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18Jun

Primary sector in positive place

Bailey Kris Kris | 18 Jun, 2021 | 0 Comments | Return|

Words by Richard Rennie

With the farming year winding down, crops harvested, livestock sold, cows dried off and fruit picked, farmers and growers can take a well-earned break. That should also be accompanied by a long sigh of relief enduring a season spanning one of the biggest crises the world has ever faced, while their role in our economy is more viable and valued than ever before.

The April ANZ commodity report describes a “sky high” index that surged 6.1% over March, putting it at the highest point it has been in the index’s almost 30-year lifetime.

The report’s upward drive has been underpinned by dairy’s surge of 12.7% in March alone which has put the sector at the highest level of returns for seven years.

Whole milk powder which comprises almost 60% of New Zealand’s dairy earnings is an eye watering 43% higher than a year ago just as the world was poised to enter assorted levels of covid lockdown. Similar strong gains were also experienced with skim milk powder and butter.

The meat and fibre sector has also had a 6% lift on a year ago, despite the intense competition now coming in from the likes of South American countries pushing harder into New Zealand’s large beef market in China.

Lamb is also finding a firm footing, with a lift of 2%, and hopes are this sector will continue to lift as more restaurants and food outlets start to reopen throughout Europe.

Wool which has had such a dire run over the past year is also showing signs of life, with a respectable 10% lift in March – however it has some way to go for farmers to know it can contribute positively to their bottom line, with shearing costs still exceeding the value of the wool harvested.

China’s appetite for animal protein has resurged after the country successfully grappled with covid, with an economy that was the only one last year to exhibit positive growth and continuing issues over pork supply lingering due to African Swine Fever decimating pig populations.

While the latest outbreak is smaller than two years ago, it is combined with an effort in China to rebuild pig populations, meaning less product is available for consumption until that is achieved.

Interestingly, the red meat sector has also been buoyed by a return to an old school trading option – whole frozen carcases.

This form of export has been rekindled in a market that has grown more accustomed to exporting value add portions and cuts over the years, to the extent carcases only formed about 2% of total lamb exports.

But the impact of covid on restaurants in Europe, a key speciality cut market, and problems of labour shortages for producing such labour-intensive cuts has made carcass exports to China more appealing. Analysts caution however that carcass sales have a very erratic history and can be a risky market to stake too much upon.

AgriHQ analyst Mel Croad says the prospects for lamb over the coming year remain very firm, with winter contracts as high as $7 a kg on offer.

She remains wary about how farm lamb numbers will be down this season, while prospects across all markets is even more positive than a year ago as countries ramp up their vaccination programmes.

“Demand is building again for lamb in the United States as vaccinations increase and restaurants and food service open up again. The EU is not there yet, but we expect that to lift too in coming months, and the United Kingdom is as strong as it has ever been for a long time with prices very firm there.”

While New Zealand has pre-eminent supply status for sheep meat into China, it is a tougher story for beef, despite the relatively strong prices. 

Unlike sheep meat, New Zealand farmers have some stiff competition for beef from big players like Uruguay, Argentina, Brazil and more recently the United States, despite Donald Trump’s trade war with that country.

Mel Croad says the United States has just become China’s third largest beef supplier, and is unlikely to diminish any time soon.

However New Zealand has been quietly building its value-added chilled beef trade to China in recent years, and is now selling twice as much chilled product to China than it does to the United States.

Meantime the United States continues to remain a solid ground beef market, while Chinese demand for ground beef also continues to grow as more western style food outlets open there.

Overall, Mel says New Zealand producers should feel more comfortable than they did a year ago, with concerns over the dry weather along the east coast probably playing heavier on minds than worries over obtaining good prices for products.

Prospects for wool should also be buoyed further by the industry’s recognition that work needs to be done to make it a valued part of a farm’s earning ability.

The formation of the Strong Wool Action Group (SWAG) aims to turn the fibre around, and give it the rightful mantel of being a sustainable, flexible product with multiple uses across industrial, fashion and construction applications.

While it is still early days, some positive news lies in its recent 9% lift in prices, and some of the innovative developments coming out of research and commercial developments.

This includes an undertaking from Cavalier Carpets to switch to wholly wool based carpets within a year. The company’s chairman George Adams has said the “time was right” for a move to all-wool carpets, given the negative impacts synthetic fibre production and lifecycle has upon the environment.

