HomeMy WebLinkAboutCOM 0118.019 2002-2004 1 , f}
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July I, 2002
Mr. William Takaba, Finance Director
County of Hawaii
25 Aupuni Street, Room 1 18
Hilo, HI 96725
Re: Discussion of Gross Revenue
Production Per Acre of Pasture
As a follow-up to topics discussed with you at our meeting on June 14, please find
attached our discussion paper and supporting calculations that reflect the very wide range
of gross revenue per acre which a Hawaii rancher can expect to realize. The key
variables we included in our analysis were the quality and carrying capacity of the
pasture land (Good, Average or Poor), weather/feed conditions (which affect calf crop
and marketable weights), and market price.
We were asked to provide data on annual gross (not net) ag revenue per acre and
we have done so, however we feel more emphasis needs to be placed on the fact that
most commercial scale cattle ranches in Hawaii are usually, if not always, operating at a
loss where expenses (even before real pronert taxes) exceed revenues.
After you and your staff have had an opportunity to review and digest this
information, we would be pleased to reconvene our group to answer any questions and
assist you in finalizing your policy proposals relative to assessing pasture land for real
property tax purposes.
Sinccrcly,
James S. Greenwell, Chair.
Land Issues Committee
JSG:sm
attach.
Comm. No. ~ ~ 8
Ref. To: P?e+e~t~d
Ref. Uate
Discussion of Gross Revenue Production Per Acre of Pasture
Back rg ound
The ranching business in Hawaii has over the past decade shifted
predominantly to a cow-calf operation producing weaned calves that are shipped
to the mainland. The basic annual gross revenue stream for the average rancher is
the sales revenue from those shipped calves. There are many highly variable
factors which influence that revenue stream. A few of the more significant
variables include:
1. Carr~g_CaUacity of the Pasture Land
The best of un-irrigated pasture can support one animal unit per year on
less than 2.5 acres (i.e. "Good" pasture). "Average" pasture can support
one animal unit on 2.5 to 10 acres and in sparse, seasonal, or otherwise
"poor" pasture land, it can take from 10 to over 30 acres to support one
animal unit on an annual basis.
2. Weather/Feed Conditions
Along with market price, this is the biggest variable which impacts the
rancher's gross revenue stream. For example, weather and feed conditions
impact:
(a) Calving rates (or "Calf Crop")- A well managed cow herd on excellent
feed conditions might approach a 90% calf crop while a cow herd
suffering from poor feed conditions and related stress, particularly if for
a prolonged period, can experience a drop in calf crop to below 60%.
(b) Weaning/shipping/marketabletyeight of calves - Calves weaned off
well nourished cows on good feed can average over 450# while calves
during drought periods off of poorer condition cows can drop to under
275#.
3. Market price/sales revenue per calf
In the past seven years, we have seen huge swings in the sales value of a
weaned 8-month old) calf in Hawaii ranging from a high of over 80¢ per
pound to a low under 30¢. The cattle market is typically cyclical and the
variations are an expected part of the business.
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DISCUSS10n of Gross Revenue Production Per Acre of Pasture Page 2
Analvsis:
Attached is a simplified presentation intended to illustrate the range of
gross revenues a rancher may expect to realize on a per-acre basis from the
production of calves in a typical cow-calf operation according to by real property
tax pasture assessment classifications (Good, Average and Poor). The analysis
considers the best and the worst set of assumptions in terms of carrying capacity,
calf crop, sales weight, and market price. It also assumes that in the average cow-
calfproduction herd, approximately 70% of the animal units are breeding (brood)
cows. The balance are non-calf producers (i.e. bulls, culls, and young replacement
heifers). Therefore not all "animal units" are producing calves.
The analysis concludes that the gross annual revenue per acre from acow-
calfoperation based on the above assumptions can range from:
Good Pasture: $226.80 to $13.86 per acre annually
Average Pasture: $ 90.72 to $ 3.48 "
Poor Pasture: $ 27.72 to $ L 17 "
In teens of real property taxes paid as a percent of gross revenue per acre,
this analysis concludes taxes paid for pasture land represent:
Good Pasture: R. P. Taxes equal .93% to 15.45% of gross revenue
Average Pasture: .66% to 17.24% of gross revenue
Poor Pasture: .62% to 11.96% of gross revenue
We should note that this simplified analysis does not attempt to address all
economic factors. For example:
(a) There are some additional revenues from the sale of culled cattle for their
salvage value, although this is a fairly nominal and highly variable revenue
source.
(b) Operating expenses often exceed gross revenues leaving the rancher in a
net loss situation;
(c) The poorer pasture areas, in addition to being the lowest in terms of gross
revenue generation are also the most expensive per animal unit to operate
due to relatively high costs often associated with fencing, transportation,
water systems, security and feed supplementation.
