A recent survey shows another lift in farmer confidence, despite concerns about the impact of government policy and labour shortages on the rural sector.
The strong pricing outlook for New Zealand's key agricultural products drove a third consecutive lift in Rabobank's latest Rural Confidence Survey.
After returning to net positive territory in the first quarter of 2021 – with more farmers optimistic than pessimistic in their outlook, and following 10 consecutive surveys at negative levels - farmer confidence continued its ascent with the overall reading inching upwards to +13 per cent, from +10 per cent previously.
The latest survey, completed earlier this month, found the number of farmers expecting the rural economy to improve in the next 12 months increased to 32 per cent (from 29 per cent last quarter), while the number expecting the rural economy to worsen remained at 19 per cent.
A total of 50 per cent were expecting similar conditions (down from 53 per cent).
Rabobank New Zealand CEO Todd Charteris said the small improvement in farmer sentiment was fuelled by a strong commodity pricing outlook, despite increasing concerns about aspects of government policy and the impact of labour shortages on the rural sector.
"Farmers are now marginally more positive about the prospects for the agricultural economy in the coming 12 months. And the key reason for this is rising commodity prices, with this cited by well over half of those holding an optimistic view of the year ahead," he said in a statement.
Pricing for New Zealand's key agricultural exports held up well over recent months and were expected to remain strong, moving into the second half of the year.
"Since the last survey in March, dairy farmers have been buoyed by continued strong Chinese demand for Oceania-origin dairy imports which has helped maintain pricing at elevated levels. In addition, we've seen Fonterra announce a strong opening season forecast for the 2021/22 season of $7.25 to $8.75 kg/MS, with a mid-point of $8."
The outlook for beef pricing improved, as a result of reduced competition from Australia, while sheep meat exports were expected to remain firm over the coming months due to expected ongoing strong demand from key markets, Charteris said.
"Likewise, returns for New Zealand's horticultural products have stayed strong off the back of robust overseas demand. This is particularly the case for New Zealand kiwifruit, with Zespri reporting growth in customer demand across all markets as Covid-19 has driven consumers to seek out vitamin rich foods."
The incremental lift in farmer sentiment came despite rising farmer concerns over government policy.
"Of the one in five farmers with a pessimistic view of the agricultural economy, 82 per cent cited government policy as a key reason for concern. And while we've seen government policy feature as the major concern for farmers across recent surveys, this percentage is an increase on recent quarters."
There were several government policies which might have caused unease among farmers; but this spike was likely due to concerns over the recently finalised advice from the Climate Change Commission, which could have significant implications for New Zealand land use and farming systems, including future reductions in total livestock numbers, Charteris said.
Listen to Jamie Mackay interview Todd Charteris about the Rabobank Rural Confidence Survey on The Country below:
Worker shortages remained a significant concern for farmers.
"Among pessimistic farmers, 50 per cent cited 'other' reasons for expecting the performance of the agri economy to worsen with labour shortages the most frequently mentioned factor in the corresponding verbatim responses."
For the first time, Rabobank also asked farmers additional questions about the impact of labour shortages on their business, Charteris said.
"In response to these, 40 per cent of farmers said they 'have been' or 'will be' impacted by labour shortages, with this figure rising to 64 per cent among horticulturalists."
Farmers also indicated labour shortages were now a significantly bigger problem than 12 months ago.
"Only 3 per cent of farmers indicated the issue had improved since last year, with 43 per cent saying it had worsened."
Charteris said Rabobank had raised this issue with a range of government ministers over recent months, and would continue to highlight farmer feedback in its ongoing discussions.
Farm business performance
The survey found farmers' expectations for their own farm business performance were up on the previous quarter, increasing to a net reading of +16 per cent from +7 per cent in the previous quarter.
A total of 32 per cent of farmers were expecting their own farm business performance to improve in the next 12 months (up from 26 per cent), 16 per cent were expecting conditions to worsen (down from 19 per cent) and 50 per cent were expecting conditions to remain the same (down from 53 per cent).
"Farmers had improved expectations of business performance across all sector groups, with sheep and beef farmers recording the biggest rise and dairy farmers recording the highest overall expectations of their business operations," Charteris said.
Horticulturalists recorded a small lift on this measure, however, as with last survey, there were more growers expecting the performance of their farm business to deteriorate over the coming 12 months than those expecting it to improve.
The survey found farmers' investment intentions were slightly lower than in the last quarter, falling to a net reading of +11 per cent from +13 per cent previously.
A total of 24 per cent of farmers were expecting to increase farm investment in the coming 12 months (down from 25 per cent) with 13 per cent intending to decrease investment (up from 12 per cent) and the remainder expecting to invest the same.
"This minor drop was driven by weaker investment intentions among dairy farmers and horticulturalists while sheep and beef farmers bucked the trend recording a small lift on this measure," Charteris said.
Farmers' investment intentions remained relatively robust and higher than they were at the same time last year.
"However this small fall was likely down to their inability to plan for the future with any certainty, due to a range of factors including Covid-19, labour challenges and government regulation."
• Conducted since 2003, the Rabobank Rural Confidence Survey is administered by independent research agency TNS, interviewing a panel of approximately 450 farmers each quarter.