21 December, 2010

Extreme dry weather and devastating spring storms have hit farmers hard, causing New Zealand rural confidence to decline for the third consecutive quarter.

The latest quarterly Rabobank Rural Confidence Survey, taken earlier this month, shows net farmer confidence has decreased to 11 per cent from 24 per cent in the previous survey undertaken in October.

The number of farmers confident about the economic outlook fell with 29 per cent expecting the agricultural economy to improve over the next 12 months, compared to 37 per cent last quarter’s survey. Those expecting conditions to worsen increased to 18 per cent, from 13 per cent previously.

Rabobank general manager New Zealand Ben Russell said overall farmer confidence had declined due to the dry weather conditions and the flow-on impacts of lamb losses after the September storms.

“It is clear that the impact of a poor spring and a very early and dry start to summer is likely to be the greatest negative impact on the agricultural economy and production over the next year,” Mr Russell said.

“The extreme weather farmers have experienced in recent months has affected their confidence, particularly in the dairy sector.”

Although, optimism remains among dairy, sheep and beef farmers, with 31 per cent expecting an improvement in the economy. However this figure was down from 42 per cent and 38 per cent respectively in the previous survey.

The Rabobank survey did find however that 35 per cent of sheep and beef farmers expect their own farm business to improve in the coming 12 months with 21 per cent expecting performance to worsen.

Over the past three surveys, an increasing proportion of dairy farmers have been expecting their business performance to stay the same, while more sheep and beef farmers are expecting their business performance to improve. Mr Russell said this was likely to at least partly reflect lamb losses from the September storm would see a subsequent drop in lamb production, which would favourably impact prices over the coming season.

Of those farmers expecting the agricultural economy to worsen, 51 per cent cited drought as the primary reason – particularly those farmers based in the North Island – while 29 per cent said higher input costs were to blame.

The survey respondents nominated three key factors that would most significantly impact their farm’s viability over the next three to five years – weather, high commodity prices, and the exchange rate fluctuations.

Mr Russell said, compared to the last survey, farmers have become more concerned about seasonal conditions and weather impacting their farm viability over the medium-term. Forty-five per cent cited weather and seasonal conditions as having a significant impact, up from 40 per cent in the previous survey. A further 15 per cent cited climate change, up from four per cent previously.

“Farmers are adjusting their expectations to the current climatic situation and the likely impact on production levels,” Mr Russell said. “A large number of respondents have suffered stock losses caused by the spring storms and, as a result, calving and lambing survival rates are down.”

However, farmers are still most concerned about commodity prices and the strong New Zealand dollar. While commodity prices were still the most significant factor for farmers in the sheep and beef sector, dairy farmers were more concerned with seasonal conditions, and input costs were the third most significant factor rated by 28 per cent of those surveyed.

Sheep and beef farmers (33 per cent) and horticulturalists (39 per cent) were also more likely to cite the exchange rate as a significant impact on their future viability than dairy farmers (19 per cent) who were more concerned with the impact of input costs.

Nevertheless, farmer investment expectations continue to hold up with 66 per cent expecting to hold the same level of investment – up from 65 per cent last quarter. Those expecting to increase investment had fallen slightly from 22 to 21 per cent, while farmers decreasing investment have remained similar at 14 per cent.

Conducted since 2003, the Rabobank Rural Confidence Survey is the only study of its type in New Zealand. The survey is administered by independent research agency TNS Conversa, interviewing a panel of approximately 450 farmers each quarter.

Rabobank Australia & New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 48 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia & New Zealand is one of Australasia’s leading rural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 93 branches throughout Australia and New Zealand.

Media contacts:

David Johnston

Rabobank New Zealand

Phone: (04) 819 2711

Email: David.Johnston@rabobank.com