Results of new farm confidence survey ‘bad news for New Zealand’
Released 29 Jul 2009
Federated Farmers inaugural farm confidence survey has uncovered a level of pessimism, which shows that New Zealand may in fact be entering an elongated recession.
"The results make for ugly reading and illustrates that the recession's full bite is yet to come," says Don Nicolson, President of Federated Farmers.
"Coming off the back of the Ministry of Agriculture and Forestry's latest situation report, farmers remain deeply pessimistic about the state of the general economy and their own prospects for the next 12 months.
"A net 45 percent of farmers believe the economy will deteriorate further casting doubt on those calling the recession's end. This has major ramifications for Thursday's Monetary Policy Statement and Official Cash Rate decision.
"While Dr Bollard seems set to keep interest rates on hold, this survey and the concussive effect of low dairy payouts for the foreseeable future, raises the spectre of an ‘L' shaped recession where the economy will bump along the bottom for a number of quarters.
"Federated Farmers economists believe urban New Zealand is yet to feel the full effect of the slowdown striking the provincial economy.
"Over three quarters of dairy farmers expect business profits to be lower. A net 36 percent of all farmers expect to reduce spending over the coming 12 months, again led by dairy.
"While export prospects and the outlook for agriculture over the medium term remain excellent, returns for the past season and the forthcoming season will be down.
"A persistently high kiwi dollar may further erode the forecast payout for Fonterra suppliers as well as what meat and fibre farmers will earn.
"It's important to remember that this season's revenue is yet to come into the New Zealand economy. The effect of this is yet to translate into the general economy, which is why we counsel against predicting the recession's end.
"One encouraging result of the Federated Farmers Farm Confidence Survey is that a majority of New Zealand farms are well managed financially. While the level of farm debt will rise, it's still represents just 15 percent of the total private debt owed by New Zealanders.
"While the survey found 45 percent of dairy farmers expected to increase their borrowings, a narrow majority of dairy farmers didn't. Indeed, almost 74 percent of sheep and beef farmers and almost 65 percent of grains farmers expect to see their debt levels flat line or reduce.
"It underscores why Federated Farmers wants all of the banks and non-bank financial institutions to continue their support of farming. At the end of the day when you produce something the world needs you can't go wrong," Mr Nicolson concluded.
FULL REPORT
http://www.fedfarm.org.nz/f32,54274/54274_Farm_Confidence_Survey_July_2009_-_F2_.pdf
REPORT HIGHLIGHTS
GENERAL ECONOMIC CONDITIONS
A net 45 percent of respondents expect general economic conditions to worsen over the coming
12 months. Farmers are finding it hard to uncover evidence of the much touted ‘green shoots' and simply do not believe the economy will emerge from recession any time soon. Dairy farmers are particularly unhappy, with a net 53% expecting deterioration, but even sheep and beef farmers, the most optimistic sector, are pessimistic with a net 40% of them expecting worse to come.
FARM PROFITABILITY
Perhaps a more accurate reflection of farmer sentiment is personal business prospects, but even then, a net 38 percent expect business profitability to worsen over the coming 12 months. Again, dairy farmers lead the pessimists with over three quarters (77 percent) expecting business profits to be lower. This is not surprising given that Fonterra, the dominant industry player, has set a 2009/10 season forecast payout of a $4.55 per kilogram of milksolids (kg/MS), down from $5.20 (kg/MS) for the past season. Sheep and beef farmers are the least pessimistic, with ‘only' a net 2 percent expecting lower profits of this season. Grains farmers fall between the two extremes.
ON-FARM SPENDING
The gloom in the rural economy means farm cheque books are closing. A net 36 percent of farmers expect to reduce spending over the coming 12 months. Given farmers pump billions of dollars into their local and regional economies, arguably the starter for gross domestic product generation, this will further act against any speedy economic recovery. Dairy farmers appear to be ruthlessly trimming costs; a net 70 percent expecting to reduce spending. This reflects results found in the Ministry of Agriculture and Forestry (MAF) Pastoral Monitoring study. Given MAF's concerns about pasture cover this winter, lower spending on feed and fertiliser will eventually impact dairy production. Lower spending will also impact directly upon the regional economy before affecting the national economy. By contrast sheep and beef farmers, who in the 2007/08 season experienced record low returns, are evenly split about on-farm spending. Almost as many plan to invest more resources in their farm as are expecting to cut. A large proportion expects to maintain current spending.
FARM DEBT
More farmers expect they will need additional finance over the coming 12 months. 36 percent of farmers expect to increase farm debt over the coming 12 months, while only 14 percent expect to reduce current debt levels. Dairy again leads the way but while 45 percent expect to increase borrowings, a majority
(50 percent) do not. This cautions against generalisations being applied to all dairy farmers. That said, dairy's 61.5 percent share of agricultural sector debt seems set to increase. Interestingly, almost 74 percent of sheep and beef farmers and almost 65 percent of grains farmers expected debt to stay the same or to reduce. This underscores why Federated Farmers wants the banks and non-bank financial institutions to continue to support viable businesses and pass on interest rate cuts.
RECRUITMENT
Unsurprisingly, given increasing levels of unemployment, it is becoming easier to find skilled and motivated staff. While farmers are still reporting difficulties and many report ‘no change' or do not employ staff, a net 14 percent have reported improved recruitment conditions. Despite the fact that dairy and sheep and beef farmers are finding it easier to find staff, grains farmers buck the trend with a net three percent finding it harder.
ABOUT THE Federated Farmers Farm Confidence Survey
The Federated Farmers Farm Confidence Survey is a new biannual survey of farm confidence. The two survey periods will be at the commencement of the new season (July) and mid-season (January). The Survey is internet based among members of Federated Farmers and the next survey to be held in January 2010.
For further information contact:
Federated Farmers President, Don Nicolson, 03 216 7405, 027 226 6331
Federated Farmers Economics spokesperson, Philip York, 09 292 8843, 027 290 5418
