Signaled public policy changes have farmers much more cautious for 2018, although most still expect their business performance stay the same or improve and farm investment to stay the same or increase

Content supplied by Rabobank

New Zealand farmer confidence remains at net positive levels overall, but has dropped sharply from the record highs recorded in the previous two quarters, the latest Rabobank Rural Confidence Survey has shown.

While more farmers expect the rural economy to improve than those expecting it to worsen, the overall reading dropped sharply to a net confidence measure of +13 per cent from +38 per cent last survey.

The survey – completed last month – found the number of farmers expecting the rural economy to improve in the next 12 months had fallen to 29 per cent (down from 46 per cent last quarter), 49 per cent were expecting similar conditions (up from 42 per cent) and the number expecting the rural economy to worsen rose to 16 per cent (up from 8 per cent).

The 25 per cent reduction in net confidence is the largest drop in one quarter since March 2016 and, combined with the decline in sentiment recorded in the previous quarter, represents a 41 per cent fall in New Zealand rural confidence since the record high reached in June’s survey (net confidence of +54 per cent).

“For those farmers who thought the rural economy will worsen over the next 12 months, government policies were cited by 80 per cent as a key reason for holding this view,” Ms Moynihan said. “With a change of government comes uncertainty about the impact of future policies on New Zealand’s agricultural sector. During the election campaign, each of the three parties that now make up the New Zealand government indicated they wanted to make changes to how New Zealand’s rural economy was operating. These results indicate that farmers have some concerns about what these potential interventions could mean for the future performance of the rural economy.”

The other key reasons cited by farmers who were expecting agricultural conditions to worsen were rising input costs (20 per cent) and falling commodity prices (15 per cent). Among farmers expecting conditions to improve, two-thirds said rising commodity prices were a reason for holding this view, while 27 per cent cited the decreasing New Zealand dollar.

The survey found the biggest drop in positive sentiment was among horticulturalists, with the net confidence reading among this group dropping to +16 per cent from +51 per cent previously.

Dairy farmers also registered a significant fall in net confidence, dropping to +18 per cent from +50 per cent, while sheep and beef farmer confidence also fell to net +11 per cent from +22 per cent last quarter.

The less optimistic outlook on the overall agricultural economy flowed through to farmers’ expectations for their own farm business performance in the coming 12 months, with the net reading on this measure dropping back to +28 per cent (from +44 per cent).

Ms Moynihan said this fall had predominantly been driven by reduced income expectations among dairy farmers and horticulturalists. “With a downward correction in the milk price anticipated before the end of the year, it was not surprising to see dairy farmers’ confidence in their own farm business performance register the most drastic fall of all the sector groups.”

“Thirty-nine per cent of the nation’s dairy farmers are now expecting their own farm business performance to improve over the next 12 months, compared with 62 per cent who had that expectation last survey. The number of dairy farmers now expecting the performance of their own farm business to worsen increased to nine per cent from five per cent previously,” she said.

“Horticulturalists were also much less optimistic than last quarter about their own business performance and dropped from net +52 per cent to +31 per cent on this measure. Sheep and beef farmers bucked the downward trend, with expectations in their own business performance holding steady at a net reading of +28 per cent.”

In line with the falls in farmer confidence, the survey also found farmer investment intentions had come back from last quarter. Investment expectations dropped for the second straight quarter with 26 per cent of farmers now expecting to increase investment (29 per cent last survey), 64 per cent expecting investment to remain the same (63 per cent) and eight per cent expecting farm investment to decrease (seven per cent).

The investment intentions of dairy and sheep and beef farmers remained relatively unchanged from last quarter while horticulturalists investment intentions fell back to a net reading of +20 per cent, from +35 per cent previously.

Ms Moynihan said despite the significant falls in farmer confidence and the dip in investment intentions, it was important to note that most farmers were still taking an optimistic view on the year ahead, with more reporting a positive than negative view. “While farmer confidence and investment intentions have come back from the record levels seen in the middle of the year, overall, farmers remain cautiously optimistic about the future prospects for the industry, and over the next 12 months the vast majority of farmers expect to see their business performance stay the same or improve and farm investment to stay the same or increase.”

Conducted since 2003, the Rabobank Rural Confidence Survey is administered by independent research agency TNS, interviewing a panel of approximately 450 farmers each quarter.