Words by Richard Rennie
Covid-19 pulled the plug on the global economy with one swift yank earlier this year, and only now governments and industry can begin to assess what remains, and what new opportunities exist in the strange new world the virus has left us with.
For New Zealand that rapidly exiting tide has left food production as the leading light for finding a pathway to recovery. It is undoubtedly one that is far from ‘business as usual’, but still providing a level of certainty for a small country at the bottom the world in less than certain times.
Initial indications about how valuable New Zealand’s food growing ability would be came from “within lockdown” data indicating that from early February to late April the primary export sector earned $8.2 billion, a massive $800 million more than what the sector earned over the same time two years ago.
Within those numbers were $6.2 billion of dairy exports and almost a billion dollars of fruit exports. Agriculture minister Damien O’connor pointed to apples and kiwifruit as being the star performers in the horticultural sector.
“Overall primary sector export revenue remains higher into April than for the same period in 2018, despite the forestry sector essentially being shut down over the past month,” he said.
“The strength of New Zealand’s primary sector, coupled with the success of our health response to Covid-19 gives us a head start on the world as we get our economy moving again.”
He said there was no shortage of demand for products, and New Zealand now needs a skilled workforce to help it seize the opportunities currently before it.
Looking forward from a Level 2 beach head, the rest of the world is an uncertain place, with supply chain problems and big slides in hospitality and food service demand for quality food products.
However, thanks to a good response from the processing sector at home that has avoided infections and shutdowns, New Zealand is well positioned to capitalise on having a “safe” food production system. The term “safe” now has a new meaning beyond simply meeting standard food processing requirements.
The United States meat processing industry provides this country with a chilling example of what can happen if Covid works its way into the food processing industry. Over 5,000 workers have contracted the virus, 200 have died and meat supplies have been jeopardised.
In contrast New Zealand processors were able to reconfigure plants, reset work stations and have to date kept Covid out of the processing chain, ensuring not only can Kiwis be fed, but high quality, safely produced red meat can still make it to market for earning valuable export dollars.
After initially being hit with a 50% cut in capacity for sheep and 30% loss for beef, plants have incrementally increased processing ability from the start of April, helping work through the tail of lamb processing and pass the half way mark for dairy cow processing and beef.
Similarly, apple and kiwifruit packing operations have managed to reset and hit 90-100% of their pre-Covid capacity, subject to some variations in shifts and staffing levels.
Looking out to New Zealand’s valued export markets, the stress and impact of the virus upon those markets means volatility is likely to remain, despite markets’ desire for quality food supplies.
Rabobank’s latest Covid-19 update notes how just as China has started to recover, the rest of the world got sick, and while global daily infection levels have stablished, by early May they still had not fallen below 70,000-80,000 a day globally.
Countries are sifting through the economic damage of lockdowns that have been in place in some cases, for eight weeks. China, US and European economies have shrunk by between 7% and 3.8% in the first quarter, with expectations the second quarter will be worse.
Overall, Rabobank is forecasting a 2.6% contraction year on year of the world economy with the second quarter of this year being the darkest point.
Initially the picture for New Zealand may seem far from positive, with increased personal freedoms dampened by lower pay, reduced working hours and higher unemployment hitting consumption of all but basic food and beverages.
However New Zealand is blessed with a shock absorber in its floating exchange rate, and just as in the global financial crisis of 2008 it plays its role in dampening the impact of overseas turmoil.
Expectations are for the dollar to fall in coming months amid weaker global demand, helping temper the inevitable slide in demand that may follow the global Covid lockdown.
While the dollar has “bounced” back up over US60c in early May, analysts are confident this is only due to over-optimism about Covid’s retreat and as infection rates continue to be high through late May-June, the dollar will ease back into its downward trend.
Meantime New Zealand’s ability to continue picking, packing and processing food products holds the country in a good light as competing regions struggle to secure staff who are capable and healthy enough to complete food harvesting, processing and delivery tasks.
At home, the domestic economy has embraced locally produced food with cheese sales surging 25%, wine up 12% and frozen produce up 63%.
All exporters have acknowledged ongoing challenges around supply chain disruptions even in China as it returns to normal, with every port and every region experiencing different problems, keeping supplies tight and somewhat tenuous.
The biggest loss for New Zealand food exporters has been the slump in the food service sector, with hotels, restaurant and hospitality outlets that typically take higher value meat and produce all but shut.
The shutdown across Europe and United States has particularly hit high value sheep meat cuts. However other cuts including legs, flaps and forequarters have continued to perform well, helping shore up those losses.
Dairying continues to face mixed prospects with analysts’ predictions varying widely on where the coming season’s milk solids value may fall.
A surge in production out of Europe has weighed on concerns, with butter and cheddar cheese in global oversupply.
However so far Fonterra’s products have managed to continue to buck the global price trend by commanding premiums on productions including skim milk powder, whole milk powder and butter by 27-50%. High quality, grass fed provenance and clear labelling have all been cited by Rabobank dairy analyst Tom Bailey as the reason.
While not immune to a forthcoming global recession, the primary sector’s efforts to ensure the food it produces is of the highest quality, distinguished from base line commodity products could prove the prop that keeps New Zealand upright, and more capable of weathering the tough months ahead.