It is proving to be the winter of intense discontent for New Zealand farmers, with Federated Farmers’ latest survey placing farmer confidence at a 14-year low.
Based on responses from 1000 farmers across all sectors, the July survey also found farmers’ belief that they will make a profit this year has slumped since the last survey, in January, with 74% believing farm profitability will worsen in the next year.
Eighty-one percent considered the current economic conditions to be bad, a jump of 23% since the survey recorded six months earlier.
The dark outlook is firmly linked to poor profit prospects for the sector, with only 2% reporting that they were making a profit currently, down a massive 26 points from January when 28% reported making a profit.
Expectations are that the figures are likely to have only worsened since the survey was conducted, given that it did not capture the latest decline in Fonterra’s payout, which has sliced a $1/kg milksolids from income and left the majority of dairy farmers barely breaking even.
Even without that news included, dairy farmers reported the second largest decline in their perceptions of the general economy, down 23% on the last survey, with arable farmers the worst at a 30% decline.
The report highlights that farmers’ predictions about farm profitability have been steadily declining since July 2017, hitting their low point in this survey.
Federated Farmers president Wayne Langford said the biggest concerns for farmers are debt, interest and banks, regulation and compliance costs, and climate change-Emissions Trading Scheme (ETS) policy.
“This is the second successive farmer confidence survey to set a new record low with a steep decline over the last six months – so we’re sounding the alarm,” Langford said.
The steep decline in profitability captured by the survey reflects the continuation of last year’s combination of falling commodity prices and significant increases in on-farm costs, particularly agri-chemicals. Add in staff shortage costs, and a 50% hike in interest rates has only compounded those earlier pressures.
With the slide in predicted profit is coming the certainty of farm expenditure taking a far tighter path.
This does not bode well for provincial service towns. Farmers’ spending is expected to slump over the next 12 months with 45% of respondents expecting to reduce spending, and only 19% to stay the same.
Spending had been moving upwards over January and July last year, largely in response to soaring farm costs for essential supplies.
But lower profitability expectations are seeing wallets firmly shut this year, even after adjusting for inflationary price rises. The survey had dairy farmers still likely to be the larger spenders despite taking a net drop, but their cuts are only likely to be exacerbated by Fonterra’s payout cuts since.
Reduced profitability and soaring farm costs are playing into higher debt levels, with 30% expecting their debt will increase, and 42% expecting it to stay the same.
Since July 2016 more farmers have expected to reduce debt than increase it, but this has reversed in the past two surveys. The positive net debt score of 14% increasing debt reflects more farmers borrowing to weather the lower revenues and higher operating costs they are experiencing.
Overall, the concerns around debt and interest have leapt in prominence, taking out first place in farmers’ concerns in the survey.
Regulation and compliance costs are the second most concerning.
Reflecting the lower profile of policies such as He Waka Eke Noa in recent months, ETS-climate change has dropped to third greatest concern. As global conditions have worsened for returns, farmgate commodity prices have jumped from sixth to fourth.
Langford said the survey’s results have implications that will flow right through the economy. This point was reinforced last week when it was estimated Fonterra’s cut to payouts sucked $5 billion out of the economy.
Feds has released 12 policy priorities it believes the next government needs to examine to restore farmer confidence in the economy.