2001, Volume 9, Paper 2
ISSN: 1883-5675
Recent Trends in New Zealand Agricultural Productivity
Rod Forbes and Robin Johnson
Abstract
This paper discusses trends in New Zealand agricultural productivity at the farm level since 1972. Total input and factor input measures of productivity are derived and discussed. The method is based on Tornqvist (1936) index numbers which weight changes in the output and input mix as an average between base year weights and current year weights. Comparisons are made with base year weighting systems (Laspeyre Index Numbers) that are derived from Statistics New Zealand (SNZ) data sets available at the time of analysis. However, from September 2000 quarter, SNZ have adopted a chain link system for their national accounts. It is clear that resources will move out of an industry if relative returns to those resources are not maintained. In agriculture, this involves the inputs that producers buy from elsewhere, the land and capital used for productive purposes, and the producer’s (and family’s) own labour. By and large, if returns to a producer is deemed unsatisfactory in terms of existing production systems and market prices, the producer’s response is either to change systems of production, or economise on the use of inputs, or sell up.
The level of return to farming is determined in turn by market opportunities, domestic and overseas, and by the level of efficiency in the use of the basic resources available. In the New Zealand situation where the majority of farm products are exported, it is the international terms of trade between primary product prices and farm input prices, which is the most important determining factor. In general terms, the terms of trade for primary products and thus farmers have trended downwards since World War II (Tyers and Anderson 1986). Yet farm incomes have largely been maintained and resources have not moved out of the farm sector. The reason for this is the rise in efficiency in the use of resources over the long haul. The latter is reflected in the measures of productivity described in this paper. In general terms, the rise in productivity has tended to largely cancel the effects of declining terms of trade on farm incomes in the agricultural sector in New Zealand in the period since the second world war. The paper discusses the relative size of the agricultural sector in New Zealand and the main trends in production, resources and resource use since 1972. This includes a discussion of how best to measure changes in farm productivity. (An appendix sets out the production theory that is involved). Finally we return to the role of the terms of trade and productivity in maintaining farm level incomes over recent decades.
Download full document here
