Latest farm confidence survey 'a tale of two islands'
Federated Farmers latest mid-season farm confidence survey, has joined other recent business confidence indicators showing greater optimism in farming over the next 12 months. Confidence though remains patchy. South Island farmers have emerged a lot more optimistic than their La Niña hit counterparts in the North Island.
“Farmers are considerably more positive about the profitability of their own farms over the next 12 months and that’s a positive,” says Don Nicolson, Federated Farmers President.
“Dairy farmers remain the most optimistic of the Federation’s industry groups, yet the gap with meat and fibre as well as grains farmers has narrowed in January. That’s very positive for those industry groups.
“This narrowing partly reflects improved commodity prices with wool moving off a low base. It’s also a reflection of reduced confidence felt by dairy farmers who, despite enjoying higher commodity prices, will be looking at reduced production and lower profits due to La Niña.
“South Island farmers were generally the optimists with a La Niña drought-like pall of gloom hanging over North Island farmers. Fewer North Island farmers expect to increase production when compared to last July’s new season survey.
“Farmers were hoping for a repeat of the January rain seen in 1976 and 1989 and we may just be getting it. This rain is a liquid tonic of confidence for many farmers and should greatly reduce pressure heading into February and early autumn.
“It astonishes me, that completely unprompted, more than 25 percent of farmers cited rising input costs and compliance as their primary concerns. The Emissions Trading Scheme (ETS) is now, of course, considered to be a compliance cost.
“During this survey period, the worst floods in 169 years have hit the top of the South Island with drought-like conditions in North Island. Yet one in four farmers are still concerned about the insidious relationship between compliance and rising input costs. That speaks volumes.
“This compliance avalanche continues unabated with, for example, the new National Animal Identification and Tracing (NAIT) scheme having its first reading before Christmas.
“The ethic of reducing debt has continued into this survey with the proportion of farmers expecting to reduce debt increasing over the next 12 months.
“Many of the 14 percent in the survey looking to increase debt were borrowing ‘survival debt’. This was to get to a position where they could again invest in their business. It’s why Federated Farmers is focused upon reducing compliance while increasing farm gate returns.
“What farmers also desire is for the banks to be more confident about farming and understand its seasonal and economic variability. We need the banks to be durable in their support and more than fair weather friends in such a dynamic sector.
“The farm labour market, while seasonal, appears to have tightened with a net 5.8 percent of respondents reporting it harder to find skilled and motivated staff. This is particularly evident in the South Island and is another indication of the optimism there.
“Overall, the confidence glass for most farmers is over half full. All we need are the policies that enable farmers to maximise their potential than be hindered by them,” Mr Nicolson concluded.
2010-11 MID-SEASON FARM CONFIDENCE SURVEY HIGHLIGHTS
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General economic conditions
A net 4.8 percent of respondents expect general economic conditions to improve over the coming 12 months (this ‘net’ figure is the difference between those expecting the economy to improve (24.6 percent) and those expecting it to worsen (19.7 percent)). This is slightly higher than the previous new season survey run last July, in which a net 2.9 percent expected conditions to improve. Confidence returns to a similar level prevailing this time last year (when a net 4.4 percent expected improvement).
§ Dairy farmers - a net 5.4 percent expect economic conditions to improve (23.1 percent deterioration since July 2010)
§ Meat & Fibre farmers - a net 1.3 percent expect economic conditions to improve (13 percent improvement since July 2010)
§ Grains farmers - a net 9.2 percent expect economic conditions to improve (22.6 percent improvement since July 2010)
Regionally
§ Upper North Island - a net 3.4 percent expect economic conditions to worsen (21 percent deterioration since July 2010)
§ Lower North Island - a net 0.8 percent expect economic conditions to worsen (10.5 percent deterioration since July 2010)
§ Upper South Island - a net 11.9 percent expect economic conditions to improve (24.1 percent improvement since July 2010)
§ Lower South Island - a net 17.5 percent expect economic conditions to improve (27.7 percent improvement since July 2010)
Farm profitability
A net 25.5 percent of respondents expect farm profitability to improve over the coming 12 months (this ‘net’ figure is the difference between those expecting their profitability to improve (44.0 percent)) and those expecting it to worsen (18.5 percent). This is a further improvement from last July’s survey, where a net 17.3 percent expected their profitability to improve and from this time last year, when a net 5.0 percent expected their profitability to worsen.
