Confidence amongst Australia's rural community has faltered, according to the recent results from a Rural Confidence Survey of 2200 farmers throughout the country. The fall in sentiment follows the high levels of confidence evident in the sector in 2001. 

The survey, conducted by food and agribusiness bank Rabobank, revealed that only 11% of Australian farmers expect the rural economy to improve over the next 12 months, down from 26% last quarter with 36% expecting conditions to worsen (17% previous quarter). 

Confidence fell to some extent in all sectors with the most affected being wool, dairy and cotton. All regions were affected with the most noticeable decline observed in Victoria, due to concerns about the direction of milk prices. 

Farmers in Western Australia remain the most confident with 76% of respondents expecting conditions to improve or stay the same in contrast to 51% in Victoria and 50% in Queensland. Sentiment in Queensland is heavily influenced by ongoing concerns about conditions in the sugar industry. 

Rabobank GM, Rural Australia, Neil Dobbin said confidence in the farm sector has followed commodity prices downwards over the past few months: "Prices for all major rural commodities have declined in recent months, as a result of weaker international markets and a stronger Australian dollar. The drier than usual conditions in much of Australia, which has meant a mixed start to winter cropping programs has also influenced confidence." 

The decline in prices means farmers are less confident about income levels over the next 12 months, with 18% expecting their gross farm incomes to decline compared to 10% in the previous quarter. 

"With 60% of producers reporting an increase in their gross farm income in the Q1 2002 compared to the same period last year, producers are naturally cautious about forecasting higher gross farm incomes, with many believing they may have peaked," said Dobbin.

Cotton and sugar producers have the greatest concern about income levels over the next year due to continued price weakness in international markets. Dairy farmers have shown a major shift in outlook with only 26% expecting higher income levels over the next 12 months down from 42% last quarter. Grain farmers remain concerned about recent pool price adjustments and the strengthening Australian dollar. 

The prospect of higher interest rates has also dampened confidence, with 88% of respondents anticipating higher interest rates over the next 12 months. Rising input costs continue to influence sentiment with 78% of farmers reporting that their on-farm input costs had risen over the last year and 82% expecting price rises over the next year. 

Despite prevailing conditions for commodity prices the percentage of producers intending to invest in their farm operations over the next 12 months was only slightly affected with 28% still expecting to increase on-farm investments and a further 57% expecting their investment levels to remain the same. 

Dobbin believes this result highlights that "investment intentions are influenced more by long term prospects than short-term sentiment. 

"Despite the recent falls in prices, prospects for the rural sector remain sound with commodity prices higher than historical averages and interest rates still relatively low."