In this study, we consider the impacts of dramatic regulatory reform during the 1980s on the efficiency of farms in New Zealand, using unbalanced panel data. A translog distance function representing the multiple output and input technology and incorporating nonneutral regulatory impacts is used for the analysis. Determinants of technical inefficiency, including a regulatory variable, a time term, and a debt/equity ratio, are also incorporated in a one-step model estimated by maximum-likelihood, stochastic production frontier methods. We find evidence of regulatory-induced changes in output composition - toward beef and deer, and away from wool, and especially lamb - but little associated technical inefficiency. These patterns motivated investment in complementary capital, land, and beef/deer livestock inputs. Firms that were more flexible in their adaptation toward these new mixes adjusted to regulatory changes with less upheaval, so any existing inefficiency appears linked to debt/ equity levels. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Hill pasture renovation methods have been restricted in the past to surface oversowing of unaltered, trampled or burnt pastures. Unfortunately the old pasture recovers and may compete vigorously with the establishing new species, slowing pasture improvement. The availability of suitable herbicides has opened up a new opportunity for hill pasture development. Herbicide applied before oversowing can minimise the competition and allow the new species to establish more easily. The benefits include reduced time to attain optimal stocking rates and improved establishment control, but these are offset by higher initial costs. The technical aspects of the herbicide establishment methods are overshadowed by the economic factors which control the profitability of the programme, however successfully applied. As the cash flow patterns differ between the tradrtional renovation and the herbicrdebased techniques, changes in interest rates and prices have differential effects. Real interest rates below 7% make both methods profitable but are more favourable to the herbicide technique at 1987 prices, Also, price increases favour the herbicide method. Among other issues affecting the speed and profitability of development and ultimate gain, management skull is found to be crucial and dominates both establishment methods. Keywords: hill pastures, renovation, herbicides, interest rates, management skill, profitability

A review of New Zealand's experience with assistance to agriculture through the 1960s and 1970s and the subsequent deregulation of the sector in the mid‐1980s provides background to this study. Data for sheep and beef farmers are used to elaborate the variety of financial changes in the boom and bust cycles that followed the policy changes. Changes in farm business stress are examined using some conventional financial ratios. New measures which partition household expenditure between consumption and investment are then developed. These better explain the stress experienced among farm households as a consequence of the readjustment process and provide insight to the impact of the legacy of debt, encouraged by government intervention, on farmers' current and expected household consumption over recent years. New Zealand's experience reveals that farm household consumption stress has been unevenly distributed. This suggests that policy concern, following the removal of government assistance to agriculture, should focus principally on the mitigation of the household distress caused by ongoing farm debt commitments.

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