Katie Milne warns city observers that the 2013 drought will take several years to recover from and the impact will flow through to the whole economy

Katie Milne warns city observers that the 2013 drought will take several years to recover from and the impact will flow through to the whole economy
"Farms are biological systems and not a factory"

By Katie Milne*

When this drought does fully break, its effects will be felt for two seasons or more as herds are rebuilt and pasture repaired.

The most recent rains may have taken the pressure off some areas, but others remain in a precarious state. 

Farmers I speak to in the areas that have been dry remain concerned.

If it rains in central Auckland or Wellington, it does not mean it is raining in Taihape. 

That said things are looking up in the Bay of Plenty but they remain tough in Hauraki-Coromandel.

The West Coast of North Island, from South Auckland all the way north, remains pretty dry. I can add to that the North Island’s East Coast, parts of the Waikato and the Central North Island.  While Manawatu is out of the woods, Rangitikei remains firmly gripped by drought.

We seem to be getting through the worst of it on the South Island’s West Coast but Southland and Otago could use a good soaking followed by sunshine. 

Yet the cold reality farmers like me know is that it is getting colder. As each day passes we lose vital sunshine hours and if winter does come early, we will swing from one set of conditions not conducive to pasture growth to another.

While this drought will break it does not suddenly mean it is all over for farmers. Pasture is the engine room of any farm and farmers are drilling in seed like no tomorrow. 

As any home gardener knows, grass growth tails off over winter and winter is close. Getting seed away before the weather flips will be a close run thing. 

With feed at a premium we could be facing a tough winter of constrained feed; a winter of discontent if you like that will put us on the back foot for spring.

Knowing these effects personally and professionally, I am amazed Westpac’s economists could believe the drought will have no effect on the economy.

It is news to Federated Farmers Rotorua Dairy Chair Bryan Osborne. The drought has cost his farm some 30,000 kilograms of milksolids or around $180,000. We are not using this to get the violins out, but to challenge Westpac over its claim this drought will cost New Zealand nothing.

Milk production out of the North Island has dropped like a stone and you cannot export what you are not producing, no matter what price you get.

The effect on sheep and beef farms is also dire. Capital stock numbers have been cut to the bone and these animals provide the basis for a farms future crop. Red meat also happens to be New Zealand’s number two export.

Unlike cows which went to the bull in October or November, ewes have only been going to rams in the last two months, during the peak of the drought, to get in lamb. This will affect fertility, so sheep farmers will likely be hit with lower lambing percentages next spring.

Farms are biological systems and not a factory.

For sheep and beef farmers capital stock and stocking numbers will need to be rebuilt. That could take several seasons so this drought’s after effect will be felt for years.

--------------------------------

Katie Milne is Federated Farmers Adverse Events spokesperson and West Coast provincial president

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

36 Comments

Comment Filter

Highlight new comments in the last hr(s).

Good article Katie from someone who lives in the real world making real things. I really do not know why we give so much authority to these money manipulators.

Agreed. We gave priests the same authority - took a while for them to be hamstrung too.
 
The need to be led, is closely akin to the need to believe, and it's a trait held by the majority  (the led can't be anything but a majority).
 
Problem comes when paradigms change; the leaders of yore gained their skill-sets in the old one, and have to be shoved aside, displaced, ridiculed, or a combo thereof.
 
Evolution vs pie-in-the-sky-when-you-die suggests the old guard fight to hang on......
 
Good article, though. Presupposes no increase in repetition of the event, which the modelling  suggests may be a tad optimistic. Quite correct in the comment re economists.

Great to finally see the scale and severity of the drought in the MSM. We have to get all the way to September with pasture cover almost non existant, its going to be a long tough winter. 

Katie please write more.

Kimy, interest rates have to drop. If people stop borrowing the system collapses.
Some wisdom from Hypertiger
 
Debt is money and money is debt in a credit system.

The greater your demand for money is the more debt that has to be created to supply it.

