Farmer confidence at record lows

18 January 2005

Farmer confidence at record lows

New Zealand farmers have signalled that they have a very pessimistic outlook on the economy in the coming year, mirroring the views of urban business people announced in two business confidence surveys over the last few days. This confirms that all sectors of the economy are predicting tough times in 2006.

The Rabobank/AC Nielsen Rural Confidence Survey indicates that farmers in all sectors (sheep, beef, dairy, and cropping) are becoming very pessimistic about the economy over the next 12 months.

In particular, sheep farmers’ optimism is at a record low with 83% indicating they expect the economic situation to worsen, 16% predicting no change, and only 1% expecting improvement. The previous survey, undertaken in October 2005, showed 43% of sheep farmers believed the economy would worsen. The Rabobank/AC Nielsen Rural Confidence Survey has been running since February 2000.

“Sheep farmers are facing tougher times after five years of good lamb prices, while wool prices are at 30-year lows,” says Doug Crombie, General Manager Rural New Zealand. “Lamb schedules are around $10/head less than the same time last year. The high exchange rate against all currencies and increasing interest rates are beginning to really impact on their businesses without the higher income to support them.” ”

Source: A C Nielsen, Rabobank, 2006

There has also been a drop in sheep farmers’ intentions to invest in their businesses, with 88% indicating that investment would reduce or stay the same in the next year.

“When returns drop, farmers start tightening their belts,” says Mr Crombie. “This means that they reduce fertiliser applications, defer activities such as weed control and pasture renewal, and stop purchasing new machinery. This flows through the rural economy and will have a significant impact on rural servicing towns and provincial cities where the buoyant agriculture sector has really been the driver of positive economic activity.”

Beef and dairy farmers’ outlook on the economy have also dropped. Sixty-nine percent of beef farmers now predict worsening economic conditions, compared with 37% in October 2005.

“The majority of beef farmers in the October survey believed that the economy would stay the same. Beef farmers have had good returns, despite the high dollar, due to increased demand from Asian markets where there were bans on US beef after to the discovery of BSE.” Mr Crombie says. “US beef is now beginning to re-enter Japan and prices are weakening. New Zealand beef farmers are losing the buffer against the high exchange rate.”

Source: AC Nielsen, Rabobank, 2006

The survey shows that dairy farmers, who had been the most optimistic about the outlook for 2006 are also becoming more negative.

“The October survey highlighted that 76% of dairy farmers thought the economy would stay the same or improve. This was just after the announcement by Fonterra of a 15 cent per kilogram milk solid increase in payout. The December survey has shown that almost half of dairy farmers now think the economy will worsen.”

“It is a cliche, but agriculture is still the backbone of the country, accounting for 18% of GDP and $20 billion of export earnings. We are going to see farmers reduce spending in the next year and a flow-on to rural towns. We may also see demand for rural properties ease as farmers focus on consolidating rather than expanding their businesses,” says Mr Crombie.

This report is based on the results of a telephone survey conducted by ACNielsen, Takapuna in conjunction with the Farm Market Index survey. A panel of 776 farmers were interviewed between 1st and 18th of December 2005. The margin of error is +/- 3.5%.

Rabobank New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 100 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and, in recent years, has twice been awarded the title of the world’s safest bank by Global Finance magazine.

Rabobank operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1900 offices and branches. Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 29 branches throughout New Zealand.

ENDS

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