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 percent from +38 percent last survey.
The survey – completed last month – found the number of farmers expecting the rural economy to improve in the next twelve months had fallen to 29 percent (down from 46 percent last quarter), 49 percent were expecting similar conditions (up from 42 percent) and the number expecting the rural economy to worsen rose to 16 percent (up from 8 percent).
The 25 percent 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 percent fall in New Zealand rural confidence since the record high reached in June’s survey (net confidence of +54 percent).
Rabobank New Zealand general manager for Country Banking, Hayley Moynihan, said the latest survey found farmers from across all sectors were more pessimistic about the expectations for the rural economy than in the previous quarter and this appeared to be largely attributable to concerns around the recent change in government.
“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,” 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 percent) and falling commodity prices (15 percent). Among farmers expecting conditions to improve, two-thirds said rising commodity prices were a reason for holding this view, while 27 percent cited the decreasing New Zealand dollar.
The survey found the biggest drop in positive sentiment was among horticulturists, with the net confidence reading among this group dropping to +16 percent from +51 percent previously. Dairy farmers also registered a significant fall in net confidence, dropping to +18 percent from +50 percent, while sheep and beef farmer confidence also fell to net +11 percent from +22 percent 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 percent (from +44 percent).
Moynihan said this fall had predominantly been driven by reduced income expectations among horticulturists. “Horticulturalists were also much less optimistic than last quarter about their own business performance and dropped from net +52 percent to +31 percent on this measure. “
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 percent of farmers now expecting to increase investment (29 percent last survey), 64 percent expecting investment to remain the same (63 percent) and eight per cent expecting farm investment to decrease (seven percent). Horticulturists investment intentions fell back to a net reading of +20 percent, from +35 percent previously.
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 twelve 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.