I have always been interested in the relationship (or lack of relationship) beetween tractor registrations and real GDP. In the nineteenth century New Zealand became Great Britain’s hinterland, supplying first grain and wool, and then – after the development of refrigerated shipping in the 1880’s – meat and dairy products to Britain and other parts of the British Empire. Up to 1984 farming was heavily subsidised by the government but since then these have fallen from 30% in 1984 to 1% today. Nevertheless, the importance of the agricultural sector to New Zealand is immense – see previous posting on Fonterra.
However one indicator which has gone beneath the radar screen has been that of Tractor Registrations. Within an advanced agricultural base, tractors form a crucial part of the production process and has played a significant role in the increase in productivity in New Zealand since the removal of subsidies. Looking at the number of new tractor registrations there was a significant fall in the post subsidy period of 1984 – 1988 where the number fell from 2,218 to 711 respectively. This reflected the elimination of concessionary farm loans, price supports, low-interest loans, disaster relief, weed eradication subsidies and special training programmes to get them through the hard times.
Since 2003 there has been some correlation between registrations and GDP – see graph. Farmers have had some good years with a weaker dollar but what is most significant about the growth in GDP over the last twenty years is that agriculture has increased its productivity at more than double the rate of the rest of the economy. There is no doubt that the advances in tractor technology has had an impact on the level of productivity for a number of reason. Firstly it reduces labour, allows timely sowing of wheat. This timely sowing boosts harvests, makes more efficient use of fertilizer and other costly inputs. Reduced labour saves money, and frees farmers for pursuit of other profitable enterprises. What was once known as the ‘big tractor’ has now been replaced by one nearly twice the size. Tractors, combine harvesters, and fertiliser spreaders are computer controlled and use GPS guidance, the catalyst to these developments being removal of subsidies as well as shortages of skilled labour.
New Zealand Tractor Registrations vs Real GDP (Pink line = % Change in Tractor Registrations – Blue line = % Change in Real GDP)
So the removal of subsidies in 1984 did, in the long-term, initiate a very competitive and productive agricultural sector which is at the heart of the New Zealand economy. It is unlikely that it is due purely to new tractors registrations but what we can say is that the tractor did have a part to play. Nonetheless it is worthy of note to see how it relates to the level of Real GDP of the New Zealand economy.