Economic Analysis Of The Value Of Pasture To The New Zealand Economy Summary

1 Executive summary

The farm gate value of pasture-based products to the New Zealand economy was $10.2 billion in the June 2007 year.
In the 2006/07 year, the level of pasture renewal was 2.0 percent for sheep and beef farms and 6.1 percent for dairy farms. We modelled various scenarios for increased pasture renewal and pasture response. Based on the midpoint of the results of these scenarios, total farm gate values could increase by 16 percent to $11.8 billion.

For the June 2007 year, pasture-based products directly contributed $5.2 billion to New Zealand’s Gross Domestic Product (GDP). This amounts to around 3.1 percent of New Zealand’s GDP. Pasture-based products are therefore a significant part of the New Zealand economy. The midpoint result of our scenarios would increase the direct GDP contribution to $6.0 billion.

Table 1.1
Value of pasture products to the New Zealand economy, June 2007 year

Looking at pasture-based products, the largest contributor to farm gate values was the dairy industry. The dairy industry in the June 2007 year was worth $6.6 billion, or 65 percent of the total value of pasture-based products. Sheep products (including lamb, mutton and wool) were worth $2.2 billion, while beef pasture-based products were worth $1.2 billion.

Pasture renewal has the potential to greatly increase the productivity of these pasture-based products. However, the magnitude of this increase would depend on the level of pasture response and whether the increase in pasture renewal is one-off, for one year, or sustained continuously.

• We modelled scenarios with:
• target pasture renewal in sheep and beef farms of 8 percent, with the level of pasture response ranging between 10 and 30 percent.
• target pasture renewal in dairy farms of 12 percent, with level of pasture response ranging between 7 and 27 percent.

A summary of our model results for changes in farm gate value under different scenarios are shown in Table 1.2.

Table 1.2
Summary of model results- farm gate value

Depending on the level of pasture renewal response, farm gate values for sheep and beef farms could increase from 8 to 27 percent and from 6 to 25 percent for dairy farms. In our modelling we have used the midpoints of these ranges. This means farm gate values for sheep and beef farms could increase by 18 percent and by 15 percent for dairy farms. Direct GDP would also increase from $5.2 billion to $6.0 billion.

When considering the effect that the pastoral sector has on related industries, such as agricultural services and the food processing industry, as well as the additional spending generated by salaries and wages paid by farmers, the GDP of pasture-based products is much higher. Total GDP, a measure including these impacts, equals around $20.5 billion for pasture-based products. This is approximately 12 percent of total New Zealand GDP for the June 2007 year. Of this figure, $2.4 billion is contributed by beef, $4.3 billion by sheep, $13.6 billion by dairy, and around a quarter of a billion by deer products.

To put this in context, it would require approximately 460,000 international tourists additional to the present 2.4 million to generate this level of additional expenditure for the tourism sector.