KHGT (-1)
KOS (-1)
DKE (-1)
Relative Prices
PRWLPB
PRLBPB (-1)
PRDYWL
Changes in Prices
DPWR
Level of Prices
PMR
PLR
Moisture Deficit
DWS
Land Investment
NILSB (-1)
Government Policy
Summary Statistics
SER
D-W Statistic
Livestock Numbers: Beef Cattle (1961-1984)
Endogenous
Pre-determined
Beef Breeding Heifers Heifers Other
Cows
1 - 2 y.0.
(1 y.0.
Cattle
DKBC
DKOB
DKBBC
DKBH
Constant
Livetock
Demographics
KBBC (-1)
KBH (-1)
KBC (-1)
KOB (-1)
DKBBC (-1)
DKBH (-1)
DKBC (-1)
KDH (-1)
Relative Prices
PRPBWL (-1)
PRPBLB ( - 1 )
PRPBDY (-1)
Level of Prices
PMBR
Moisture Deficit
DWB
Land Investment
NILSB ( - 1 )
SUR Summary Statistics
SER
D-W Statistic
44.88
1.77
18.98
1.46
16.97
1.81
67.42
1.56
Livestock Numbers: Dairy Cattle (1961-1984)
Endogenous
Pre-determined
Cows & Heifers
over 1 y.0.
DKD
Constant
Livestock Demographic
KD (-1)
KDH (-1)
DKD (-1)
DKDH (-1)
Relative Prices
PRDYWL
Level of Prices
PPBR
PDR
Moisture Deficit
DWD
Investment
NILDY (-1)
NIBDY (-1)
SUR Summary Statistics
SER
D-W Statistic
Heifers < 1 y . 0 .
DKDH
Livestock Production (1961-1984)
Endogenous
Pre-determined
Constant
Wool
Mutton
Lamb
Qw
QM
QL
-81.95
(-1.4)
-81.63
(-1.6)
Livestock
Demographics
KE (-1)
SUSP (-1)
-530.45
(-3.9)
0.016
(9.3)
KEOS (-1)
Prime
Beef
QPB
252.58
(7.2)
Manufact.
Beef
QMB
Milkfat.
per head
QMLKFHD
-655.57
(-2.6)
0.013
(0.9)
~
0.0037
(5.6)
0.0064
(10.4)
DKEOS
-0.0068
(-5.2)
SUBF (-1)
0.0022
(2.4)
KD (-1)
DKOB
DKBBC
DKBHOB
0.016
(6.8)
0.066
(0.8)
-0.073
(-1.4)
-0.19
(-1.6)
-0.15
(-4.4)
Relative Prices
EWLMN
0.93
(0.6)
-1.14
(-0.8)
PRWLLB
32.03
(2.6)
PRPBLB
PRPBDY
Level of Prices
PLR
PDR
Capital Intensity
SLDHDSB (-1)
3.27
(2.5)
5.09
(4.7)
9.63
(3.2)
0.81
0.78
21.9
1.96
0.92
0.90
56.6
1.29
SBDPMDY ( - 1 )
Moisture Deficit
WS
-0.33
Production per Head
QMLKFHD (-1)
TIME
OLS Summary Statistics
R-squared
0.93
$-squared
0.92
F-statistic
66.53
D-W statistic
2.01
0.74
0.69
14.19
1.48
0.94
0.91
33.00
2.53
0.92
0.90
42.30
1.81
Sb
Estimation Results for Dairy Production
-
(1964-1984)
Dependent Variables (tonnes p.w.1
Independent
Variables
Milk Powders
Butter
Cheese
QBUT
QCH
895.44
Constant
Cheese-Butter
12477.0
Casein
Whole
QWMP
-21580.4
Skim
QSMP
-337184.0
Butter
QBMP
-10859.1
QCASN
-19302.2
Price
Differential
CHBRPD
-122.70
Production.
