There appears to be a close relationship between net investment in plant and machinery and real farm incomes and the cost of capital (Tucker, 1992). Net investment increases either as real farm income increases or the cost of capital falls and vice versa.

The rise in the net investment ratio between 1990-91 and 1991-92 was due largely to the substantial fall in interest rates over that period. The trend shows an increase which is expected to continue with rising positive farm business profits in the cropping industries. However, for other broadacre industries the farm business profit is expected to be negative so it is unlikely that net investment will fully offset depreciation at least in
the short run.