§ Dairy farmers - a net 29.2 percent expect profitability to improve (22.8 percent deterioration since July 2010)
§ Meat & Fibre farmers - a net 24.1 percent expect profitability to improve (26.8 percent improvement since July 2010)
§ Grains farmers - a net 15.8 percent expect profitability to improve (30.7 percent improvement since July 2010)
Regionally
§ Upper North Island - a net 14.5 percent expect profitability to improve (25.2 percent deterioration since July 2010)
§ Lower North Island - a net 27.4 percent expect profitability to improve (7.4 percent improvement since July 2010)
§ Upper South Island - a net 21.6 percent expect profitability to improve (23.4 percent improvement since July 2010)
§ Lower South Island - a net 41.5 percent expect profitability to improve (35.8 percent improvement since July 2010)
Farm production
There has been a decline in the proportion of farmers expecting to increase production, with a net 24.8 percent expecting to increase production over the coming 12 months (this ‘net’ figure is the difference between those expecting production to increase (39.4 percent) and those expecting it to reduce (14.6 percent)). This is down from a net 40.6 percent from last July’s new season survey. It returns production forecasts to a similar level to that prevailing this time last year (when a net 24.4 percent expected to increase production).
§ Dairy farmers - a net 25.8 percent expect production to increase (38.1 percent deterioration since July 2010)
§ Meat & Fibre farmers - a net 20.4 percent expect production to increase (6.3 percent deterioration since July 2010)
§ Grains farmers - a net 32.9 percent expect production to increase (10.5 percent improvement since July 2010)
Regionally
§ Upper North Island - a net 15 percent expect production to increase (36.5 percent deterioration since July 2010)
§ Lower North Island - a net 16.9 percent expect production to increase (24.7 percent deterioration since July 2010)
§ Upper South Island - a net 41.5 percent expect production to increase (18.3 percent improvement since July 2010)
§ Lower South Island - a net 33.3 percent expect production to increase (9.4 percent deterioration since July 2010)
Farm Spending
Farmers spend an estimated $13 billion each year in the economy. There has been little change in the proportion of farmers expecting to increase their spending over the next 12 months. Overall, a net 21.6 percent of respondents expect to lift their spending (this ‘net’ figure is the difference between those expecting their spending to increase (41.7 percent) and those expecting it to reduce (20.1 percent)) This is a slight increase on last July’s net 21.2 percent, and well up on last January’s net 1.4 percent, who expected to cut spending.
§ Dairy farmers - a net 30.7 percent expect spending to increase (2.4 percent deterioration since July 2010)
§ Meat & Fibre farmers - a net 14.6 percent expect spending to increase (13 percent improvement since July 2010)
§ Grains farmers - a net 11.8 percent expect spending to increase (4.6 percent deterioration since July 2010)
Regionally
§ Upper North Island - a net 20.9 percent expect spending to increase (7 percent deterioration since July 2010)
§ Lower North Island - a net 10.5 percent expect spending to increase (4.5 percent deterioration since July 2010)
§ Upper South Island - a net 34.7 percent expect spending to increase (7.9 percent improvement since July 2010)
§ Lower South Island - a net 26.3 percent expect spending to increase (12.3 percent improvement since July 2010)
Farm Debt
After years of double digit annual growth, agricultural debt peaked at $47 billion in July 2009 and has remained relatively flat since. More farmers now expect to reduce their debt over the coming 12 months, with a net 25.3 percent expecting to do so (this ‘net’ figure is the difference between those expecting their debt to increase (14.0 percent) and those expecting it to reduce (39.3 percent)). This consolidates the findings from last July’s new season survey, when a net 21.3 percent expected to reduce debt and is higher than this time last year, when a net 7 percent of farmers were expecting to reduce debt. It is worth noting that 14 percent of respondents expect to increase debt, with most of them pessimistic about their own profitability. This is particularly true of meat and fibre farmers, where almost half expected to increase debt with worsening profitability.