QMLKF
890.82
(9.3)
32.65
500.04
416.52
(2.1)
119.52
(1.1)
1497.80
(3.4)
Butter
Production
QBUT
Domestic
Consumption
CSMPl ( - 1 )
Gang&
Stocks
DSTBR ( - 1 )
-0.071
(-0.8)
DSTCH ( - 1 )
-0.23
(-1.0)
DSTWMP ( - 1 )
1.02
(2.9)
DSTSMP ( - 1 )
-0.14
(-0.9)
DSTBMP ( - 1 )
0.08
(1.9)
0.033
(0.5)
-0.19
DSTCN ( - 1 )
U.K. Butter Quota
UICBRQU
0.15
(1.0)
U.K. Cheese Q u m
UKCHQU
0.06
(1.0)
EEC__Eli~_ort
Restitution
EECBRES ( - 1 )
0.86
(0.3)
EECCRES ( - 1 )
(5.8)
-30.19
(-2.8)
EECSRES ( - 1 )
World Net
Exports Demand
BRMKT ( - 1 )
-14.47
(-0.6)
58.87
(1.5)
0.57
(3.1)
CHMKT ( - 1 )
MPMKT ( - 1 )
EECMPX ( - 1 )
USAMPX ( - 1 )
Previous Year's
Production
QSMP ( - 1 )
0.68
QCASN ( - 1 )
Summarv Statistics
R-squared
0.86
F-statistic
22.17
D-W statistic
1.85
0.38
2.82
2.13
0.98
139.04
1.98
0.80
12.63
1.81
0.87
28.49
1.93
0.60
5.58
2.30
Gross Income Components per Sheep and Beef Farm (1960-1984)
Endogenous
Pre-determined
Wool
MWBGYW
Constant
Volume of
Production
Wool
Sheepmeats
QLBMN
Beef
QBF
Unit Value of Production
Wool
PWR
Lamb
PLR
Mutton
PMR
Beef
PPBR
OLS Summary Statistics:
R-squared
R-squared
F-statistic
D-W statistic
C
Sheepmeats
MWBGYS
Beef
MWBGYB
Cash Expenditure Depreciation and Taxation Payments per
Sheep and Beef Farm - (1960-1984)
Endogenous
Pre-determined
Repairs &
Fertiliser Maintenance Other
MWBFTR
MWBRM
MWBND
Constant
Gross Income
Level
MWBGY
Change
CMWBGY
92.90
Fertiliser Price
PFERTR
-1006.63
0.00092
(1.4)
0.086
(11.3)
0.18
(9.1)
0.00017
(0.3)
-0.021
(-3.8)
-0.048
(-3.3)
0.052
(5.0)
0.096
(3.7)
Stock Units
Level
SUSB (-1)
Change
DSUSB
-10747.5
0.00073
(0.4)
-0.031
(-1.3)
-0.0030
(-0.10)
0.93
0.91
47.92
1.67
0.95
0.94
75.53
1.34
Depreciation Tax
MWBDPRC MWBTAX
789.7
-2451.8
0.031
(2.6)
0.10
(6.5)
-1.07
(-2.2)
FERTDUM
Capital Intensity
SKHDSB (-1)
STKSB (-1)
Total Gross Investment
GISB
Tax Depreciation Allowances
TAXM
Taxable Net Income
MWBTXNY ( - 1 )
OLS Summary Statistics:
R-square
3-squared
F-statistic
D-W statistic
0.48
0.35
3.53
1.03
0.57
0.48
6.64
1.53
0.85
0.83
38.77
1.52
Drmhgs and Portfolio Assets, Sheep and B e d Farms - (1960-1984)
Drawings
MKm
Constant
-10224.8
Off-Farm
Land
Buildings Plant
Land
Liab.
Inv.
Purchase
Machinery Devlt
Vehicle
mmEFIPRSEX:NIBSB
t u L s B l l m m
.
10263.91
15.94
-175.53
221.79
-258.8
27448.9
Cash Available Inmne
MWBCANY
0.18
(4.4)
Change in Asset Returns
Off-farm Inv.
