Copyright is owned by the Author of the thesis. Permission is given for a copy to be downloaded by an individual for the purpose of research and private study only. The thesis may not be reproduced elsewhere without the permission of the Author. THE POTENTIAL FOR INCREASED PRODUCTION ON SHEEP FARMS IN W.AIROA COUNTY by R.W. CARTWRIGHT Thesis Presented in Partial Fulfilment of the Requirements for the Degree of Master of Agricultural Science in Massey University January, 1967. ACKNOWLEDGEMENTS The author wishes to thank Professor W.V. Candler for his advice and encouragement during this study. The author benefited from several discussions with Messrs. J.N. Hodgson and N. Watson. The efforts of the many people who assisted with this study, are appreciated. Special thanks are due to many farmers in Wairoa County for their unstinting co-operation during the Farm Survey. During the early part of this study, the author was employed by the New Zealand Department of Agriculture which also met the full cost of the Farm Survey. This support is gratefully acknowledged, as is the financial assistance provided by scholarships from the Bank of New South Wales and the New Zealand Wool Board. Thanks are due to Mesdames M. Clifford and A. Smith, who typed this thesis and to Mrs. J. Cartwright who traced the figures and assisted with proof-reading. Thanks are also due to the library staff for their assistance in obtaining references. CONTENTS CHAPTER 1 INTRODUCTION AND THESIS GUIDE 1.1 Introduction 1.2 Objectives of the Study 1.3 Sources of Information 1.4 Thesis Guide CHAPTER 2 WAIROA COUNTY 2.1 Introduction 2.11 2.2 2.21 2.22 2.221 2.23 2.231 2.232 2.233 2.3 2.4 2. 41 2.42 2.43 2.44 2.45 2.46 2. 47 2. 48 2. 481 2. 482 2. 483 Location Natural Features Topography Soil types Main soil types Climate Rainfall Temperature Wind conditions Land Use and Tenure Auxiliary Services Roads Telegraphic services Transport services Agricultural contracting services Farm supply and trading services Stock slaughtering and meat freezing facilities Sources of farm credit Fnrm advisory services Managerial advice Financial advice Technical advice CHAPTER 3 FARM MANAGEMENT RESEARCH AND FARM SURVEYS 3.1 Introduction 3.2 Farm Management Research 3.3 Farm Surveys 3.31 Descriptive or recording surveys Interview or management surveys Page 1 1 2 4 5 7 7 7 7 7 8 10 13 13 14 14 14 16 16 16 17 17 18 20 20 21 21 22 23 24 24 24 27 28 29 3.4 The Wairoa County Farm Survey 3.41 The nature of the survey 3.42 Selection of f arms 3.43 Selection of Random Group farms 3.44 Selection of Purposively Selected farms 3.45 Interviewing procedure and experience 3,5 Analysis of Survey Data 3.51 Basic information 3,52 Management pr actices 3.53 Financial analysis 3,531 Standardised costs and prices 3.532 Profits and pr ofitability 3.533 Ex poste and ex ante analysis of pro fitability 3.54 Attitudes t o development CHAPTER 4 4.1 4.2 4.21 4.22 4.23 4.3 4.31 4.32 4.4 4.5 4.6 4.61 4.7 4.8 4.9 4.10 4.11 4.12 4.13 PRODUCTION AND INCOMES ON WAIROA HILL COUNTRY F.~RMS Introduction Farm Organisation Size of farms Tenure of farms Responsibility f or management Farm Labour in Wairoa County Labour used Availability of labour Farm Topography Land Use on Farms Farming Enterprises and Stocking Rates Stocking r ates Production Farm Incomes Capital Structure of Random Farms Recent Production Increases in Wairoa County Future Levels of Production Restraints on Production I n creases Summary and Conclusions CHAPTER 5 MANAGE~1ENT PRACTICES ON WAIROA FARMS Introduction 32 32 33 33 36 38 39 39 39 4o 4o 41 43 45 46 46 46 46 49 50 51 51 52 53 57 59 59 63 65 72 75 77 78 80 5.2 5.21 5.22 5.23 5.24 5.25 5.26 5.3 5.31 5.32 5.4 5. 41 5.42 5.5 5.51 5.52 5.6 5.61 5.62 5.63 5.631 5.632 5.633 5.64 5.65 5.7 5. 