1
National Survey of New Zealand Agricultural Sector Debt 1998
Roger Wilkinson and Peter Jarvis
Landcare Research
PO Box 69, Lincoln
New Zealand
Prepared for Ministry of Agriculture and Forestry
DATE:
April 2000
1.
Executive Summary
1.1
Project and Client
This study was commissioned by the Ministry of Agriculture and Forestry to determine the level and structure
of farm debt in New Zealand in 1998. The research was carried out by Landcare Research, Lincoln, in 1998–
99.
1.2
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1.3
Objectives
To provide a reliable estimate of debt levels across all farms in New Zealand, by type of farm, for
the accounting year ending June 1998 (or other appropriate 1998 balance date).
To interpret this data in the context of assets owned on the same farms.
To compare current debt levels with debt levels in 1995.
To compare current debt levels with those measured in an earlier survey, conducted in 1988.
Methods
We surveyed 881 farms in five sectors (sheep and beef, dairy, horticulture, cropping, and "other" types).
1.4
Results
Farm debt
Overall, 90% of farms reported some form of debt. A slightly higher percentage of cropping and dairy farms
reported debt than sheep and beef, horticulture, and "other" farms.
Among the 790 farms reporting liabilities, there was a total of 2712 individual loans, an average of 3.4 loans
per farm reporting liabilities. The average amount of each individual loan was $92,900. The largest source of
term funds was trading/trustee banks, followed by loans from family members. The largest sources of funds
for seasonal finance were bank overdrafts and revolving credit facilities. Trading and trustee banks provided
68% of the total funds advanced to the respondents, and family members 12%.
Taking into account the size of the average liability and the number of individual loans, the greatest use of
borrowed funds was for farm purchase, followed by farm running costs.
Average total debt per farm was highest for dairy farms and cropping farms (Table S1). Average debt levels
on dairy farms and cropping farms were more than double those on sheep and beef farms, and approximately
3 times those on horticulture and "other" farms.
2
About 20% of total debt was in the form of current liabilities; current liabilities appeared to be a greater
proportion of total debt on cropping farms (26.5%) and on horticulture farms (37.7%) than on other farm
types.
Median total debt for all farm types was substantially less than average debt. For sheep and beef, dairy, and
cropping farms, median debt was about 65% of average debt; the figure for horticulture was 42% and for
"other" farms 57%. This indicates that average debt levels were substantially skewed by a relatively small
number of farms with much higher debt than other farms. The average farm debt (weighted over all types of
farm) was $285,957 per farm (Table S1).
Average total liabilities increased with farm size across all farm types. Fifty-three percent of horticultural
farms had liabilities less than $100,000, as did 48% of "other" farms and 41% of sheep and beef farms. On the
other hand, 35% of dairy farms and 28% of cropping farms had total liabilities in excess of $600,000.
Table S1 Average farm debt and estimated agricultural sector debt in New Zealand
Average total liabilities per farm
Farm type
All farms
Farms with
liabilities
Total farms in
New Zealand
(from Agribase) 1
Total debt by
farm sector
Sheep-beef
$227,999
$261,222
33 860
$ millions
$7,720
Dairy
$507,059
$530,372
15 124
$7,669
Horticulture
$166,488
$178,552
4 676
$778
Cropping
$500,951
$516,132
1 371
$687
Other
$179,069
$207,848
10 456
$1,872
Total
$285,957
$318,956
65 487
$18,726
1
Excludes farms recorded as unconfirmed farm type, no farm enterprise or farm type, blank farm type, forestry, woodlot, native bush, tourism,
lifestyle, and zoological gardens; also excludes hobby farms with no separate farm accounts.
With the exception of dairy farms, the ratio of total liabilities to gross income (a crude measure of farm
viability) decreased with farm size, indicating a smaller proportion of debt in relation to annual gross income
with an increase in farm size, and therefore an improved viability for larger farms. For example, the ratio was
3.4 for small sheep and beef farms compared to 1.2 for large farms. The ratio was 3.7 for small cropping
farms, compared to 1.7 for large farms; and 8.5 on small horticultural units, compared to 0.8 on large units.