CRZ
-29234.9
(-1.5)
Land Purchase
CR2
-4766.3
0.26
(3.9)
43089.7
(1.3)
-4625.7
0.0099
(3.4)
1578.97
(1.1)
308.54
0.00010
(0.3)
392.2
0.0012 -0.00092 0.16
(1.9)
- 2
(0.6)
81.49
(2.0)
196.4
409.44-284318
(0.2)
(1.1)
(-2.17)
49.22
61.98-57520.
6
- 1 0
(-0.6)
(0.9)
(4.2)
(0.6)
(0.7)
(-1.8)
Plant, Mach., Veh.
CRA4
137.52
(2.3)
98.3
(1.0)
-2.60
(-0.6)
-0.16
(-0.3)
0.83
(0.9)
1.83
(1.7)
-37.31
(-0.1)
-2.45
1 . 2
-9.24
(-2.7)
-0.35
(-2.3)
-0.031
(-1.5)
0.053
(1.5)
-0.059
-1.5
14.50
(1.5)
Opening Assets Levels
Off-farm Inv.
MWBINV (-1)
0.19
-0.31
Buildings
CRA3
Land Dev.
CRA6
Land Furchase
FMPRSE (-1)
Buildings
STKSSB (-1)
Plant, Mach. Veh.
STPMVSB (-1)
Land
sTKLsB (-1)
Debt
MWBTLB (-1)
0.0076
0.00013
-0.0035
0.0039
0.038
(1.5)
0.18
(4.1)
0.18
(3.6)
22.3
(1.3)
-0.11
(-0.2)
-0.044
(-0.8)
75.23
(3.6)
-0.98
(-0.4)
-18.42
(-4.2)
-0.94
(-5.0)
-5.12
-1.6)
-1.75
(-0.3)
0.51
(2.3)
-0.14
(-4.6)
9.04
(1.8)
-9.58
-1.2
-0.53
-1.5
0.31
(6.3)
-0.048
(-0.6)
0.29
(3.1)
0.017
(0.8)
-0.20
(-5.8)
0.082
(2.1)
7.83
(3.7)
-0.012
(-0.4)
1.42
(0.4)
0.28
(1.8)
-0.04
(-0.9)
-0.0086
(-4.3)
469.10
1.78
20.41
2.06
'
0.59
-94.49
(-2.9)
13.91
(1.0)
0.00081
(2.9)
0.0019 -0.0014 -0.75
(4.0)
(-2.7)
(-4.0)
2.79
2.40
4.68
2.13
SJR Summary Statistics
SER
D-W statistic
287.74
2.66
5.22 1880.81
1.75
1.97
Gross Income Components per Dairy Farm - (1965-1984)
Endogenous
Pre-determined
Milkf at
DBGYMLK
Other
DBGYO
Constant
Unit Value of Production
Milkfat
PDR
PDR (-1)
Beef
PMBR
Volume of Production
Milkf at
QMLKF
QMLKF (-1)
Beef
QMB
TIME
543.33
(10.1)
-
OLS Summary Statistics
R-squared
R-squared
F-statistic
D-W statistic
d
Cash Expenditure and Depreciation per Dairy Farm
- (1965-1984)
Endogenous
Pre-determined
Fertiliser Repairs & Other Depreciation
Maintenance
DBFTR
DBRM
DBND
DBDPRCN
Constant
53.99
(3.6)
5919.21 -12909.8
(2.1)
(-7.2)
-5222.98
(-3.9)
Gross Income
Level
DBGYD
Change
CDBGYD
Stock Units
Level
SUD (-1)
Change
DSUD
Fertiliser Price
PFERTR
FERTDUM
-1.08
(-5.3)
-0.48
(-0.007)
Capital Intensity
SKHDDY (-1)
SBDHDDY (-1)
SLDHDDY ( - 1
Total Capital Stock
STKDY (-1)
Total ~ r o s sInvestment per S.U.
GIHDDY
Tax Depreciation Allowances
TAXM
TIME
Summary Statistics:
R-squared
R-squared
F-statistic
D-W statistic
/
0.77
0.69
11.63
0.88
0.92
0.88
23.84
2.17
0.98
0.98
149.62
2.2
0.82
0.77
16.69
2.00
62
Pbltfdlio Assets, Dairy Farms
Off -Fan
Inv.