3 Trillion Dollars of debt flows through the New York FED a day...

1 Trillion is not much...Unless your income in relation to it is too small.

The resources required to produce income of power...must be running out.

printing presses are great for producing banknotes.

but they need backing.

or they don't exst...or you could print money to but food...like they did in zimbabwe....or gold like they did in Germany.

but all that does is power hyperinflation of prices or collapses your monetary system.

In the USA it's showing up as reduced incomes.

All that student loan debt is the students future income.

The best bet would have been to get an income and save up to finance the american dream and skip the go to University or collage part to escape having to work for a living to obtain the American dream.

getting an income requires someone else in the debt system to create the debt that you obtain as income to then save up and use as collateral along with your income which is previously created debt to create your future income and blow it into the economy and spend the next 25 to 30 years trying to get it back so you can give it to the bank.

If it all works out...You will have a house which is a debt inflated asset that requires massive amounts of new debt creation to sustain it's continued inflation.

Going the university collage route...and you have an education that supposedly makes you a superior form of life that should easily laugh at how simple the problem of American dream acquisition is to solve.

If the students don't create enough new debt to supply the demand for it by all and everyone in the system...someone or something else has to.

Or the credit system collapses...

Debt is your savior...

The changes that are required in the USA to make it work again like it did up until the resources required to make it work ran out...are too radical unfortunately.

Homes have to be redesigned to be sustainable.

The current ones are built to get people to sign on the dotted line and they then turn into crumbling heaps over the next 30 years or so...unless you supply them with enough resources to counteract or postpone arrival at the logical conclusion for as long as possible.

To do that you need debt...and to obtain that...You have to chop down trees faster than they regrow.

The students are trees being chopped down and burnt faster than they regrow to supply the demand for debt.

By the Liberal establisment...

who like all in the system ruled by the continous compouning interest equation at the heart of the debt production system.

currently that equation is demanding 80 Million barrels of oil to be burnt a day globally to postpone the wrath of the false GOD from being unleashed upon you all.

Supply the demand of the equation and obtain the American dream...or refuse for any reason by choice or because you can't...and you obtain the american nightmare.

Of course it's tailor made to each individual...

This same process is in operation globally...in china...It's the chinese dream or nightmare...

Good thing the dream of working for 1 Dollar an hour is still being enjoyed.

A raise to 2 dollars an hour in China would be like a doubling of the minimum wage in the USA...

2 Dollars an hour of debt that someone in the system requested a bank to create in order for it to exist.

So far in China they are up to 1 Dollar an hour...

that someone somewhere has to request a commercial bank to create.

it's why there is so much empty real estate in China...no one seems to know how to increase debt at the bottom enough to supply the demand for line signers to produce the debt required to sustain their continued production.

Because you need resources to sustain the production of line signers...it takes about 25 years produce a line signer.

and during that time it has to be supplied with massive amounts of resources.

and that requires massive amounts of debt inflation.

based of course off the resources.

The return on investment is turning negative.

That is what happens in the end of the take more than you give system.

You exhaust the resources required to obtain a return on investment of debt.

So the credit system collapses back to the monetary system and without enough resources to sustain that...it collapses.

this process has been going on for 5 years now in the USA.

all the environmental restrictions are not the cause...they are an effect...

when you are cutting down trees faster than they regrow to sustain the global trade system.

you have two options.

Stop and slow down and collapse from there.

Or don't stop or slow down and continue until the trees run out and collapse from there.

The controlled collapse of the global trade system has been in progress for 5 years now.

If you piled up debt getting an education in the USA...The world thanks you for your sacrifice supplying the demand of the system for debt to keep from collapsing. 

The 1 dollar an hour chinese factory workers need someone somewhere in the system to sign on the dotted line to continue to service the continued existance of their incomes.

Because if someone doesn't...their incomes will shrink until they crease to exist...back to where they came from to begin with...the USA.

So you all better get signing on the dotted line to continue financing the fantasy you all worship.

Because the clock is ticking down faster and faster on it...

That's what you call a rant.