71 5.711 5.712 5.72 5.721 5.722 5.8 Stock Management Breeding ewes Hoggets Other dry sheep Breeding cows Dry cattle An a typical cattle management system Pasture Management Topdressing practices Subdivision and grazing management The Control of Weeds and Pests Weeds Pests Technical Problems Encountered by Wairoa Farmers 'Clover ill-thrift' Copper deficiency Farm Development Techniques in Wairoa County Fencing techniques Pasture improvement by oversowing and topdressing Establishment of pastures on unproductive land Development from manuka Development from manuka and blackberry Development from blackberry Changes in stocking policies during farm development Finance used for farm development High Production on Hill Country Outside the County State experimental farms Tangoio and Waerenga-o-kuri Te Awa Experience of innovating farmers 'Wairere' ' Ratahiwi' Summary and Conclusions 83 84 89 91 92 94 95 97 98 102 103 104 105 106 106 108 108 109 111 112 113 118 119 122 123 124 125 125 127 129 130 132 133 CHAPTER 6 THE EVALUATION OF HILL COUNTRY DEVELOPMENT PROGRAMMES 136 6.1 Introduction 136 6.2 Definitions 136 6.3 The Need for Evaluation of Development Programmes 137 6.31 6.32 6.4 6. 41 6.42 6.43 6. 44 6.5 6.51 6 .52 6.53 6.54 6.6 6.7 6.71 6.72 6. 721 6.722 6.73 6. 731 6.732 6.733 6.734 6.8 Evaluation by f armers Evaluation by pl anning agencies The Development Model Temporal considerations Production Profits Overdraft Expressing the Profit ability of Dev el opment Programmes The pr esent value of pr ofits Estimating asset increments Re turn on Investment Increas e in Owner's Drawings Obj ectives Other Than Profit A Worked Exampl e of Development Progr amme Evaluation The r aw data Pr eliminary computations Bas e Year computations Devel opment year 1 computations Computation of pr ofit ability Pres ent Value of Devel opment Cash Profits Return on Investment Asset Increment Additional information Conclusion CHAPTER 7 HILL COUNTRY DEVELOPMENT PROGRAMMES IN WAIROA COUNTY 7.1 Introduction 7.2 Assumptions in Progr amme Analysis 7. Z\1 7.22 7.221 7.222 7.223 7.224 7.23 7.3 7.4 7. 41 Costs and prices Taxation St andar d values Personal and f amily exemptions Life insurance pr emiums Spr eading-forward exemptions Living expens es Cas e Development Pr ogr ammes Case Devel opment Progr amme I - Far m 21 The devel opment progr amme 137 139 141 142 142 142 144 145 146 147 149 150 151 151 152 155 155 158 161 162 162 163 163 164 165 165 166 166 167 168 168 169 169 170 171 173 173 7. 42 Evaluation of Progr amme I 180 7.421 Evaluation under Condition A. 180 7.422 Evaluation under Condition B 181 7.5 Case Development Programme II - Farm 22 181 7.51 The development programme 182 7.52 Evaluation of Programme II 185 7.521 Evaluation under Condition A 185 7-522 Evaluation under Condition B 188 7.6 Case Development Programme III - Farm 24 188 7.61 The devel opment programme 189 7.62 Evaluation of Programme III 193 7.621 Evalua tion under Condition A 197 7.622 Evaluation under Condition B 197 7.7 Case Development Programme IV - Farm 25 198 7. 71 The deve l opment programme 198 7.72 Evaluation of Programme IV 204 7.721 Evaluation under Condition A 204 7.722 Evaluation under Condition B 204 7.8 Case Development Programme v - Farm 26 205 7.81 The development programme 205 7.82 Evaluation of Programme V 209 7. 821 Evaluation under Condition A 209 7. 822 Evaluation under Condition B 210 ?.9 Su~mary and Conclusions 213 CHAPTER 8 A MODEL DEVELOPMENT PROGRAMME FOR WAIROA COUNTY 218 8.1 Introduction 218 8.2 The Hypothetical Farm 220 8.21 Size of the farm 220 8.22 Natural featur es of the farm 221 8.23 Pre-development physical condition 221 8.3 Pre-development Situation 223 8.31 Improvements 223 8.311 Fencing 223 8.312 Buildings 223 8.313 Wat er supplies 223 8.314 Tracking 223 8.32 Stock policy 224 8.4 The Development Programme 224 8.41 8. 42 8.421 8. 4211 8. 4212 8. 4213 8. 4214 8.422 8.43 8.5 8. 51 8.52 8.53 8.54 8.541 8.542 8.543 8.55 8.6 CHAPTER 9.1 9.2 9.3 9.4 9. 