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Farm confidence may be up but farmers call for OCR hold

With the Official Cash Rate decision due tomorrow, Federated Farmers 2013/14 Mid-Season Farm Confidence Survey, undertaken by 871 farmers, shows an ‘Auckland style’ split opening up between dairying and other pastoral farming sectors.

“Given farm incomes are a function of farmgate prices and production, where we are right now in the commodity cycle and with much kinder growing conditions, tells us the confidence glass of many a farmer is half full,” says Bruce Wills, Federated Farmers President.

“While undoubtedly the OCR will rise sooner rather than later this year, we would like to see it held until March’s Monetary Policy Statement (MPS) at the very least. There are some worrying undercurrents internationally and a surging dollar will directly impact farmgate returns.

“There’s a feeling of déjà vu given the way emerging markets in 1997 tipped New Zealand into recession, bookended by some suboptimal growing conditions. If anything, our exports today are far more exposed to emerging markets so what happens in them matters to our economy.

“Holding the OCR until the March MPS will give the Reserve Bank time to get its thinking in order over these external implications and risks to our economy.

“That should include a two-step pastoral agricultural sector. As with the previous farm confidence survey, undertaken at the beginning of the 2013/14 season in July, a rosy picture on the surface is masking genuine industry and regional variations.

“When adjusted for inflation, current milk price forecasts are on track to be the second highest ever. Dairy famers are unsurprisingly the most optimistic across all confidence indicators.

“Yet the confidence of red-meat and fibre farmers in their own profitability is nowhere near that for dairy. This is important given red-meat is New Zealand’s number two merchandise export.

“Indeed, the number of meat and fibre farmers who think their profitability will improve is almost half that for dairy. For grain and seed farmers, it is exactly half and the picture for other pastoral farmers isn’t much better than that.

“This two-speed split in farmer confidence explains widespread disillusionment and frustration with the state of the red meat industry. There is a clear and present need for meaningful reform so that meat and fibre farmers can benefit from burgeoning demand for red meat protein.

“We are anxious to avoid over dependence on a single commodity group so Federated Farmers has stepped up with our Meat Industry Options paper. While coming off a low base, natural wool is undergoing a renaissance while mohair fibre remains an outstanding performer.

“Like other businesses and consumers, farmers are starting to show optimism about the general economy, although the number expecting further improvement has fallen back slightly from the start of the 2013/14 season six months ago.

“Given the General Election lolly scramble is now underway, it is notable that a number of farmers have expressed concern about higher interest rates and political uncertainty.

“Farmers know there’s no such thing as “free money”. We hope voters will as well because what government gives with one hand is taken away by interest rates and inflation by the other.

“Improving confidence in the wider economy is seeing the purse strings being relaxed for on-farm spending. Until now, this had lagged sentiment found back in the July New Season survey.

“Reflecting what Rabobank said last year, New Zealand dairy farming is no longer a low cost producer. Many farmers reported concerns about farm input price inflation; another reason why politicians need to show restraint in what they are promising voters.

“Most farmers also remain cautious about farm indebtedness, with little change in the proportion of farmers expecting to increase, reduce, or hold debt at current levels.

“The agricultural labour market remains tight with farmers’ still reporting difficulty in finding skilled and motivated staff, also, at a similar level to this time last year.

“Overall, regulation and compliance costs remain the biggest issue of concern for farmers.

“This is particularly the case for dairying that is grappling with new or proposed regional council policies along with our emerging freshwater framework. The two being intimately related.

“Our election year manifesto will reflect this but farmers’ number one priority for Government is fiscal policy. That is a return to surplus and an end to operational borrowing. That means containing or reducing government spending while chipping away at sovereign debt.

“As an election year hint, there are a number of significant policy issues that need to be addressed and progress needs to be made on them,” Mr Wills concluded.


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