Amen! That was an A1 rant! 
HGW

Buggered. My daughter needed a dress for Prom night. She went on pintrest and found a dress she liked, then ordered it Via China, it just turned up, hand made and stunning, for $100. The profits made by who knows? took 3 weeks from ordering, the dress makers pay $2 a day.  My wife tells me it would have cost $500+ in a shop.
 
Worlds biggest sheep herd- China.
 Mean while in the USA the homeless problem is growing, I need to take some photos and get Hickey to Post them, hundreds of them in a small town. Old and young, male and female,  Children too. Makes you wonder.

Banks make more when interest rates are low. They get their margin whatever the rate but they can push bigger volumes when the rates are low.
 
Steve Keen has shown it doesn't take a halt in lending to cause a recession. A complete halt would cause a depression. All it needs is a slow down. Increasing levels of new new debt is always needed to pay for the old debt plus the interest. National's quite happy with all the new mortgage debt because its the only way they know to get "growth" into the economy

but is the new debt backed by production or just a giant Ponzi scheme?  Where the new debt is used to pay the interest on the old.

 
Can see why Hyman Minsky has been getting a lot of belated cred. His Financial Instability Hypothesis is far more realistic than any other model I've read. There's definitely a lot of speculative and ponzi borrowers out there in all assets.
 
Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower"  borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.
If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments - http://en.wikipedia.org/wiki/Hyman_Minsky

Yes Katie well done. We must not let these economists win the media with their tripe. They have minimised a major disaster for reasons unbeknown to us serfs. Perhaps Kimy is onto something. I was encouraged to see when TV1 picked it up they did not swallow it hook line and sinker. They actually belittled Westpac somewhat.
I have spoken to a few farmers, and stock agents, wondering if I was over reacting. No. They were all pretty angry with Westpac.
 

Belle, Kimy is wrong banks dont want interest rates to rise, they want assets values to, or hold there own, other wise its curtains for them. Perhaps Westpac PR people had an eye on another target, Melbourne perhaps, good news or heads could roll, put off the inevitable a few more months. There can be ulterior motives.
 
Hypertiger is not wrong, although he is long winded and repetitive. Do you doubt that resources to sustain our debt are being exausted?
 
 My neighbor told me he has has 6mm so far, he is not a happy chap.

Andrewj, yes. Once cracks appear in the lendable value, the other side the loan (an asset in the banks eyes) looks less fun.
The Oz 4 banks are the 4 biggest land investors in the country. And we know the ag cycle is moving against them in Ozz.
Mind you the banks have got guts...... Look at the support/spanner work they have pit into the large holdings:
Crafar: selling to party at well over local views (is it true the production is now not going to Fonterra?) - That would mean the Chinamen are sellers of Fonterra shares, no?
Dairy Holding, all that noise only to lend more to existing shareholders
Synlait:: nose bleed lvrs, when the v looks smoking.
(What would you do re Synlait Farms, if you a, owned them, or b lent to them - no one is bidding for the equity....)
http://www.unlisted.co.nz/uPublic/unlisted.mt_public.quotesheet
 
We think the non-bank assist Swedes buying of the Hart farms as a good indicator as to where value is (however that was before drought) so rather than per ha, best to look at production metric - given per ha performance will be cribbed for several years....
 

I think you got it Andrewj - is this the bank who has a dedicated team of 40 bankers roaming around NZ, who's sole purpose is to sell up what the bank declares unsustainably indebted cases?
...talk up the positive so the prices don't crash too far for them to realise their debt. They don't care about anything apart from that.

Kimy, I think you will find its more important to create money via debt, than its is to earn interest.  Otherwise what will you use to pay you interest bill?
  

There is nobody here Kimy.....you can go to bed now..!
sleep tight, don't let the bedbugs bite...just count tennants jumping through hoops in their winter woolies...and drift away.
P.S. A.J is not one you should sample for his mettle on matters economic....just would not be good for you....not good at all. 
 Oh yeah I pop on now for some quite reading.....it's all good.

