According to the National Accounts (Industry Benchmarks): Year ended March 2012, 50 percent of all agricultural production occurred within the dairy cattle farming industry. This article reports on the financial position of the dairy cattle farming industry using results from the 2014 Annual Enterprise Survey. We provide this information given the fall in dairy export prices and declining dairy payout since 2014.
Equity-to-total-assets ratio in 2014
Results from the 2014 Annual Enterprise Survey show that the average total debt of all businesses in the dairy cattle farming industry was $902,000 in the 2014 financial year. The industry’s ratio of equity to total assets was 40 percent. (Equity-to-total-assets ratio, referred to as ‘liability structure’ in the AES tables, is the percentage a business owns of the assets it holds.) This ratio has not changed from 2013 despite profit increases in 2014, and has been relatively stable since 2009, when the owner’s equity dropped 21 percent. In 2005, the industry ratio was 52 percent (see figure 1).
Ratio below industry level
One-quarter of dairy cattle farming businesses had an equity-to-assets ratio of 14 percent or lower in 2014. Newer entrants to the industry tend to have a lower proportion of equity. For businesses that have operated for at least five years, one-quarter had an equity-to-assets ratio of 19 percent or lower. The ratio for businesses that have been operating for more than 10 years is higher, at 29 percent.
Ratio by income and region
Equity-to-total-assets ratios differ when comparing dairy cattle farming businesses by income and region.
Small dairy cattle farming businesses tend to have higher ratios. When looking at ratios by income, the bottom quartile of businesses in the dairy cattle farming industry had an equity-to-assets ratio of 62 percent in 2014. This compared with the top quartile of businesses, with an average ratio of 30 percent.
Waikato, Taranaki, Canterbury, and Southland are the four largest dairy cattle farming regions. The Waikato and Taranaki regions combined had a higher equity-to-assets ratio (42 percent) than Canterbury (33 percent) and Southland (31 percent) (see figure 2). Dairy farming in Canterbury and Southland has grown more rapidly since 2004, compared with the long-established dairy farming regions of Waikato and Taranaki.
The differences in total debt held by businesses in these regions are significant. Both Canterbury and Southland dairy cattle businesses owe an average of $1.8 million to other parties, compared with Waikato and Taranaki farmers who owe less than half this amount (see figure 3).
The information for this article came from the Annual Enterprise Survey (AES), a comprehensive source of financial statistics. The survey provides information on the annual financial performance and position of businesses in New Zealand. For more variables see: Annual Enterprise Survey – information releases.
Customised data information from AES can be obtained on request. For general enquiries, email our Information Centre at [email protected]
Published 4 September 2015