WA drought hits rural outlook

26 Sep, 2001 10:00 PM

BUSINESS confidence throughout Australia's farm sector has begun to wane, but for two entirely different reasons.

Rabobank's quarterly rural confidence survey released this week, found only 44pc of farmers surveyed in the June quarter expected an improvement in the agricultural economy in the next 12 months, compared to 50pc who expected a similar outcome when surveyed in the March quarter.

The biggest drop in confidence was recorded by drought-plagued farmers in WA, where the proportion of farmers predicting an improvement in the farm economy almost halved from 66pc last quarter to only 34pc this quarter.

"Western Australia was way down, reflecting the bad season there," Rabobank research and strategy manager David Stoate commented.

Plummeting harvest forecasts reveal just why their outlook is the glummest of all states.

Two years ago WA growers delivered 12 million tonnes of wheat to their local bins. This year only 7m tonnes are expected.

WA agriculture minister Kim Chance estimated the drought will potentially cost the state $3 billion in livestock and cropping losses, depending on rainfall.

Nationwide, sheep and beef producers are also expecting the rural economy to drop, but for different reasons.

While WA has gone from bad to worse, sheep and cattle producers are enjoying record prices, so many feel there is only one direction left, and that's down.

As a result the number of sheep producers expecting the agricultural economy to improve dropped 13pc from 53pc to 40pc, and the number of cattle producers with similar forecasts dropped 11pc from 43pc to 32pc, compared to the last quarter

Primary Industry Bank of Australia (PIBA) rural general manager Neil Dobbin said although prices were good, farmers remained mindful that prices tended to be cyclic, so were predicting the current record rates would not last.

"Farmers have experienced many boom/bust cycles in agriculture, and for many industries they seem to be saying that conditions cannot get much better." he said.

Backing that assertion, a growing number of farmers surveyed by Rabobank expected to increase their investment in their farm business in the next 12 months - indicating continued profitability - even though a shrinking number believed prices would improve.

The most optimistic farmers were from the sugar and dairy sector. In stark contrast to sheep and beef, many farmers in those two industries believed there was only one way for prices to go, and that's up.

After suffering from deregulation in the past year, 60pc of dairyfarmers now expect their economy to improve in the next 12 months, thanks to a stronger export market and improving farm gate prices, compared to 55pc who expressed similar sentiments last quarter.

Similarly, 59pc of sugar producers expect their fortunes to improve, compared to 47pc last quarter.

Sentiment among grain farmers remained stable, with 48pc expecting an improvement.

The survey was taken before the terrorist attacks in the US, which could alter the state of confidence in rural areas, Mr Stoate said. It's impact will be monitored in Rabobank's September quarter survey.

This survey revealed most farmers (65pc) reported higher incomes in 2000/01 driven by higher commodity prices and an improved season in many areas.

About half (51pc) also their expect their income to increase in the coming 12 months, although this declined from 60pc in the last survey.

Despite the still generally positive sentiment, the regional and industry differences in outlook were dramatic, Mr Dobbin said.

Fifty-three percent of farmers in WA experienced lower incomes in 2000/01, with only 28pc reporting better incomes.

In contrast, 81pc of respondents in Victoria and South Australia had better incomes last financial year compared to 1999/2000.

Sugar and cotton producers also suffered in 2000/01 with 61pc and 62pc reporting lower incomes respectively. Interestingly, 75pc of sugar cane producers expected their incomes to improve in the next 12 months compared to only 38pc of cotton producers.



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