 
Kimy, Money is debt. Say I sell my farm for 1 mill, the new owner goes to the bank and borrows 1mill. I put the 1 mill in my bank as a deposit, my deposit is another mans debt. BNZ loans my deposit out at %162 ratio.
The problem is that if we borrow money not backed by production or resources, what do we use to pay it back or where does the money for the interest come from? Money that has been issued as debt. If borrowing stops the house of cards crumbles, interest rates will fall because its more important to keep the supply of new money into the economy..
 
http://www.tradingeconomics.com/new-zealand/money-supply-m1
 
If that graph goes the wrong way then Wellington has a big problem. Oh look it is .
 
http://www.tradingeconomics.com/new-zealand/money-supply-m1
 
here is the USA
 
http://research.stlouisfed.org/fred2/series/M1/
 
USA house sales, its a bit old but you get the idea.
 
http://www.google.com/imgres?imgurl=http://www.shtfplan.com/wp-content/uploads/2010/06/newhomessalesrecordlow62310.jpg&imgrefurl=http://www.shtfplan.com/headline-news/home-sales-take-a-big-hit-chart_06232010&h=358&w=575&sz=78&tbnid=ravTCu-gKyy7LM:&tbnh=75&tbnw=120&zoom=1&usg=__gwvsXp39mAWd4NNMl0OiTh_aB5s=&docid=Vngcg06kx8zCkM&hl=en&sa=X&ei=8H9xUdmCBYOV0QXI94C4Dg&ved=0CEQQ9QEwAw&dur=580
 
 
Have a read of Greg Pytel and keep in your mind that BNZ has loan to deposit ratio of %162
 
http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html
 
In the States Im expecting a housing recovery a short unsustainable one. Houses are selling people are borrowing and prices are up 50k around here. Im talking to folks who missed buying a house this week which sold way over asking, Bernake is going to create an unstable, unsustainable housing bubble, which the banks will use to off load existing stock. Then its going to crash again but worse. The difference to home is, the USA is a wealthy country, I don't think we are.
 
Fekete
 
http://www.professorfekete.com/articles/AEFFederalReserveAsAnEngineOfDeflation.pdf
 
http://www.professorfekete.com/articles/AEFNoBusinessLikeTheBondBusiness.pdf
 
Deflation
http://theautomaticearth.blogspot.com/2009/07/july-5-2009-unbearable-mightiness-of.html

Kimy, google money supply you are making our eyes water.

After this drought quite a few hill country sheep farms around us. They are highly unprofitable.

Sheep, ive a friend forced to sell lambs for $30 and ewes for $40. He has 1000 acres of hill country, rates 27k. Its untenable.

Its costs.  Fuel, rates,wages,insurance,gst,accountancy,fert,weed spray,shearing,fencing,NAIT,TB control, freight and on and on. What else do you do with steeper hill country?

profit not, but cashflow.
doubtful to cover variable costs, no way to cover fixed costs, as as for funding structure forget any return on accounting or historical equity - will be fortunate if debt not ot increase.
For more detail pull out almost any JOCK cartoon from the 70's to 80's.
We like the one about winning the Golden Kiwi..
 

Some say many of the top end places worth the value of stock. Full Stop.
 
http://www.theland.com.au/news/agriculture/agribusiness/general-news/gov...
THERE has been a national failure in farm policy, with the net value of farm income flatlining and debt wound off the clock.
That was the key message from economist Ben Rees at the Agriculture in Crisis meeting in Merredin on Monday.
 
He said the growth value and the net value of farm production illustrated how an increasing volume of farm production had been distributed away from the farm sector which he believed needed to be addressed.
 
"If anyone thinks they can solve the problems of rural debt in rural Australia with the rural reconstruction model of the 1970s and 1980s they're in Disneyland," he said.
"You have a very different banking system in operation now."
Mr Rees said debt had risen and a fundamental failure to address the problem reflected badly on all major political parties.
"Agriculture has been left with a result by governments of incompetence at worst and negligence at best," he said.
"A rural reconstruction model won't work, we need to address debt with a new model.
"So if you expect to solve this fundamental problem at the farmgate level you'll fail, because you will have to do something about the financial sector first."
 
