Boom or Bust or Something In-between?Friday, Mar 9, 2001
Apart from better farm prices for many farm products and a good pasture production season for many areas,
there remains an aura of caution in the rural industries demeanor.
Economists are beating the drum of export driven growth and a rapid filtering through of the rural 'boom'
to urban communities.
On paper this appears to be happening but although in the minds of both rural and urban businesses the
signs are set to growth, their actions reflect caution.
The advertising industry is a good early indicator of a changing trend. Is the TV full of the major
corporations advertisements only or is there a good sprinkling of smaller regional business advertising?
Insiders know that media sales are finding it difficult to fill their space.
What has the level of advertising got to do with farmers?
In this instance it is indicating that the vast majority of NZ consumers are feeling the pressure of
reduced buying power. Consumers are not buying the household goods like washing machines and fridges
at the rates that retailers would expect.
They may well look to 'their" government to shift the advantage a little more their way.
What are the tools that will do this - exchange rates and interest rates?
Where will the transfer occur - from producers to consumers?
What will be the pretext - an overheating economy as a result of the rural export 'boom'?
An average dairy farmer is looking at a lift in gross income of around $130,000 by season end. If as
has been indicated as probable and all was applied to debt reduction, then after tax that will equal
a net debt reduction of $79,300 and an elimination of a future annual interest charge of $6000
per annum. On the other hand it also only buys one modest European family car!
It is also a saluatory thought that $50,700 in the above sum goes to Inland Revenue - that 6 percent
extra tax has become a significant part of a total sum that producers are transfering to consumers
via the Government from this 'boom' year.
It is a fine line that our economy walks when talk of sharing the rural 'boom' may turn out to be the
sharing of a mirage.
Just as the economists got the role of agriculture wrong in the droughts of '98 and '99 it could be
they are also lining up to get it wrong on the reverse leg this year.
There is good reason to be cautious - buckle in, there could be a little turbulence ahead.