Farmer confidence dips slightly, farm confidence survey shows
Released 27 Jul 2010
In the latest Federated Farmers survey of farmer confidence, at the start of the 20010/11 season, only a net 2.9 percent of farmers expect the economy to improve. As this has declined slightly from January's survey, Federated Farmers believes it provides evidence why the Reserve Bank needs to keep the Official Cash Rate (OCR) on hold at 2.75 percent.
"While farmers are not overly optimistic about general economic conditions they are slightly more upbeat about the profitability of their own farms, but then again, that's off recession like levels," says Philip York, Federated Farmers economics and commerce spokesperson.
"One general economic barometer is recruitment and farm employers are now reporting it easier to find skilled staff than in January, where we found a tightening labour market.
"Federated Farmers is buoyed by the way farmers have responded to policy signals to reduce debt levels. This is not just a dairy phenomenon. We see meat and fibre farmers as well as grains farmers moving in this direction as well. Debt reduction must be encouraged and keeping the OCR on hold will greatly facilitate debt retirement.
"While dairy farmers are the most optimistic, for sheep and beef farmers as well as grains farmers, things are much less rosy. Among grains farmers there is a strong underlying pessimism about industry factors that Federated Farmers is looking into. It is also significant the current state of the meat and wool industries is now a named concern.
"Yet the single biggest issue for farmers at the start of the 2010/11 season is the Emissions Trading Scheme (ETS).
"30 percent of respondents cite that as their main business concern and this worries Federated Farmers. While there has been uninformed comment that farming is ‘ETS immune', farmers are heavily exposed to power and fuel price increases and the cascade impact these have upon farm inputs. Respondents want the Government to either scrap the ETS or further moderate it.
"Significantly, farmers are detecting increases in the cost of farm inputs based on assumed higher payouts which are yet to be earned. This includes the non-tradable sector led by central and local central and government costs. The Federation will need to look closer at this.
"Commodity price levels and volatility were major concerns influenced by the exchange rate. We are concerned that any tightening of the OCR this week will put upwards pressure on the Kiwi, to the detriment of the entire export sector.
"Farmers also feel deep unease about the size of Government in the economy, which, while forecast to fall, will only do so gradually. Reducing the Government's size will reduce compliance costs and regulatory blockages leaving more money for productive investment.
"Federated Farmers and farmers are pleased the Government adopted the New Zealand Productivity Commission Bill, which had it's first reading late last week. In light of the mining backdown, it is a positive signal to business, along with planned amendments to the Employment Relations Act and the Holidays Act.
"Yet, given many farm business concerns revolve about unnecessary compliance, we ask why there has been only glacial progress on the Regulatory Responsibility Bill, which is currently subject to a discussion document.
"These legislative tools, we believe, will enforce a much needed cultural shift within Government that will lift the profitability of New Zealand's farmer-exporters," Mr York concluded.
To download a copy of the report, please click here.
For further information contact:
Philip York, Federated Farmers economics and commerce spokesperson, 09 292 8843, 027 290 5418
Don Nicolson, Federated Farmers President, 03 216 7405, 027 226 6331
REPORT HIGHLIGHTS
General economic conditions
A net 2.9 percent of respondents expect general economic conditions to improve over the next 12 months. This is a slight reduction on the previous survey, run in January, in which a net 4.4 percent expected conditions to improve. It is, however, a significant improvement from this time last year when a net 47.3 percent of respondents expected conditions to worsen:
- Dairy farmers - a net 28.5 percent expect economic conditions to improve (4.7 percent improvement on January)
- Sheep and beef - a net 11.7 percent expect economic conditions to worsen (1.7 percent improvement on January)
- Grains farmers - a net 13.4 percent expect economic conditions to worsen (25.2 percent deterioration on January).
Farm profitability
Perhaps a more accurate reflection of farmer sentiment is the prospect for their own business, where a net 17.3 percent are expecting their profitability to improve over the next 12 months. This is a significant improvement from the last survey, where a net 5.0 percent expected their profitability to worsen and from this time last year, when a net 38.7 percent expected profitability to worsen:
- Dairy farmers - a net 52.0 expect to be more profitable over the next 12 months (18.7 percent improvement on January)
- Sheep and beef - a net 2.7 percent expect profitability to worsen (28.6 percent improvement on January)
- Grains farmers - a net 14.9 percent expect profitability to worsen (8.6 percent improvement on January).
Farm Production
An increasing number of farmers expect to increase production over the next 12 months. In this survey, a net 40.6 percent expect to do so, which is up from a net 24.4 percent in the January survey. Increased forecasts for production are likely to be a reflection of farmers hoping for a return to more normal weather patterns:
- Dairy farmers - a net 63.9 expect production to increase (34 percent improvement on January)
- Sheep and beef - 26.7 percent expect production to increase (8.9 percent improvement on January)
- Grains farmers - a net 22.4 percent expect production to increase (11.4 percent deterioration on January)
On-farm spending
Given that farmers collectively spend $12.5 billion on farm inputs in the local, regional and national economy, asking farmers whether they expect to spend more can be an important barometer of economic trends, especially at a regional level. More farmers are expecting to increase their spending over the next 12 months. Overall, a net 15.1 percent expect to lift their spending, an improvement on January's net 1.4 percent expecting to cut spending and this time last year, when the net was 38.3 percent expecting to cut:
- Dairy farmers - a net 33.1 percent expect to increase spending (31.4 percent improvement on January)
- Sheep and beef - a net 0.5 percent expect to increase spending (4.8 percent improvement on January)
- Grains farmers - a net 16.4 percent expect to increase spending (19.3 percent improvement on January).
Farm Debt
On average, more farmers expect to reduce their debt over the coming 12 months, with a net 21.3 percent expecting to do so. This consolidates the findings from January, when a net 7.0 percent expected to reduce debt and contrasts to this time last year, when a net 20.8 percent of farmers expected to increase debt:
- Dairy farmers - a net 42.4 percent expect to reduce debt (15.6 percent improvement on January)
- Sheep and beef - a net 10.4 percent expect to reduce debt (15 percent improvement on January)
- Grains farmers - a net 0.0 percent expect to neither increase or decrease debt (8.8 percent improvement on January).
Recruitment
On average, there has been a slight easing in perceptions about labour availability, with a net 1.9 percent of farmers reporting it was easier to find skilled and motivated staff over the preceding six months. This compares to January, when a net 2.2 percent reported finding it harder, but is still harder than this time last year (during the depths of the recession), when a net 12.1 percent reported it being easier to find staff:
- Dairy farmers - a net 4.6 percent reported it easier to find skilled staff (9.8 percent improvement on January)
- Sheep and beef - a net 1.9 percent reported it harder to find skilled staff (1.9 percent deterioration on January)
- Grains farmers - a net 7.5 percent reported it easier to find skilled staff (10.4 percent improvement on January)
ABOUT THE SURVEY
Federated Farmers Farm Confidence Survey was an email based member survey held from 29 June to 9 July 2010. There were 770 respondents. The survey is run on a six monthly basis, with the next survey to be held in January 2011.