Then we have seen the demise of Prime AG...
 

Hi AJ,  do you have any worries about the fuku fallout on the produce on the west coast where you are? Its hard to distinguish fact from fiction on the net, but it seems some of the west coast got dusted bad.

Belle, all our food is from Mexico,whats not is even further south, so only worry is a bit of Hep and TB. They wouldn't tell us either way, so who knows, should I get a gieger counter?
 My wife found a grey hair this morning, as I only have few that are not, and the rest are all threatening to drop out at once, I was not as sympathetic as I could have been. I shall tell her its the fallout.

Perhaps you have copped the fallout Aj not the wife. Darno bout the geiger counter. You cant find plutonium with one. I think I would just stick with the tucker from Mexico. I forgo all Tuna now. Had a laugh the other day, health expert on the radio said she was overloaded with mercury and  tracking the source found tinned tuna to be the likely felon. Its crazy, what have we done to our world. She wont eat it because of the mercury, for me its the caesium. We are told by Mike Joy the Cadmium in our NZ grown veges is way over the top. Yet the average length of our lives keeps getting longer. Wonder how long that will last. 

Ha! Belle...you should check the cadmium in the zinc we have to feed our cows to keep the FE at bay!  Haven't asked whether there's any caesium yet...

Cadmium in the zinc. Choice. I hadnt heard of that one Pikowai. Jeepers

Its in our Fert Belle, so its probably all over the place.  We flew it on just to make sure.
 I eat wild Alaskan Salmon, tastes good and its not too expensive here, especially compared to home.  I dont trust the amount of P we ingest either, Im putting on a lot less more often. We need grasses that grow well in low p soils, would save us a fortune.
  

Mike Joy was on Tele the other night enlightening the unenlightened. I use RPR now, but its probably too late. I still cant resist the south island salmon, despite wondering what they have been fed. Where the fish pellets were derived from, it doesnt bear thinking about so I dont.

It appears that most of the country is getting a good dose of rain over the next few days.  Whether it is good enough I don't know.
 
Good of you to write of your own perspective Katie.  Not only do economists need to be challenged, but so do politicians, business "leaders" and the rest of mankind.  Unfortunately I fear that mankind/society is too far conditioned and it will take a collapse in the money/financial system for anything to change.
General HubHub sees part of it in this comment posted on another thread
it's the lack of humanity displayed by some that gets up my nose... and that transcends PIs to the prevailing attitude of many in business/government/leadership/banking etc "... of profit at any cost! "
I would add to it money, material possessions, power and financial wealth at any cost.  Some may say it's human nature but I don't believe that for a second.  It is conditioned in the majority that all these things are a symbol of prosperity.
 
 

Farms are biological systems and not a factory.
 
Exellent point Katie. 
 
I am not a farmer and don't profess to know a lot about the farming industry.  Consider me a seeker of knowledge. 
 
Question is, how many farms are actually run as a biological or ecological system and not as a factory?
 
With my limited knowledge it appears NZ does farming "better" than most.  At the same time I think we are no different than big ag - a lot of artificial and external inputs to get as much production as possible.  Much like a factory. 
 
I visited a dairy farm in the Raglan area a few weeks ago.  I could see how dry the area was and happened to be on the farm just after a couple of days of rain.  Not a lot but his farm was looking pretty green and healthy.  Of course he was affected by the dry weather but I don't believe as much as others following traditional/conventional farming practices.  He ran his farm as an ecological system and it was as if milk production was incidental to the health of his stock and pasture.  After a tour and listening to him speak I couldn't help but think that if the rest of NZ's farming industry thought the same way and applied the same methods and principles not only would our farms and farmers be more resiliant in times of adverse weather but the environmental image would be much cleaner too.
 
 

FD = claims by non-residents.

Must be a rantathon...
Who's winning?
HGW