Chris Bennett: Learning from the Kiwi subsidy crisis

Subsidies removed, an economic crisis and farmers diversifying to make ends meet. I’m not talking about the UK, this is 1980s New Zealand.

In 1984, New Zealand’s Labour Party won a snap election and introduced a wide range of economic reforms, one being the removal of farming subsidies. This contributed towards what became known as the Rural Downturn.

A further reform saw the removal of interest rate controls and interest rates more than doubled to 25%. This all happened at a time when commodity prices were exceptionally low.

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New Zealand struggled with overproduction, particularly of sheepmeat and wool, thanks in part to historic subsidies causing market distortions.

Farmers found themselves with very little income and increased interest payments, while their land was diminishing in value.

As the UK sees direct payments being phased out, while time dealing with the ongoing effects of Brexit, Covid and climate change, it is not unimaginable that we could go through a similar period to what New Zealand experienced in the 1980s.

So how did they get through it, and how did they become the world-leading farmers that we see today?

In truth, many businesses did not survive the Rural Downturn. Farms with large amounts of debt struggled, as did farmers with land unable to produce anything but sheep. Suicide rates spiked as farmers were forced to sell up at rock-bottom prices.

The businesses that made it through reduced their spending. Machinery sales slumped and fertiliser spending halved. Farming families were forced to supplement their income with off-farm jobs, or diversified into farm lets.

After a few incredibly hard years, prices began to improve and production increased as farmers began to adapt to meet the market’s demands.

Land once dominated by sheep and beef farming was converted into vineyards, kiwifruit orchards and dairy farms, and unprofitable land was taken out of production. Farming became market driven and, as a result, has thrived since.

There are lessons to be learned from the Kiwis. If we can survive the few tough years that seem inevitable post-Basic Payment Scheme, the opportunities from market-driven production will be huge, so long as we remain adaptable.