Fourth consecutive year of profitability ahead for agriculture sector - report

  • 30/01/2020
Todd Charteris expects prices for New Zealand's key agricultural exports to remain strong in the year ahead.
Todd Charteris expects prices for New Zealand's key agricultural exports to remain strong in the year ahead. Photo credit: Supplied

A new report paints a positive outlook for the New Zealand agriculture sector, predicting a fourth consecutive year of profitability for producers.

Rabobank's Agribusiness Outlook 2020 said while farmers' concerns over the direction of Government policy had weighed on confidence in the rural sector, market settings remained largely in New Zealand agriculture's favour. 

"We anticipate prices for New Zealand's key agricultural exports will remain strong in the year ahead, with Chinese meat imports set to remain elevated as China rebuilds its pig herd in the wake of African swine fever, while strong dairy prices are likely to persist due to slow global dairy supply growth," said Rabobank New Zealand CEO Todd Charteris. 

"Demand for New Zealand's fresh horticultural produce is also picked to stay firm supporting horticultural export prices, while disruption in global wine markets should create opportunities for New Zealand wine producers."

A host of other positive market settings were also playing into New Zealand farmers' hands, he said. 

"Our proximity and superior access to the Chinese market will continue to be a key advantage in the coming year.

"Relatively low debt costs will be another plus for New Zealand farmers in 2020, as will a weaker New Zealand dollar - with the dollar forecast to fall to its lowest level since the global financial crisis." 

While another profitable year was likely, Charteris said New Zealand's food and agribusiness sector was wading through a period of frustration. 

"The agricultural industry is dealing with increased environmental regulation, the prospect of more onerous regulation in the future and uncertainty over the timing and degree of what is to come.

"Changes in the banking industry are a further source of concern for farmers, with agricultural investors now facing more constrained access to capital." 

With New Zealand's agricultural sector industry in a transitional phase, the report said, the extended run of positive market factors came at an ideal time. 

"Beyond the obvious appeal of a further consecutive profitable year, now is a particularly opportune time for New Zealand agriculture to extend its recent good run.

"With land values inflated, the positive market settings should help to ease the adjustment to more sustainable land values in coming years. We'll also see increased sustainability regulation lead to increased costs, and this will be easier for the industry to tackle from a position of financial strength." 

Head of RaboResearch and report author Tim Hunt said while New Zealand's agricultural sector had its own challenges, it was important to note that the sector's recent run of profitability had come during a period when farmers in many other parts of the world have struggled to make a margin. 

"Over recent seasons New Zealand has been an 'island of profitability' in a difficult world," said Hunt.

"Farmers in countries like the US, China and Australia have all faced significant challenges in recent times, with a combination of drought, flood, market disruption and disease ensuring painful seasons for primary producers." 

The report cites a number of key watch factors for the year ahead including upcoming elections in New Zealand and the US, carbon investments and trade developments. 

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