§ Dairy farmers - a net 35.5 percent expect to reduce debt (6.9 percent deterioration since July 2010)
§ Meat & Fibre farmers - a net 19.4 percent expect to reduce debt (9 percent improvement since July 2010)
§ Grains farmers - a net 13.2 percent expect to reduce debt (13.2 percent improvement since July 2010)
Regionally
§ Upper North Island - a net 30.8 percent expect to reduce debt (11.4 percent deterioration since July 2010)
§ Lower North Island - a net 29.3 percent expect to reduce debt (3.2 percent improvement since July 2010)
§ Upper South Island - a net 15.3 percent expect to reduce debt (15.9 percent improvement since July 2010)
§ Lower South Island - a net 21.6 percent expect to reduce debt (11.4 percent improvement since July 2010)
Recruitment
There has been a tightening in perceptions about labour availability, with a net 5.8 percent of farmers reporting it was harder to find skilled and motivated staff over the preceding six months (this ‘net’ figure is the difference between those reporting it being harder to find staff (15.8 percent) and those reporting it being easier (10 percent)). This compares to last July when a net 1.9 percent reported finding it easier and is also tighter than this time last year, when a net 2.2 percent reported it being harder to find staff. It is worth noting that last July’s new season recruitment survey anticipated deterioration in unemployment in the wider economy.
§ Dairy farmers - a net 7.7 percent found it more difficult to recruit (12.3 percent tightening since July 2010)
§ Meat & Fibre farmers - a net 2.9 percent found it more difficult to recruit (1 percent tightening since July 2010)
§ Grains farmers - a net 11.8 percent found it more difficult to recruit (19.3 percent tightening since July 2010)
Regionally
§ Upper North Island - a net 3.8 percent found it more difficult to recruit (7.7 percent tightening since July 2010)
§ Lower North Island - a net 2.3 percent found it more difficult to recruit (1.7 percent tightening since July 2010)
§ Upper South Island - a net 11.9 percent found it more difficult to recruit (18 percent tightening since July 2010)
§ Lower South Island - a net 7 percent found it more difficult to recruit (8.9 percent tightening since July 2010)
Biggest issues for farmers
Unsurprisingly, this survey found the single biggest issue on the minds of farmers was the weather - with 28.2 percent of respondents citing it as their biggest concern, up from 6.9 percent last July and 10.3 percent this time last year. Concern about the weather was particularly strong among dairy farmers and by farmers in upper North Island (but also parts of lower North Island). This makes the rains in late January particularly welcome ahead of late summer and early autumn. Other issues listed in order of concern:
§ High and increasing farm input costs (13.4 percent),
§ Interest rates, debt, and banking (10.4 percent),
§ High and volatile exchange rate (8.9 percent),
§ Regulation and compliance costs (7.8 percent),
§ Level and volatility of farm-gate and commodity prices (7.4 percent),
§ Industry-specific issues (7.3 percent), especially the state of the meat and wool industries, but also the Dairy Industry Restructuring Act with Fonterra having to sell ‘cheap’ milk to competitor processors.
Last July, the main concern of farmers was climate change policy and the Emissions Trading Scheme (ETS), with 30.1 percent of respondents citing it then as their biggest concern. In this survey it has specifically fallen back to 4.1 percent. But as it is now an added compliance cost, it needs to be read with the 7.8 percent who cited regulation and compliance costs as their biggest issue. The ETS review later in the year as well as mandatory reporting of agricultural emissions from next January may see it increase as a specific item.
Highest priority for Government
Fiscal policy is of particular concern to farmers with a combined 27.5 percent stating that government spending and government debt should be the Government’s highest priority. The most cited responses were:
§ Reduce government spending (16.8 percent),
§ Lower and more stable exchange rate and interest rates, and encourage banks to lend (13.7 percent),
§ Economy and better business environment (11.5 percent),
§ Reduce compliance costs (11.0 percent),
§ Reduce government debt (10.7 percent),
§ Support agriculture and exporters (7.8 percent),
§ Scrap or reduce the costs from the ETS (7.3 percent).
About the January 2011 mid-season survey
Federated Farmers January 2011 Farm Confidence Survey was an email based member survey held from 24 December 2010 to 10 January 2011. The survey is run biannually, with the next survey to be held in July 2011 (2011-12 new season). The January 2011 survey attracted 847 responses from the following Federated Farmers industry groups:
§ Bees: 10
§ Dairy: 349
§ Goats: 9
§ Grain: 76
§ Meat & Fibre: 377
§ Rural Butchers: 2
§ South Island High Country: 24
The 847 responses came from the following regions (see below for the Federated Farmers provinces comprising each region):
§ Upper North Island: 234
§ Lower North Island: 266
§ Upper South Island: 176
§ Lower South Island: 171