Agribusiness Report: Focusing on the future of farming

NZ finished 2020 in a stronger financial position than expected thanks in part to New Zealand's rural sector, says ASB's Ben Speedy.

COMMENT:

It's been a remarkable 18 months for New Zealand, and for the world. For a country like ours that is reliant on exports, many predicted the pandemic would result in a broad slowdown in international trade, due to border closures, logistics challenges and reduced demand dampening the economic outlook.

But given our country's status as a quality food producing nation, we finished 2020 in a stronger financial position than expected, and that's thanks, in large part to New Zealand's rural sector.

Despite predictions of a sharp fall, New Zealand goods exports finished the year in a resilient position. Data from our ASB economists shows that over the past 12 months regions that are more reliant on agriculture and exports have been benefiting from this.

In fact, in the three months to March 2021 rural regions generally outperformed the major urban centres on ASB's Regional Economic Scoreboard, which tracks a range of economic indicators across the country. There's no denying the South Island has been hit hardest by the lengthy border closure given tourism makes up a larger chunk of its economy. Conversely, Northland has benefitted from the strength of the local forestry sector, which has been one of the stars of the economy over the past six months and continues to perform well thanks to the recovery in China. During the same quarter, Waikato continues as a microcosm of the broader New Zealand story and has been doing well thanks to its large exposure to the dairy sector.

The ongoing resilience of our primary sector has helped support the broader New Zealand economy through the pandemic, and the ASB Economics team says the outlook remains positive as NZD Commodity prices sit at record highs. In fact, the ASB Commodities Index (a weighted index of New Zealand's major exported commodities) hit its highest monthly averages ever in March, April and May 2021, and our Economics team is forecasting a bumper $8.20kgms milk price for the 2021/2022 season.

While this is encouraging, as we look to the future we know the tight labour market, rising feed costs and regulatory change will pose a challenge for some farmers. ASB's Rural team recently conducted research with farmers from all over New Zealand and across industries to understand the key issues keeping them up at night, and what's on the horizon for them. We spoke to more than 400 farmers and understandably climate, compliance and regulation were top of mind:

• One in four farmers is very confident about the future of farming;
• 60% have succession planning on their minds;
• One in three say they're not doing anything to mitigate the effects of climate change, but;
• Two thirds are adjusting their on farm practises through projects like planting trees;
• One in five say compliance costs are an issue, while two thirds say regulation is an issue.

We can't deny climate change is one of the most critical issues facing our economy and communities. As a lender, ASB is committed to meaningful climate action, working with our customers to build our cumulative climate resilience. And while many local food and fibre producers are already good custodians of the land and among the most environmentally-advanced in the world, there's still work to do. It's critically important we are not complacent about ensuring Kiwi farmers and growers are prepared for the level of investment needed going forward to maintain – and exceed - appropriate environmental standards.

Encouragingly, the appetite is there. We've seen it through demand for our environmental compliance loans (low interest loans targeted specifically to help fund on-farm environmental improvements). That drive to be on the right side of history is in Kiwis' DNA, be they town, city, or rural folk. And besides the legislative changes there's also a changing tide of consumer expectations when it comes to both environmental and financial sustainability. This means an ever increasing need to look for innovative solutions perhaps not yet discovered.

That's why we're using the funds available to us under the RBNZ's Funding for Lending programme for the ASB Rural Sustainability Loan (RSL), committing $100 million in low-cost loans to help farmers tackle environmental impacts. The RSL, introduced late last month at National Fieldays, is an innovative refreshment of our existing compliance loan designed to support farmers for projects and initiatives that will directly improve their farm's environmental footprint. ASB rural customers can borrow for a range of projects including greenhouse gas emissions reduction, sustainable use and protection of water, and animal health and welfare.

It was really encouraging speaking with customers at Fieldays and hearing about the range of on-farm projects that will benefit from the RSL. Customers in Waikato for example are looking at investing in fencing off deteriorating native bush patches and replanting with native trees. Others too are interested in using the funding to build retaining walls and bridges to cross streams, while one of our dairy farming customers has already taken advantage of the low-cost funding to line an effluent pond before calving season starts in the next few weeks.

This is incredibly encouraging, and we're proud of the work many farmers have already done and are excited to see even more get stuck into meaningful environmental improvements. From solar power for the milk shed, precision fertilisation or changing pasture or herd genetics to reduce methane emissions, there's so much we can do to make a real difference for farmers while supporting a more sustainable rural sector in the longer term.

It's our aim to back Kiwi farmers to be good farmers who demonstrate best practises and showcase our local producers as we believe they are - the best farmers and growers in the world.

Ben Speedy is GM Rural Banking at ASB Bank