41 9.42 9.5 9 The stocking policy I The land development programme Land development~chniques Fencing t echniques Pasture improvement Pasture establishment Installation of water supplies A summary of the land development programme Other r es ources for development Financial Analysis of the Development Progr amme The price assumptions Derivation of the budgetary r esponse surface Acceptance of the budgetary r esponse functions Inter pr et a tion of the budgetary response surface Point r esponses The sensitivity of budget ary r esponses 'Break-even ' points A r eview of the r esponse surface appr oach Conclusions THE I Jv,PACT OF TAXATION ON THE PROFIT.I\BILITY OF FARM 224 233 235 235 236 237 237 238 241 243 244 247 252 255 255 257 262 270 270 DEVELOPMENT 273 Introduction 273 A Review of Empirical Results 274 A Theoretical Explanation 277 The Implicati ons f or Farm Development 281 The misallocation of r esources 282 The r estriction on funds 284 Conclusion 284 CHAPTER 10 THE POTENTIAL FOR INCREASED PRODUCTION IN WAIROA COUNTY 285 1~.1 1.0.2 10.21 10.22 10.3 10.4 10.5 Introduotion Potential Increases in St ock Numbers Stock increas es in Wairoa County Stock increas es on adj acent hill country Potential Pr oduction Increases A Comment on the Value of Production Increases Additiona l Resource Requirements 285 285 286 287 288 289 290 10.51 10.52 10.53 10.54 10.55 10.56 10.57 10.6 Fertiliser r equir ements Farm labour r equirements Requirements for l ong-term credit Advieory services Transport services Aeria l topdressing services Farm supply and trading services Summary 290 291 291 292 292 292 293 293 CHhPTER 11 CONCLUSIONS tillD SUGGESTIONS FOR INCREASING PRODUCTION 295 11.1 11.2 11.3 11.4 11.5 11.6 11.61 11. 62 11.63 11.7 11.71 Introduction The Feasibility of Increasing Production Changes in Farm Management Production Potentials The Profitability of Increasing Production Resources Required t o Attain Potential Production Advisory services during development Credit for development Farm labour f or development Stimulating Increased Production The case for a management demonstration farm BIBLIOGRAPHY APPENDICES A B c D E F G H I J Letter Sent t o Survey Farmers The Data Sheet Iso-stocking Rate Curves Analysis of Farm Incomes Comments on Two Measures of Profitability Spreading Tax Exemptions Budgets f or Case Develo~ment Programmes The Effect on Tax of Spreading Exemptions Near-optimally Flow Diagram of an Al gorithm f or Obtaining Break-even Levels of Independent Variables in a Budgetary Response Function ~udgetary Functions and Response Surfaces 295 295 295 298 298 299 299 301 303 303 304 306 LIST OF TABLES Table Page 1.1 Sources of Background Information 4 2.1 Major Soil Types in Wairoa County 12 2.2 Mean Monthly Rainfall 1921 to 1950 13 2.3 Tenure of Land Held for Pastoral Farming Purposes 15 2.4 Tenure of Land Held for Purposes other than Pastoral Farming 16 2.5 Proportions of Different Bulk Fertilisers Railed to Wairoa Bulk Stores (1964/65) 19 3.1 Fate of Random Selections 36 4.1 Size, Tenure, and Responsibility for Management of Random Farms 47 4.2 Size, Tenure, and Responsibility for Management of Purposive Farms 48 4.3 Topography of Random Farms 55 4.4 Topography of Purposive Farms 56 4.5 Land Use on Random Farms 58 4.6 Stock Conv ersion Coefficients f or St ock Wintered 59 4.7 Stocking Rates on Random Farms (Winter 1965) 61 4.8 Stock Pr oduction on Random Farms 64 4.9 Expected Future Wool and St ock Prices 68 4.10 Analysis of Incomes on Random Farms 69 4.11 Capital Structure of Random Farms 74 4.12 Stocking Rate Increases on Purposive Farms 76 5.1 Fertiliser Usage on Random Farms (1964/65) 99 5.2 Estimated Costs of Fences 110 5.3 Production on Tangoio Grazing Trial 126 5.4 Production on Waerenga-o-kuri Grazing Trial 127 5.5 Production on Te Awa 128 · 6.1 Expenditure Items from a Hypothetical Profit and Loss Account 153 6.2 Non-deductible Cash Expenditure Items from a Hypothetical 6.3 6.4 6.5 7.1 7.2 Balance Sheet Data Extracted from Hypothetical Stock and Wool Accounts Preliminary Computations Pre-tax and Post-tax Development Cash Profits Case Programme I - Land Development Programme Case Programme I - Land Use 154 155 160 161 175 176 7·3 7.4 7.5 7. 6 7.7 7. 8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 7.16 7.17 7.18 7.19 7.20 7.21 7.22 7.23 7.24 8 .1 8 .2 8.4 8.5 8.6 8.7 8 . 