Farmers are funneling strong payouts into debt repayment and on-farm upgrades. Photo / 123rf
By Sally Murphy of RNZ
While many farmers are riding a wave of strong farm-gate prices, the profits are only trickling into regional economies, as they’re being cautious when it comes to spending.
Waikato Chamber of Commerce chief executive Don Good said farmers are using their profits to service debt and pay for upgrades and maintenance on the farm.
“Farmers have had a superb two seasons, and now they have the makings of a third great season as their balance sheets have increased substantially.
“A year ago, people were getting 60 bucks for a lamb; now you’re getting over $220.
“And cows, you could have bought them two, three years ago for around $900; they’re now between three to $4000 a head.
“Even wool is doing well and long may it continue because it certainly makes a difference to the Waikato.”
Good said on-farm profits were trickling into the wider economy.
“The general feeling is that farmers are a lot more conservative than they have been in the past, but they are investing in upgrades to the farm, so money is beginning to flow through to the wider Waikato economy and our members are very comfortable with that.”
He said spending did differ from individual to individual.
“I mean, we had a boat show here in September, and I know manufacturers were selling $300,000 boats quite comfortably.”
“But equally, what I’m hearing is that farmers, when they’re looking at the payout range that Fonterra comes out with, which might be between $8-$10, farmers are hearing the eight, not the 10, so they’re being conservative.”
He said retail and hospitality businesses that have survived the past few years are starting to feel things pick up.
“The Waikato economy is actually starting, or has been, taking off for some time.
“The money is coming in certainly through the farming sector, but equally we’re seeing manufacturing pick up, order books have lengthened, and there’s a little bit of quiet confidence that this year could see a recovery.
“But everyone was thinking that in 2025, so we’re actually waiting to see it actually hit the bank accounts.”
It’s a similar story in South Canterbury, said Wendy Smith, chief executive of the local Chamber of Commerce.
While farmer confidence is up, spending is slow.
“Yeah, it’s been a great season, costs for some farm inputs are down while production is up, so whether or not it’s in dairy, beef, sheep prices, hort, they’re all doing nicely.
“So we’re certainly seeing improved farmer confidence, which is great to see and that will feed through to the economy, but it’s still early days.”
Smith said there are pockets of retail and pockets of other industries that are doing really well.
“So some of those areas are construction, retail and car sales, they are doing really well.
“Others are still saying it’s tighter, but they’re beginning to see the light at the end of the tunnel.”
When Fonterra’s farmer-shareholders are paid out for the sale of the company’s consumer brands arm, businesses are expecting an uptick in spending, she said.
“We’re anticipating that there will be an increase in expenditure, obviously, a number of them will retire debt, but we are anticipating that they’ll upgrade farm equipment, invest in new machinery and other off-farm assets.
“So that is coming. It’s just taking a little bit of time to feed through.
“And I think that’s just the reality of people being cautious. You know, there’s been a few tough years.
“So people are sensibly cautious and investing carefully.”
Hayden Dillon, head of agribusiness at financial advisory firm Findex, said farmers are in a good position, and the momentum is flowing through to service towns and the industries that back agriculture.
Speaking at the recent Southern Field Days, he said our $80 billion export engine is helping kick-start regional economies that have been sluggish.
“It was highlighted at Field Days that the highest unemployment rate is in Auckland and the lowest is in Southland.
“That is a clear example of an export-led recovery.
“We know New Zealand’s productivity record is not flash overall. But that is not the case on farms in Southland and other rural regions.
“Here, business owners are leading the recovery through exports, bringing in hard foreign currency and building real value in the regions.”
While that is undoubtedly positive, Dillon said good governance and caution still matter.
“We often say farmers are good in a drought and poor in a flush, but micro-economics means staying on top of costs, not taking your eye off the ball, and consistently pushing your service providers, whether that is interest rates or fertiliser pricing.
“It means making disciplined calls on capital expenditure, thinking carefully about expansion, and using the upside to build long-term legacy and succession plans.”
It also means keeping the same frugal habits that see you through the lean years.
He said farmers shouldn’t let costs creep, manage payroll and people well, shop your interest rates when rolling debt, maximise profits while you can, because the next tight season is never far away.
- RNZ