Constant
-
(1965-1984)
Land
&chase
DBINVSC
DFMPRSM:
-1164.94
813.32
Buildings
NIBDY
8.34
Plant
Machinery
Vehicle
r4mmY
-7.7
Land
Devlt .
Liab.
m y
DBlTE
194.82
32051.5
Cash Available
Incane
DBCANY
0.00083
(2.6)
0.10
(2.9)
-0.00060
1 . 0
-0.77
0.63
-0.026
0.44
(2.4)
-0.34
(-2.8)
OBCANY
0.0047
(7.7)
0.0014
(5.7)
-0.10
(--2)
-0.00093 -0.0020
-1.1 (-5.5)
-0.14
(-0.3)
Change i n Asset
Returns
Land Purchase
CDR2
Buildings
-0.47
(-3.9)
CDRA3
Plant, Mach. Veh.
CDRA4
Land Dev.
CDRA6
0.0051 -0.019
0.0071
(3.8)
0.118
0.0035
(3.1)
Opening Asset Levels
Off-farm Inv.
DBINVST (-1)
-0.37
(-3.6)
Buildings
STKBDY (-1)
Plant, Mach. Veh.
m
y (-1)
Land Dev.
SIXLDY (-1)
4.02
-0.76
(2.1)
(-0.5)
(-1.3)
(-12.8)
Debt
DBTLB (-1)
(-1.3)
0.14
(0.4)
SUR Sumnary Statistics
SEX
D-W s t a t i s t i c
253.10
2.58
145.15
1.96
2.24
1.77
2.94
2.09
1.14
2.36
2509
2.30
Summary of Consumption Equations for Heat and Dairy Produce
- (1960-1984)
Dependent Variable (Per Capita Consumption)
Independent
Variables
Beefand
Veal
PCBV
Lamb
Mutton
Butter
PCLB
PCMN
PCBUT
Cheese
Milk
Powder
PCHES PCPDR
Constant
Retail Prices
Beef
RPBEEF
Mutton
RPMUTTN
-0.077 -0.023
(-2.6) (-1.5)
0.24
(4.6)
0.054
(3.7)
0.090
(3.0)
-0.065
(-2.6)
0.46
5.09
1.39
0.92
46.20
1.21
-0.014
(-1.3)
Chicken
RPCHOOK
Cheese
RPCHES
0.12
(3.1)
Butter
RPBUTTR
Milk Powder
RPPOWDR
Income per Capita
0.0042
RPCNDY
(1.7)
Total Production
Opening Stocks
Mutton
STMN (-1)
Summary Statistics
0.55
R-squared
F-statistic
8.36
D-W statistic
1.38
0.87
80.1
0.64
0.84
41.98
0.64
0.73
22.17
1.70
64
Wool Consumption Equation (1964-1984)
Dependent Variable
Domestic Mill Purchases of Wool (tonnes)
Independent
Variables
CWOOL
Constant
Per Capita Income
ANZAC
Trend in Auction Prices
PWART
Price Subsidy
WLSUBSY
Retail Price
RPCARPT (-1)
Exchange Rate
NZAUER (-1)
Summary Statistics
R-squared
F-statistic
D-W statistic
65
Meat and Wool Stocks
-
(1959-1984)
Dependent Variables (First Difference)
Independent
Variables
Constant
Opening Stock
STBV (-1)
Beef
DSTBV
Lamb
DSTLB
Mutton
DSTMN
Wool
DSTWLBD
-38.36
-53.38
-48.79
4.23
-0.81
(-3.7)
STLB (-1)
-0.33
(-2.0)
STMN (-1)
STWLBD (-1)
Production
QBF
Market Price
PMBSR
0.46
(2.0)
PLSR
0.57
(1.1)
PMSR
PWAR
Market Price Relative
to Trend in Market
Price
PLRTD
(-1.5)
PMRTD
-8.51
(-0.8)
Minimum Minus Market
Price
PMBDIF
0.45
(1.6)
PLSUPR
1.6
(1.5)
Exponent of Minimum Minus
Market Price
PWEXP
0.002
(2.2)
Summary Statistics
R-squared
F-statistic
D-W statistic
0.31
3.80
1.55
0.16
1.9
1.93
0.43
5.6
1.96
0.34
4.27
2.00
Estimation Results for Dairy Stocks
-
(1964-1984)
Dependent~variables (tonnes p.w.)