Discussion of Gross Revenue Production Per Acre of Pasture Page 3
Finally, we should point out several basic "industry-wide" challenges Hawaii's
cattle industry faces.
1. The costs to Hawaii producers of transporting Hawaii's livestock to
mainland markets are high (i.e. 20¢ to 30¢ per pound) compared to
the livestock's value once on the mainland (50¢ to $1.10 per pound).
2. Over the past 15 years or so, Hawaii has not had economically viable
local outlets for its beef.
3. Hawaii's cattle producers face substantially more (i.e. an estimated
12 times more) competition from foreign beef imports than does the
continental US beef industry.
4. Environmental regulations continue to become more predominant
and restrict operating flexibility.
5. Ranchers and fanners continue to Lose Ag land to urban and other
development pressures.
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Hawaii Cattlemen's Council
Comments Relating to Real Property
Taxation and Assessment Practices
On Land in Agricultural Use
And Bill 49 (Draft 3)
8/23/2004
The Hawaii Cattlemen's Council (HCC) is a statewide umbrella
organization comprising the various county level Cattlemen's Associations. Our
110+ member ranchers represent over 60,000 beef cows (which is over 75% of
the State total). Ranchers are the stewards and usually the tax payers of over 1
million acres in Hawaii which is about one quarter of the State's total land mass.
The basic question as to how to assess and tax our ag lands requires us
to make a fundamental philosophical decision and then stick with it. The key
premise is whether we are going to recognize and respect real property (land and
improvements) which is in legitimate agricultural use as being a factor of
agricultural production and assessed at its ag use production value for the
commodity it produces or are we going to treat it as an investment asset and
assess it at its fair market value or some fraction thereof.
We fully acknowledge that assessing based on fair market values and
comparable sales, while in itself complicated, is far easier than having to wrestle
with the very complex question of establishing fair ag use production values for
each commodity, but there is absolutely no linkage or rationale connecting the
two approaches. If agriculture in Hawaii is to survive much less thrive, the
ag productivity valuation approach must be the one and the only basis for
assessing all real property that is in legitimate agricultural use.
HCC's position with respect to Bill 49 (Draft 3) is basically supportive and
we commend the changes in Draft 3 as we understand that it would preserve the
ag productivity assessment practice. We would, however, still like to offer a few
additional comments since this bill and subject obviously touch on a lot of other
critical issues related to both ag land taxation and ag land use.
1. While there definitely is a place for rural residential and so-called
"gentlemen ranchettes", we need to distinguish those from legitimate or
commercial ag. This requires a good yardstick and maybe the
$2,000/year in ag income is a reasonable one; however we feel small
ranches and subsistence producers who may otherwise not qualify under
this yardstick for the ag production benefits should be allowed to include in
that figure the value of livestock slaughtered or produce consumed for
"home use".
2. While the use of ag productivity values must be preserved, we recognize
that these values do deserve periodic review and adjustment. We suggest
that this may best be handled on a statewide basis, commodity-by-
HCC Comments re: RPT and Assessment Practices on Ag land
Page 2
commodity, through an entity well equipped with the resources and
expertise for the task, perhaps through CTAHR or DOA.
To assist you in better understanding the wide range of ag productivity
values that can occur in a cattle operation, please see the attached July 1,
2002 letter from HCA to the County Finance Director. It illustrates a "best
case /worst case" comparison where the gross annual sales revenue to a
rancher under the very best set of circumstances may be as high as $226.80
per acre compared to a worst case low of $1.17 per acre. The cattle business
is like no other and the range of production value per acre is both very low
and very wide.
3. Dwellings on land in ag use including the sites of these dwellings which
are occupied by people who work on that farm or ranch, whether the home
is provided free or at some reduced rent, are as integral a part of that
ranch or ag operation as are any other lands or structures (be those
pasture lands, a work shed, garage, water tank etc.). Accordingly,
homesites that are a part of a commercial ranch or farm operation should
not be singled out or treated any differently than any other land or
improvement which are also factors of that farm or ranch's production.
And finally,
4. We support a fair and equitable ag dedication program which we feel Bill
49 would accomplish, particularly with respect to its handling of roll-back
taxes which factor in the length of compliance actually achieved.
In closing, we offer to continue to work with the County as we have in the
past through the Hawaii Cattlemen's Association as a resource to assist in
whatever fashion would be most helpful to finalize this bill and implement a
system that works best for the policy goals that are set.
Respectfully submitted,
/S/ James S. Greenwell
James S. Greenwell, Chair
HCC and HCA
Land Issues Committee
Contact.•
J. S. Greenwell
3465 Waialae Ave, Ste 260
Honolulu, HI 96816
Ph. (808) 732-2622 Fax: (808) 732-2788
Email: jsgreenwell@lanihau.net
JSG:sm