Dairy farmers' confidence plummets

23:27, Jul 20 2014

Dairy farmers are facing a crisis of confidence in the future of their business, while their sheep and beef counterparts are positive about their prospects.

Federated Farmers' new season farm confidence survey echoes a recent Rabobank survey that showed dairy farmers gloomy after large falls in dairy prices. The survey was carried out between June 30 and July 11, and did not cover the last week's shock slump in dairy prices.

"Commodity prices have fallen over the past few months, especially for dairy products, which are down over 30 per cent since our last survey," Federated Farmers president Dr William Rolleston said.

The high New Zealand dollar was not giving any respite, although dairy prices had been at an all-time high in 2013-14. While meat and fibre farmers' confidence had also slipped, they remained positive, reflecting better international prices for sheepmeat, beef and wool, he said.

Beef+Lamb NZ figures show that the value of lamb exports is up by 10.5 per cent, mutton 32.1 per cent and beef and veal by 5.8 per cent.

Production had been generally good during the 2013-14 season, bouncing back from last year's severe drought. Most farmers expected to increase production this season although some were concerned about the prospect of an El Nino weather system having a negative impact in spring and summer.

Rolleston said farmers were particularly sensitive to higher interest rates, not just because the sector had high debt levels, but also because higher interest rates underpinned the strength of the New Zealand dollar, which affected farm incomes.

"Despite being more pessimistic about farm profitability this is yet to be reflected in farmers' spending intentions. Most will still be making a profit so the pressure to 'burn the chequebook', is somewhat lessened," Rolleston said.

"Some may look to hold or increase spending to boost production in order to offset lower prices, while others might find it difficult to cut spending due to high farm-input prices.''

Most farmers remained cautious about debt, with little change in the proportions of farmers expecting to increase, reduce, or hold debt at current levels.

Fewer dairy farmers expected to reduce debt levels but more meat and fibre farmers expected to reduce debt.

The agricultural labour market remained tight, with farmers reporting greater difficulty finding skilled and motivated staff.

"Regulation and compliance costs remain the biggest issue for farmers, with considerable anxiety about the impact of policies being implemented by regional councils on water quality and water allocation," Rolleston said.

"Farmers' highest priority for the Government is to focus on monetary policy, followed by compliance costs and fiscal policy.

"What came through more loudly than ever is a desire to see the Reserve Bank and Government do more to prevent interest-rate increases and reduce the high, overvalued exchange rate.''

Main points:

■ A net 7.0 per cent of respondents expect general economic conditions to worsen over the next 12 months.

■ A net 4.3 per cent of respondents expect their own farm's profitability to worsen over the next 12 months.

■ A net 43.9 per cent of respondents expect to increase production over the next 12 months.

■ A net 12.9 per cent of respondents expect to increase on-farm spending over the next 12 months.

■ A net 23.7 per cent of respondents expect their farm debt to reduce over the next 12 months.

■ A net 21.0 per cent of respondents found it harder to find skilled and motivated staff over the past six months.

Top concern, priority

■ Respondents' biggest single concern was regulation and compliance costs, cited by 23.7 per cent of respondents.

■ Respondents' highest priority for Government was monetary policy, cited by 19.6 per cent of respondents.