Independent
Variables
Milk Powders
Constant
Butter
Cheese
Casein
DSTBR
DSTCH
Whole
DSTWMP
1503.66
2183.00
-3860.02
Skim
DSTSMP
18257.4
But'ter
DS'~BMP
DSTCN
1853.33
3190.78
0.45
6.46
1.89
0.28
3.57
1.66
Change in
Production
DQBUT
DQCH
DQWMP
DQSMP
DQBMP
DQCASN
Change in Domestic
Consumption
DCBUT
-3.30
(-0.09)
DCCHE
-1.15
(-0.7)
DCWMP
DCSMP
DCBMP
Change in Unit
Values
DUVBR
-14.38
(-0.6)
DUVCH
-3.16
(-0.3)
DUVSMP
DUVCASN
Change in EEC
Milkpowder Net
Exports
DEECMPX
Stock Food Exports
of SMP
FSMPX
Chance in Stocks
of Casein
DSTCN (-1)
Summary Statistics
R-squared
0.22
F-statistic
2.89
D-W statistic 2.18
0.31
4.02
2.05
0.32
4.09
1.16
0.71
13.27
1.87
RESEARCH REPORT
161
An Economic Survey of New Zealand Wheatgrowers:
Financial Analysis, 1982-83, R.D. Lough, P.J. McCartin,
1984.
178
A Contractual Framework for Evaluating Agricultural and
Horticultural Marketing Channels, S.K. Martin, A.C. Zwart,
1986.
162
Farmland Pricing in an Inflationary Economy with
Implications for Public Policy, K.L. Leathers, J.D. Gough,
1984.
179
An Integrated Framework for Analysing Agricultural
Marketing Issues, S.K. Martin, AN. Rae, AC. Zwart, 1986.
180
163
An Analysis of Production, Consumption and Borrowing
Behaviour in the North Island Hill Country Pastoral Sector,
AC. Beck, J.B. Dent, 1984.
Labour Mobility Between New Zealand and Australia, R.L.
St Hill, 1986.
181
Survey of New Zealand Farmer Intentions and Opinions,
November 1985-January 1986, J.G. Pryde, P.J. McCartin,
1986.
182
A Financial and Economic Survey of South Auckland Town
Milk Producers and Factory Supply Dairy Farmers, 198485, R.G. Moffitt, 1986.
164
New Zealand's Inshore Fishery: a Perspective on the
Current Debate, RA Sandrey, O.K. O'Donnell, 1985.
165
Land Policy and Land Settlement in New Zealand, J.R.
Fairweather, 1985.
166
Farm Enlargement in New Zealand, J.R. Fairweather, 1985.
183
An Economic Survey of New Zealand Town Milk
Producers, 1984-85, R.G. Moffitt, 1986.
168
Market Prospects for Maize, SA Hughes, R.L. Sheppard,
1985.
184
An Economic Survey of NZ Wheatgrowers: Financial
Analysis, 1984-85; R.D. Lough, P.J. McCartin, 1986
Factor Cost Analysis of a New Zealand Meat Processing
Company, M.D. Clemes, L.D. Woods, 1985.
185
An Economic Survey of New Zealand Wheatgrowers:
Enterprise Analysis, Survey No.9, 1984-85, RD. Lough,
P.J. McCartin, 1985.
The Effect on Horticulture of Dust and Ash: Proposed
Waikato Coal-Fired Power Station, P.R. McCrea, October
1986
186
An Economic Survey of New Zealand Wheatgrowers:
Financial Analysis, 1983-84, R.D. Lough, P.J. McCartin,
1985.
