Gloom seeps across our farms

Rising pessimism among farmers is putting the rural economy at risk, according to this month's Rabobank ACNielsen Rural Confidence Survey.

It has found that farmers involved in sheep, beef, dairy and cropping, are expecting tough times in the year ahead.

Rabobank marketing manager New Zealand Janet Skilton said nearly 60 per cent of farmers were anticipating a drop in income this year, with 77 per cent expecting costs to rise.

The survey showed that the confidence of sheep farmers in particular was at a record low, with 83 per cent predicting the economic situation to worsen and only 1 per cent expecting an improvement.

This is a considerable drop in confidence from the previous survey in October, when 43 per cent of sheep farmers expected the economy to worsen.

The latest survey also showed 88 per cent of sheep farmers would reduce their investment or maintain present levels during the next year.

Doug Crombie, Rabobank general manager rural New Zealand, said when returns started falling the farming community tightened its belt.

"This means that they reduce fertiliser applications, defer activities such as weed control and pasture renewal and stop purchasing machinery.

"This flows through the rural economy and will have a significant impact on rural servicing towns and provincial cities where the buoyant agricultural sector has really been the driver of positive economic activity."

Demand for rural properties could also ease as farmers focus on consolidating rather than expanding their businesses, Crombie said.

John Newland, chief executive of Farmlands Trading Society, said farmers would continue to buy essential supplies, but general spending was becoming more conservative.

"There is no decrease [in spending] but we're not actually seeing the level of increases that we did in the last couple of years," Newland said.

Sheep farmers were suffering after five years of good lamb prices, Crombie said, with lamb schedules down about $10 a head from roughly $60 a head this time last year.

"The high exchange rate against all currencies and increasing interest rates are beginning to really impact on their businesses without the higher income to support them," he said.

Since October's survey the confidence of beef and dairy farmers has also fallen, with the number of beef farmers predicting a worsening economy at 69 per cent, against 37 per cent in October.

Crombie said beef farmers had had good returns despite the high dollar due to increased demand from Asian markets where US beef had been banned following the discovery of bovine spongiform encephalopathy, or mad cow disease.

"US beef is now beginning to re-enter Japan and prices are weakening," he said, before the Japanese ban on US beef was reinstituted on Friday. "New Zealand beef farmers are losing the buffer against the high exchange rate."

Dairy farmers had been the most optimistic when surveyed in October, with 76 per cent believing the economy would stay the same or improve this year.

However, October's survey took place just after dairy co-operative Fonterra announced a 15c per kg increase in its milk solids payout.

December's survey found that almost half of dairy farmers now expect the economy will worsen.

A panel of 776 farmers were interviewed in December for the survey, which was conducted by ACNielsen in conjunction with the farm market index survey.

Bad times expected
* Sheep farmers are the most pessimistic, with 83 per cent expecting the economy to worsen.
* 69 per cent of beef farmers and about half of dairy farmers predict worsening economic conditions.
* Overall, 59 per cent of farmers expect lower income in 2006.