Costs make gloom a growth crop

Farmers in Victoria were upbeat in the June quarter but have lost their confidence, according to a survey conducted by Westpac and Charles Sturt University (CSU).

Agribusiness (post-farm gate production and processing) was already unhappy in the June quarter, but expects conditions to worsen in the September quarter and the year ahead, NAB's June-quarter agribusiness survey shows.

Westpac's head of regional and agribusiness banking, Graham Jennings, said Victoria's economic performance in the June quarter was good in the face of rising operating costs and a dry autumn. Results were particularly strong in the Western District and Gippsland.

However, farmers were less happy about the year ahead, with only 60% confident about the future compared with 69% in the March quarter. "In fact, Victoria recorded the lowest confidence level of all states," Mr Jennings said. Nationally over the same period, producer confidence fell from 68% to 58%.

Despite this, commodity prices were at record highs, Mr Jennings said, and these, coupled with good rain, should position farmers for the coming season.

The head of CSU's western research institute, Tom Murphy, said rising fuel prices and higher fertiliser costs were taking their toll on Victorian farmers despite reasonably good profits.

"In response, they cut back on their capital expenditure in the June quarter and expect to cut back further in the September quarter," he said.

The NAB survey showed that conditions deteriorated across all agribusiness sectors, including food manufacturing, due to rising raw material and fuel costs. Optimism about the next 12 months "deflated significantly". Respondents were worried about the high exchange and interest rates, with 12% and 9% respectively citing these as the main drag on profits. NAB said demand was the major concern, with 34% expecting a lack of demand to hurt profits.