19 October 2004

Rural confidence has stabilised after a significant rise in the middle part of the year, according to the latest ACNielsen/Rabobank Rural Confidence Survey.

With results reflecting almost identical levels of optimism as the previous survey, nearly 90 per cent of farmers expect the outlook for the rural sector to improve or stay the same in the coming year.

The results of the latest survey, taken in August/September - while slightly lower than the previous survey two months earlier - are significantly higher than the same period in 2003, where more than one third of farmers expected the economy to worsen.

But, says Rabobank general manager Doug Crombie, all signs continue to point to an overall picture of stability, with incomes for most farming sectors above historical averages, the dollar appearing to be steady against other major currencies and export markets that are increasingly turning to safe sources of supply for primary produce.

While the outlook is positive, Mr Crombie said confidence levels are being driven in conflicting directions for a number of reasons.

"Although farm-gate returns are at historically high levels and farmers are continuing to invest in their businesses, there are a number of issues holding confidence back," he said.

"The weather has been terrible in parts of the country, interest rates are rising and the dollar is still higher than many would like."

The latest Rabobank survey was completed prior to the announcement of an increased payout by Fonterra.

As with the outlook for the economy, it showed little change in any of the other areas covered in the survey. More than 90 per cent of farmers still intend to maintain or increase their investment in stock, plant or land in the next year and almost 80 per cent expect their income levels to improve.

"This stability is understandable," Mr Crombie said. "We believe the significant increase in the previous survey was more a result of an increased realisation that in the near term the pointers for the rural economy are positive."

While the key indicators reflect a positive outlook, farmers remain cautious of rising farm input costs and rising interest rates.

Even with a high dollar, almost all farmers (98 per cent) are expecting input costs to either increase or remain the same.

Interest rates are also expected to rise, with more than 90 per cent predicting further rises in the coming months.

"This is not surprising, as the Reserve Bank? has indicated further rises are likely. And while most farmers would prefer to see interest costs decrease they are able to factor these increases into their cashflows for the coming months," Mr Crombie said.

The ACNielsen/Rabobank Rural Confidence Survey is the first survey of its type in New Zealand, and uses ACNielsen's 1000-strong panel of farmers across the country. The next results will be released in December 2004.

National Rural Confidence Index

(Question: How well do you expect the Agricultural Economy generally will perform over the next 12 months?)

For further information about the Rural Confidence Survey, please email us on wellington.confidence.survey@rabobank.com.