Out­look for farm­ing is – change­able

South Waikato News - - OPINION - By JON MOR­GAN

The news is all good for the ru­ral econ­omy, ac­cord­ing to econ­o­mists’ crys­tal balls. But we all know how that can change.

The Pri­mary In­dus­tries Min­istry is the lat­est to give us its pre­dic­tions. This is the min­istry that last year fore­cast a slight check in growth this year on the rea­son­able as­sump­tion that we couldn’t be lucky two years in a row.

Weath­er­wise, last year was one out of the box – at least for farm­ers. The wet sum­mer­autumn wasn’t ap­pre­ci­ated by hol­i­day­mak­ers. But this year the gum­boot was on the other foot. No need to tell you what hap­pened.

To its credit, the min­istry re­leased in De­cem­ber last year an up­date to ear­lier forecasts, say­ing pri­mary ex­port rev­enue would be down $1.7 bil­lion.

This week, it put the drought ef­fect at $1.3b, so it wasn’t far out.

The big im­pon­der­able for fore­cast­ers is the ex­change rate. A year ago, the min­istry had the US dol­lar at 80c for this year. Once again, it wasn’t far out. Well done.

In pre­vi­ous years, the min­istry has been wildly over-op­ti­mistic when it has looked five years ahead. But this year, with the drought still fresh in our minds, it is more cir­cum­spect.

In fact, un­char­ac­ter­is­ti­cally, cau­tion ap­pears to be econ­o­mists’ watchword at the mo­ment. ANZ and West­pac have shown this in re­cent forecasts.

I can un­der­stand the urge to fore­cast the fu­ture – I would love my own per­sonal Tardis – but I am baf­fled why econ­o­mists do it. I sup­pose it is to do with help­ing their clients plan, and as long as it is based on sound data I sup­pose there’s lit­tle harm in it. But we’ve seen lately how easy it is to get it wrong.

The min­istry’s re­port is hedged with warn­ings about the shaky world econ­omy, and it uses the Trea­sury as­sump­tion that the US dol­lar rate will stay at the 83c to 85c level for the next two years. The min­istry is also as­sum­ing weather con­di­tions will re­turn to nor­mal. I sup­pose it has to – no use build­ing in droughts and storms, even earth­quakes, that might never hap­pen.

But as we all know, statis­tics can be faulty. They’re based on hav­ing the cor­rect data. The min­istry’s re­port is slightly con­fus­ing – it has two fig­ures for to­tal ex­port rev­enue. For the year end­ing June 2014 it is pre­dict­ing $27.7b. But in its press re­lease it says it will be $24.1b. Con­fus­ing mat­ters fur­ther is a $30b fig­ure used by min­is­ter Nathan Guy in his fore­word to the re­port.

I asked and was told $24.1b is the value for ex­ports that are our core earn­ers, and that we have hard data on, and $27.7b adds in pe­riph­er­als like seeds, honey and an­i­mal feeds that have es­caped the min­istry’s data col­lec­tors.

The min­is­ter’s $30b ap­pears to be an op­ti­mistic up­ward round­ing.

The core data are based on what the min­istry can be pretty sure of, that farm­ers will con­tinue to lift their game, helped by science. Cows will give more milk and sheep and cat­tle will be more fer­tile and raise meatier prog­eny.

There’s a huge ef­fort go­ing into farm­ing to do this, and I’m sure we will see re­sults soon.

The min­istry is pre­dict­ing rev­enue to hit the $30b mark in 2015, and be touch­ing $35b two years later. At that rate, it will be at the $60b mark de­manded by the Govern­ment by 2025. We shall see.

The lion’s share of the ex­pected rev­enue in­crease will come from dairy­ing.

The min­istry sees an­other $5b com­ing over the next four years, but makes no men­tion of what I think will be a drag on that – pres­sure to con­form to higher en­vi­ron­men­tal stan­dards. But what do I know? I’m not an econ­o­mist.

West­pac’s forecasts are more for the short term, and it has low­ered Fon­terra’s ex­pected $7 milk price for the new year to $6.50, say­ing it ex­pects an in­crease in milk flow to dampen in­ter­na­tional prices.

ANZ pre­dicts $6.80 with a ‘‘pos­i­tive up­side’’, pre­sum­ably mean­ing it could rise fur­ther.

On meat, our sec­ond-big­gest earner, the min­istry sees sheep and cat­tle num­bers con­tin­u­ing to fall as dairy­ing takes up more land but prices ris­ing in key mar­kets. West­pac and ANZ con­cur.

Over­all, th­ese re­ports present an im­pres­sion of op­ti­mism, and there’s no harm in that.

If some­thing hap­pens to up­set that, such as a drought, tidal wave, earth­quake, act of ter­ror­ism, nu­clear war or alien in­va­sion, you can be sure the crys­tal balls will be given a good shake, the re­quired in­can­ta­tions mut­tered, magic wands waved and a new set of forecasts will ap­pear. Fair­fax NZ

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