Agriculture increased GDP, but the bigger picture is more complex

Tuesday July 04, 2017 Kel Sanderson

The official Press Release for the March quarter 2017 GDP said that the fall-back in construction was to some extent compensated for by the increase in agricultural GDP.  It is true that agricultural GDP in March quarter had increased by 4.3%, or 2.8% inflation adjusted, but that may well have been a seasonal effect.  That was the increase over the preceding quarter, December quarter 2016.  The March quarter 2017 agricultural GDP was just 0.25% greater than the similar seasonal March 2016 quarter, inflation adjusted.


However some interesting changes are continuing in the agricultural sector as illustrated in the Agricultural Production Statistics as at June 2016, also released recently.  These numbers show that some of the long-term trends are continuing, but these are overlaid with short-term counter-effects.


Long term trends of livestock decline continue – except dairy cows

The main long term trends of interest are in livestock, where trends in total numbers of sheep, beef cattle and deer have declined in each of the last three years in both Islands.  This has meant that between 2013 and 2016, sheep numbers have declined by 10.4%, to 27.6 million; beef cattle numbers have declined by 4.5% to 3.5 million, and deer numbers have declined by over 18% to 835,000.   The sheep numbers imply that at June 2016 each Kiwi person ‘had’ under six sheep a head compared with the 20 odd many years ago!


The dairy cow numbers had declined by 3.2% in 2014-15, but had bounced back a little to increase by 2.1% in 2015-16.  By June 2016, total dairy cattle were 6.6 million.  A closer look indicated that with the low Milk Solids payouts in 2014-15 and 2015-16, the dairy farmers in the South Island in particular had reduced their total dairy cattle numbers.


Feed, milk quality and environmental impacts

One of the deeper effects of the low Milk Solids payout was that these intensive South Island farmers reduced their high spending on feeds to encourage more Milk Solids from their cows.  With the recent high Milk Solids payouts, they had imported more palm kernel expeller (PKE) and purchased more locally grown grains and silage.  Giving the cows more feed had certainly increased milk production, but if it is overdone it results in higher levels of nitrates being fed into the environment.


The composition of the feed is also of interest to Fonterra and importers of our dairy product, and to maintain quality Fonterra has introduced a Fat Evaluation Index to assist farmers keep within the quality range.


Milk Solids payout and stocking rates

Another effect illustrated in the livestock data is that in the recent years, the dairy industry has reduced the drystock they carried (on farm or at grazing) anticipating future payouts that are below the three peaks of $8 per kg Milk Solids  in 2008, 2011 and 2014.  The inflation adjusted MS payout for many years has averaged $6 per kg Milk Solids.  There would seem to be a good range of positive effects if the future price was to hover closer to that level rather than fluctuating between $4 -$5 and $8 a kg MS as it has since 2006.


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