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Rural Confidence Heads Down

Lower dairy returns and the high New Zealand dollar are starting to hit farmer confidence levels, according to the latest bi-monthly AC Nielsen/ Rabobank Rural Confidence Survey

The survey – which was taken in February and March this year – found that after a period of rising confidence, most farmers are now less optimistic about their sector for the coming 12 months. Income expectations are down and investment intentions are approaching the lowest levels seen over the past three years.

Rabobank managing director Bryan Inch said the survey showed farmers in all sectors were feeling the impact of the high New Zealand dollar, while the effect of Fonterra’s lower payout was impacting on dairy farmers.

“Expectations of agricultural performance have taken a knock in all sectors, but it is most evident among beef farmers and dairy farmers” he said. “With beef farmers’ exposure to the US Dollar and a dairy payout that is back nearly a third, it isn’t really surprising”.

Nearly two-thirds of dairy farmers expect the rural economy to deteriorate in the next twelve months. This compares with 20 per cent in the last survey. Eighty per-cent of beef farmers are also expecting conditions to deteriorate, a change from 46 per-cent in February. Although there is an increased degree of pessimism, Mr Inch said the underlying factors facing farmers still remained positive.

“The world demand for dairy produce is still growing faster than supply and given the slow-down in the world economy, indications are that interest rates should stay at current levels, or perhaps drop further. We have to remember that the rural economy is hugely impacted by international events and factors such as the war in Iraq and SARS all contribute to changes in world consumption patterns”, he said. “These international factors have a significant impact on farm-gate prices in New Zealand. While these drivers are outside our control, farmers shouldn’t lose sight of them. It is the farmers’ ability to understand them, and use them in on-farm planning that will enable them to make sound strategic decisions – both short and long term.”

Farmer investment intentions are also back significantly on recent surveys. Over a quarter of farmers plan to decrease their investment in stock, plant and land over the next 12 months – the second highest level since the survey began in early 2000.

“Things are not all bad, and we need to keep things in perspective,” Mr Inch said. “Firstly we have come off a series of very good farming seasons so most farmers have invested heavily in their businesses and are able to weather a downturn. Farmers need to be mindful though that in a period of lower returns that they keep production levels up wherever possible and ensure that they have a sound production base”.

“And secondly, we are in a low interest rate environment”. Only one farmer in five is expecting rates to increase in the coming year, the lowest level seen since 2001. The survey was conducted prior to the recent announcement by the Reserve Bank to cut the Official Cash Rate by 25 basis points.

The AC Nielsen/Rabobank Rural Confidence Survey is the first survey of its type in New Zealand, and uses AC Nielsen’s 1000-strong panel of farmers across the country. The next results will be released in June

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