Land represented around 70% of the value of total assets. Dairy farms had the highest average total asset value
of all farm types and horticulture farms the lowest. The average value of dairy farms was 2.4 times higher than
the average value of horticultural farms in the sample, 30% greater than sheep and beef farms, and 8% greater
than cropping farms.
A substantial number of farms had equity of more than 80% of the value of total assets, in particular those
with sheep and beef, horticulture, and "other" farms. Eighty-three percent of sheep and beef farms had more
than 60% equity, 64% of dairy farms, 68% of horticulture farms, 69% of cropping farms, and 75% of "other"
farms. Just over 1% of sheep and beef, dairy, and "other" farms had negative equity.
Larger farms tended to have lower percentage equity than smaller farms. However, because larger farms also
had lower liabilities in proportion to gross income than smaller farms (with the exception of dairying), they
potentially have the ability to service their greater debt.
3
Because of the number of farms of each type in the survey, the estimates for total debt on all farms, sheep
and beef farms, and dairy farms, are more reliable than the estimates for horticulture and cropping. The 95%
confidence intervals for total liabilities of dairy and cropping farms was significantly above those for the other
farm types and for the average of all farms.
Agricultural sector debt
Based on our survey data for 1998, we estimate there were 65 487 farms in New Zealand, with a total farm
debt of $18.7 billion. This estimate of total agricultural sector debt is dependent on knowing the number of
farms in New Zealand. Various estimates of the number of farms in New Zealand exist, depending on the
purpose of the information and the definition of a "farm". There is uncertainty in determining the point at
which a farm should be considered a lifestyle farm.
After converting 1988 data to 1998 dollar values, average debt per farm increased by 91% between 1988 and
1998, while New Zealand's total agricultural sector debt increased by 53% in the same period (Table S2). The
percentage increase in debt per farm is greater than the increase in the debt over the whole sector because
there were fewer farms in 1998 (65 487) than in 1988 (82 063). This apparent reduction in the number of
farms is due in part to differing definitions of a farm, so the increase in total agricultural sector debt may be
different from the 53% reported here.
Table S2 Comparison of agricultural sector debt for 1988 and 1998
1988 debt
$ per farm 2
New Zealand
($ million)
1
2
$115,273
$9,459
1988 debt
corrected to
1998 dollar
values 1
$149,486
1998 debt
Change
(1998 dollar
values)
$285,957
$136,471
91
$12,266
$18,726
$6,460
53
% change
Using an inflation adjustment of 1.297, based on the Producer Price Index (PPI) for All Farming. Source: Statistics NZ.
Across all farms, including those reporting no liabilities.
From 1988 to 1998, average debt levels increased on all farm types; they increased most on dairy and
cropping farms and least on horticultural farms (Table S3). There was a 36% increase in average debt per farm
for sheep and beef farms.
Table S3 Change in total average debt by farm type between 1988 and 1998
1
2
3
Farm type 1
1988
average debt
per farm 2
Sheep and beef
$127,008
1988 debt
corrected to
1998 dollar
values3
$167,651
Dairy
$127,688
Horticulture
Cropping
1998
average debt
per farm 2
Change
(1998 dollar
values)
Percent
change
$227,999
$60,348
36
$165,599
$507,059
$341,460
206
$133,004
$154,364
$166,488
$12,124
8
$108,965
$140,194
$500,951
$360,757
257
No results were reported for "other" farms in 1988.
Across all farms, including those reporting no liabilities.
Inflation adjustment based on PPI: Sheep and beef 1.320; dairy 1.297; horticulture 1.161; cropping 1.287.
4
Using the ratio of total liabilities to gross income as a crude measure of viability, between 1988 and 1998 the
average viability decreased for all sizes of sheep and beef farms, for medium to large dairy farms, for most
horticulture units, and for small cropping farms.
The survey also included a comparison of farm debt in 1995 with that in 1998. Between 1995 and 1998,
average debt per farm increased substantially only on dairy farms and cropping farms. The increase was not so
substantial on the other farm types. The relatively small percentage increase in farm debt between 1995 and
1998, and very large percentage increase between 1988 and 1998, indicates that most of the increase in debt
occurred between 1988 and 1995.
[ END ]