Calm on the farm – but the next storm is already casting shadows

Our recent pre-election poll showed something rather interesting: businesses are actually more optimistic about the future than they were last year.

Time to read: 5 mins

When Baker Tilly Staples Rodway surveyed around 750 businesses across the country, 85 per cent said they thought the government’s management of the economy was poor, a huge jump from just three years ago. However, the surprise was that fewer businesses believe the economy will worsen over the next 12 months. In fact, more than a quarter of businesses are feeling things are about to get better – a 50 per cent improvement on the gloom of 2022.

If you asked Hawke’s Bay farmers, on the other hand, the results would probably look a lot different.  

Based solely on current figures, many Hawke’s Bay farmers have experienced similar trading results to last year. Then there are some farmers whose results have exceeded last year’s significantly, but that is misleading when it comes to future business health. 

The reality is that the profits are due to selling additional capital livestock and receiving insurance proceeds. Meanwhile, these flood-hit farms have limited or no fences to keep livestock in, tracks to access the land easily have been washed away and feed pasture has been damaged by slips and flooding. While the money and the support might be there to do the repairs, the weather hasn’t played ball, meaning thousands still needs to be spent on fences, culverts and tracks once the rain clears.

Farmers who have received sale proceeds from capital livestock and insurance payouts will have increased taxable income, healthy bank accounts and be cashflow positive at the end of the financial year. But it will be in the next financial year when significant costs are incurred, such as replacement capital livestock, new fencing, track and culvert repairs, that the true cost of the cyclone will be felt and the reality sets in. These farmers also need to be mindful that there will be an increased tax liability due unless this tax has been able to be deferred.

All this comes as costs increase, and revenues have dropped across the board. It’s uncertain whether dairy prices will continue to drop further, after a slight recent rebound. Around half of our survey respondents believe they will, while many weren’t sure. Meanwhile, the percentage of people expecting increased exports plummeted 20 per cent.

What is certain is that next year’s balance sheet won’t look so good for farmers affected by the floods – and aside from fencing gangs or civil engineers, that’s likely to have negative impact on regional businesses too. As a Federated Farmers report found recently, farmer confidence across the country is at a 14-year low, with 45 per cent of farmers expecting to spend less in the next 12 months, against 35 per cent expecting to increase it.

So what are farmers calling for?

The food and fibre sector is still the backbone of New Zealand’s economy, responsible for $57.4 billion worth of exports in the year to June, or 11 per cent of GDP. To support a healthy national economy, it’s key that whichever party (or parties) win this election, they address the biggest issues facing the rural communities devastated in this year’s weather events. These include:

Reducing the impact of taxation

Nearly 85 per cent of Baker Tilly Staples Rodway poll respondents were in favour of a full review of the personal tax system to address bracket creep. It’s a positive sign that both major political parties (to a greater or lesser extent) appear to be heeding the need to address taxation and cut unnecessary spending, promising to review the size of government departments and give back more to New Zealanders facing cost-of-living struggles. Addressing the tax bands in particular could make a huge difference, provided government spending is also reduced to help offset the cost. Unsurprisingly, however, three-quarters of those polled were against a wealth tax, and the majority also opposed a capital gains tax as a means of raising more revenue.

More support for mental health

Conversations with affected farmers reveal many are burning themselves out trying to fix everything, which carries a huge mental health cost. In fact, recent Massey University research shows that across the country, farmers and farm managers have a 70 per cent chance of burnout (compared with 30 per cent for CEOs).

The Labour government has pledged $2.4 million to the Rural Support Trust, including for mental health services in cyclone-affected areas, while National has promised $20 million to community mental health providers over the next four years if elected. Farmers will be looking for the incoming government to deliver on these promises. Notably, health spending was ranked top of the wish list in our business poll, up from third place in 2020 and overtaking perennial favourite, infrastructure.

Curbing wage inflation

As of February 2024, the median wage is set to increase to $31.61 an hour, impacting wage thresholds for migrant labour. Increasing wages across the board may help attract staff, but at the same time, adds pressure to farmers already struggling to pay rising mortgage costs and recover from cyclone damage – especially when most roles are at farm assistant level. 

Not every farmer is in the same situation, and a change in global economic conditions could bring a welcome turnaround in the outlook for the flood-hit rural sector. Increased positivity about the year ahead may signal anticipation that a change of government is also coming. Whatever the result at the polls, the biggest win for farmers will be more support during the six months ahead.

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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