A Study of the Determinants of Fattening and Grazing
Farm Land Prices in New Zealand, 1962 to 1983. P.G.
Seed, RA Sandrey, B.D. Ward., December 1986
187
Farmers' Responses to Economic Restructuring in
Hurunui and Clutha Countil~s: Preliminary Analysis of
Survey Data. J.R. Fairweather, July 1987.
188
Survey of NZ Farmer Intentions and Opinions, OctoberDecember 1986. J.G. Pryde, P.J. McCartin, July 1987.
189
Economic Adjustment in New Zealand: A Developed
Country Case Study of Policies and Problems, R.G.
Lattimore, July 1987.
169
170
171
172
Biological Control of Gorse: an ex-ante evaluation, R.A.
Sandrey, 1985.
173
The Competitive Position of New Zealand Fresh Fruit
Exports, M.T. Laing, SA Hughes, R.L. Sheppard, 1985.
174
Marketing Structures for the Horticultural Industry, N.L.
Taylor, R.G. Lattimore, 1985.
175
An Economic Survey of New Zealand Town Milk
Producers, 1983-84, R.G. Moffitt, 1985.
190
An Economic Survey
of New Zealand Town Milk
Producers 1985-86, R.G. Moffitt, November 1987.
176
A Financial and Economic Survey of South Auckland Town
Milk Producers and Factory Supply Dairy Farmers, 198384, R.G. Moffitt, 1985.
191
The Supplementary Minimum Price Scheme: a Retrospective Analysis, G.R. Griffith, T.P. Grundy,
January 1988
192
177
Optimal Pricing and Promotion for Agricultural Marketing
Agencies, S.K. Martin, L. Young, AC. Zwart, 1986.
New Zealand livestock Sector Model: 1986 Version.
Volumes 1 and 2, T.P Grundy, R.G. Lattimore, AC. Zwart,
March 1988.
DISCUSSION PAPERS
100
Accounting Developments and Implications for Farm
Business, R.H. Juchau, 1986.
108
Red Deer: The Economic Valuation. RA Sandrey, January
1987.
101
Maori Fishing Rights in New Zealand: an Economic
Perspective, R.A Sandrey, 1986.
109
Rural New Zealand; what next? Ralph Lattimore and Tim
Wallace (eds.), July 1987.
102
Government's Role in Adverse Events Assistance, T.E.
Dickinson, RA Sandrey, 1986.
110
Dairying in Japan and the Benefits of Adopting New
Zealand Pasture Grazing Techniques. R.G. Moffitt, April
1987.
103
The Treatment of Taxation in Capital Investment Appraisal,
N.T. Williams, 1986.
111
Selling New Zealand Products in Japan. R.G. Moffitt, July
1987.
Farmlands Grain (N.Z.) Society Ltd - A Marketing Audit
1980-84, R.G. Lattimore, 1986. (not available)
112
Proceedings of the New Zealand Rural Economy and
Society Study Group Seminar, J.R. Fairweather (ed.),
October 1986
Economic Evaluation of Matua Prairie Grass: Canterbury
Sheep Farms, Glen Greer, J.E. Chamberlain, September
1987.
113
Proceedings of the Rural Economy and Society Study
Group Symposium on Rural Research Needs, J.R.
Fairweather (ed), September 1987.
114
A Summary of the Financial Position of Canterbury Farms
- mid 1987. J.G. Pryde, November 1987.
115
A Case for Removal of Tariff Protection, R.L. St Hill,
December 1987.
104
105
106
107
Papers presented at the Eleventh Annual Conference of
the New Zealand Branch. of the Australian Agricultural
Economics Society, Blenheim. Volume 1 and 2. December
1986
Gorse and Goats: Considerations for Biological Control
of Gorse. RA Sandrey, January 1987.
Additional copies of Research Reports, apart from complimentary copies, are available at $20.00 each.
Discussion Papers are usually $15.00 but copies of Conference Proceedings (which are usually published
as Discussion Papers) are $20.00. Discussion Paper No. 106 is $20.00 per volume and Discussion Paper
No. 109 is $29.70.
,