Slowdown in Farmer Spending ‘Hits Towns’; Farmers’ Leader Expects Wider Economy to Suffer

FARMERS have shut their chequebooks and the slowdown in spending is hitting smaller towns and will eventually flow through to the cities, Federated Farmers president Charlie Pederson says.

“They have stopped spending a lot — the chequebooks are in the bottom drawer and locked away,” he said.

Bankers say that once farmers stop spending, the effect flows through to bigger cities, with the impact tending to run through the South Island first and Auckland last. One said there were signs that farmers were no longer borrowing to buy the farm next door, or new equipment, but instead were repaying debt.

Mr Pederson said the high Kiwi dollar, at close to US69 cents, was cutting tens of thousands of dollars off farm incomes, compared with the returns expected if the dollar was closer to its long- run average of about US61 cents.

Farmers had battened down the hatches and the pain would “flow right through the economy”, and would hit the big cities in time.

Farmers were also being hit by rising fuel prices and higher overdraft interest rates after the Reserve Bank lifted the official cash rate on Thursday.

Parts of New Zealand, including Manawatu, the east coast of the North Island and Taranaki, had been dry for six weeks. Mr Pederson said it was no worse than usual, but farmers were “very much looking for rain”.

But, hit by the high Kiwi dollar, farmers had stopped spending last year, and the squeeze had continued this year for both meat and dairy farmers.

Meat, wool and dairy farmers had invested heavily in their farms.

“So farmers are in a position to turn off the spending and not aggavate productivity. And that is exactly what they have done.”

That was being noticed by the farm service industries and felt in the smaller towns too.

“That will flow through the economy– the pain is being passed on right now.”

There was little buying of new cars or tractors and the like for the past 12 months, in part because farm machinery had been updated in the past three years. Farmers would not need to replace again for several more years.

“It is going to be a long period between drinks for some of those service industries.”

Sheep farmers have seen prices for lambs fall about $10 a head lower than expected at the start of the season, because of the high dollar. The below- forecast lamb prices had made “farmers pretty grumpy”.

The higher forecast prices were based on an expectation that the New Zealand dollar would fall to around US60c, rather than stay close to US70c.

The high dollar made a “hell of a difference to the price received by farmers”, with prices of about $50 to $55 a lamb. For an average farm income that could cut up to $30,000.

The exchange rate, at nearly US69c on Friday night, was highly aggravating for farmers, Mr Pederson said.

The average in the past decade was about US61c.

For dairy farmers, each rise in the currency of US1c decreased the Fonterra payout by about 8c a kilogram of milk solids. For an average farm supplying 100,000kg of milk solids a year, that meant a revenue loss of $8000 for each cent change.

“That’s a big hole in profitability,” Mr Pederson said.

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