Work by AgResearch is also highlighting the ability to extract protein from wool, with nutritional options for petfood and human food additives. Consumers’ desire for more sustainable food is also translating to other aspects of their lives including clothing and home interiors, both which bode well for strong wool’s prospects in coming years.

Rob Hewett, chairman of SWAG says this cannot come before time, and that the stakes are high, with continuing low wool prices only accelerating a faster decline in breeding farm numbers.

Forestry returns are also accompanying the high protein prices, with forest prices lifting by 25% in the past year, despite the dampener covid put on Chinese demand for timber during the initial stages of covid.

Domestically there is also a strong demand for timber, with initiatives to get more homes built to try and combat the housing crisis.  In addition, there is greater expectation at a government level for NZ timber to be used where possible in government sponsored construction projects.

For farmers, the options around forestry have also opened up in the past year as carbon prices surge on the back of climate change initiatives and moves to make the Emissions Trading Scheme integral in helping New Zealand meet its Paris Accord commitments to decarbonise by 2050.

Rather than being the “green threat” to pastoral farming, carbon returns are proving to be capable of providing an invaluable additional income to a pastoral farm’s bottom line.

David Janett, director of Canterbury based Forest Management Group says farmers are now finding themselves in the box seat for reaping forestry carbon returns.

He has clients in Canterbury who have made a concerted effort to take advantage of the last government’s One Billion Trees project, claiming over 60% of the grants approved under the scheme in the South Island.

“A registered carbon forest offers the opportunity to generate earnings from the first year of planting. By the time you get to year four you will be earning about $200 a hectare of planting, but by the time you get to year eight that will have risen to $1300, peaking at about $1500 a hectare a year right through to year 16, and this is based on a carbon price of $35 a tonne, which is looking light now.”

Latest NZ carbon unit prices have touched $40 a unit and expectations are that if Climate Change Commission recommendations are adopted New Zealand could have prices nearer $100 a unit within a few years.

The strong price signals from across the primary production sector are reflecting in farmer sentiment.

The latest Rabobank report on farmer confidence is at the highest level since early 2018, and follows on from the rise experienced late last year as the sector started to see how well it had responded to the global pandemic, maintaining supply from farm to plate, while consumers continued to endorse their quality products through respective lockdowns.

Rabobank’s CEO Todd Charteris says while dairy has been a major driver of that optimism, the news has also been encouraging for red meat farmers.

“Demand from our key markets has held up much better than expected in the first quarter of the year, with Chinese demand in particular leading the charge as our major market continues its post covid recovery.”

That confidence was reflected in this years South Island Agricultural Field Day event at Kirwee. Event chairperson Michaela McLeod says crowd estimates were a record 30,000 people, and farmers were in a spending mood.

“We had reports from many exhibitors that they had farmers buying equipment even while they were setting up their displays, and many had sold out of their display items by the end and were taking orders for further sales before the field days were over.”

She says after a nervous week with the country going to Level 2, it was a relief to be able to run the event.

“And I think farmers appreciated being able to get out and see what they were buying first hand.”

Just as farmers’ view of their businesses is improving, with it are shifts in how overseas consumers are perceiving New Zealand as a source of food. 

Covid has bought a distinct shift in those perceptions, and the latest NZ Story survey across six key customer countries has shown New Zealand is seen as more than only a clean country with Hobbit film vistas.

Consumers overseas have been compelled to slow down, get closer to nature and become more resilient, ironically all elements often associated with New Zealand, and New Zealanders.

The global perceptions survey taken over last June recorded consumers’ sense that New Zealand had taken a caring, empathetic approach to coping with the pandemic, with its “team of five million” a slogan recalled by many overseas correspondents.

Rebecca Smith, the director of New Zealand Story, the agency that commissions the research, says New Zealand has found itself in a unique situation where the Prime Minister’s global appeal has become closely aligned with this country’s values, and a belief New Zealanders have united cohesively to deal with the pandemic.

She says distributors and suppliers of New Zealand food and beverages have never had a better time to tell their story, folding in these qualities to the established and known aspects of purity and safety.

“The focus has really changed to how we live, the fact we are respectful, inclusive, forward looking and we really have a high quality of life.” 

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