8 8.9 8.10 Case Programme I - Stocking and Production 177 Case Programme I, Condition A, Preliminary Computati ons 178 Case Progr amme I, Condition B, Preliminary Computations 179 Case Progr amme II - Land Devel opment Programme 183 Case Progr amme II - Other Resource Requirement s 183 Case Progr amme II - Stocking and Production 184 Cas e Pr e) gr amme II, Condition A, Preliminary Computati ons 186 Case Programme II, Condition B, Preliminary Computations 187 Case Programme III - Land Devel opment Programme and Land Use 192 Case Pr ogr amme III - St ocking and Production 194 Case Pr o;ramme III, Condition A, Preliminary Computations 195 Case Pr ogr amme III, Condition B, Preliminary Computations 196 Case Progr amme IV - Land Devel opment Progr amme 200 Case Pr ogr amme IV - Stocking and Pr oduction 201 Case Pr ogramme IV, Condition A, Preliminary Computations 202 Case Programme IV, Condition B, Preliminary Computations 203 Case Programme V - Land Development and Land Use 207 Case Programme V - St ocking and Production 208 Case Pr ogr amme V, Condition A, Pr eliminary Computations 211 Case Progr amme V, Condition B, Preliminary Computations 212 Evaluations of Case Devel opment Progr ammes Under Condition A - Summary 213 Evaluati ons of Case Development Programmes Under Condition B - Summary 214 Model Development Programme - Stock Winter ed 227 Model Devel opment Programme - Stock Sal es and Purchases and Woo l Production 228 Model Devel opment Progr amme - Initiation of Land Development 239 Model Development Pro6r amme - Topdressing , Land Use, and Feed Reconciliation 240 Model Development Programme - Miscellaneous Resources 242 Desi gn of Observations f or thG Budget ary Response Surfa ce 249 Evaluations of the Model Devel opment Programme a t Yarious Price Levels 250 Model Development Programme - Budget ary Response Functions 251 Comparison of Budgetted Responses with Responses Estimated by the Derived Functions 254 Sensitivity of Present Value of Post-tax Development Cash Profits (P.V.) t o Changes in Stock Price 259 8.11 8 .12 8.13 8.14 8.15 8.1 6 8 .1 7 D.1 G.1 G.2 G.3 G.4 G.5 H.1 H.2 H.3 H.4 H.5 Sensitivity of Present Value of Post-tax Devel opment Cash Profits (P.V.) to Changes in Woo l Price 260 Sensitivity of the Present Value of Post-tax Devel opment Cash Profits (P . V. ) to Changes in Fertiliser Price 262 The Sensitivity of Pr esent Value of Post-tax Devel opment Cash Profits (P.V .) to Changes i n Stock Price , Wool Price , and Fertiliser Pri ce under Condition A Assumptions 264 Break-even Levels of Stock Price 266 Break-even Levels of Woo l Price 267 Break-even Levels of Fertiliser Price 268 Break- even Levels of Stock Price , Wool Price , and Fertiliser Price Under Condi-:i on A Assumptions 269 A Summary of the I mpact of Taxation on the Profi tability of Case Programmes and the Model Devel opment Programme 275 Annual Financial Data fr om a Hypothetical Farm D.1 Budgets f or Case Development Programme I G.2 Budgets f or Case Development Programme II G.3 Budgets f or Case Development Programme III Budgets f or Case Devel opment Programme IV Budgets f or Case Development Programme V Spreading Exemptions in Case Programme I Spreading Exemptions in Case Programme II Spreading Exemptions in Case Programme III Spreadi ng Exemptions in Case Programme IV Spreading Exemptions in Case Programme V G. 4 and G. 5 G.6 G.7 H.2 H.2 H. 3 H.4 H.4 Figure 2.1 2.2 2.3 3. 1 5.1 6.1 8.1 9.1 9.2 c. 1 LIST OF FIGURES Location of iNairoa County Ash Showers of Gisborne-Wairoa District Mean Annual Rainfall in Wairoa County 1921-50 Location of Farms in the Survey Land Development in Wairoa County Schematic Representation of a Development Programme Budgetary Iso-response Curves A Farm Development Programme Misallocation of Resources due to Taxation Breeding Ewe-Mature Wether Iso-stocking Curves Between Pages 7 and 8 9 and 10 13 and 14 37 and 38 112 and 113 141 and 142 257 and 258 277 and 278 282 and 283 C.1 and C. 2