While New Zealand was in lockdown, in the ultimate work from home industry - agriculture - farmers just kept on doing what they always do. Photo / File
While New Zealand was in lockdown, in the ultimate work from home industry - agriculture - farmers just kept on doing what they always do. Photo / File
COMMENT:
It's not just the known unknowns that expose vulnerability, but also the unknown unknowns.
New Zealand's move to lockdown in late March turned into a crash course in working from home for many employers and employees across the country. But in the ultimate work from home industry — agriculture — farmers just kept on doing what they always do.
In many ways that sums up how our highly adaptable primary sector deals with the many challenges it faces on a regular basis.
When Covid-19 hit, farmers were already bearing the brunt of drought in the North and flooding in the South — the latest challenges among many the sector continues to face.
Looking into the future there will be yet more challenges. Climate and environment are likely to loom large for most farmers, and adaptability and good investment plans will be key.
However, before I delve deeper into that topic it's worth taking a closer look at the impacts of Covid-19.
The effects of lockdowns around the globe were felt by agribusiness, but in most cases the impact was greater across the supply chain than at the point of production. Our bankers experienced a very low demand for funding support in the short term as most farmers had reasonable cash reserves, or undrawn overdrafts to fall back on.
Operators of packing houses and meat processing plants came to grips with the challenges of social distancing quickly, avoiding the Covid-19 clusters those buildings have harboured offshore.
Forestry was also disproportionately affected as ports shut down, and demand for logs remains uncertain, despite a recent rebound.
But for most farmers and primary producers the grass kept on growing, trees kept on fruiting and stock kept on eating.
Importantly, agriculture's 'essential service' status meant sector economic activity and employment carried on largely unchanged through the lockdown.
This meant fears of a labour market shortage, a perennial issue in horticulture due to an absence of seasonal migrant workers came and went as local workers picked up work.
However, like many other industries, agriculture has been vividly reminded by Covid-19 that resilience and adaptability have their limits if not supported by a strong balance sheet.
Equity buffers allow operators to withstand shocks and leverage opportunities, while high levels of debt imposes constraints and places greater pressure and less flexibility on farmers.
Financial strength also enhances the ability of enterprises to pivot in the face of unexpected events.
Few people predicted a pandemic, much less one that would shut down the country for weeks on end, showing it's not just the known unknowns that expose vulnerability, but also the unknown unknowns.
As always, the end result is that balance sheet health and resilience will almost always define those that win and lose in business and agri.
In terms of margins, the pandemic slightly suppressed agricultural export prices, but by and large the sector has remained profitable.
Dairy commodity prices softened slightly as the pandemic softened global demand, but have subsequently stabilised, with the weaker NZ dollar helping to offset lost margins.
In market terms, our economists expect a 2019/20 milk price of $7.00/kg, falling 10 per cent the following year.
The outlook for meat prices is mixed, with demand recently falling globally in response to restaurants and cafes closing.
However, farmgate prices are expected to increase as the impact of drought fades and Covid-19 processing constraints are removed.
Forestry has overcome the initial disruption caused by the shut-down of overseas ports but the medium-term outlook is weak, with the global recession, including weak Chinese construction demand, likely to push prices to below long-run average levels.
Mark Steed, Head of Commercial and Agribusiness, Westpac NZ.
If there is one bright spot, it's horticulture, with this season's kiwifruit and apple exports off to a strong start.
Covid-19 became just another thing the sector had to deal with. Being resilient as they are, our farmers adapted very quickly.
The more serious and immediate concerns for many of them were — as always — related to weather.
Farmers in Southland had just experienced flooding, while much of the North Island was suffering from drought.
There are no signs Covid-19 will be eliminated globally, so we're not out of the woods yet. But for many farmers, considerations close to home will inevitably push the pandemic into the periphery if New Zealand remains clear of the virus.
Lending and cashflow are not an immediate problem but we anticipate more lending requests in coming months as the meat industry looks to secure stock for the coming season.
Farmers are also anxious to bring in farm managers and workers who were stuck offshore as borders closed.
Looking further into the distance, the long term physical and weather impacts of climate change remain a concern, especially in places like Northland and the east coast, where this season's drought provided a taste of conditions that are expected to become more common.
Farmers are already planning for how they will adapt to these changes.
As well as changing on-farm practices and management systems, many farmers are also gaining an appreciation of shifting consumer preferences.
Consumers now expect to understand the providence and health benefits of their food.
Vegetarianism and alternative protein are on the rise, which has the potential to change the global food system.
Proposed regulation around fresh water is of high interest, in terms of protecting and accessing the resource, and of course what it may cost.
Other investment will also be needed to satisfy the Government's carbon zero goals.
Both pieces of regulation underline increased government and societal expectations and these are likely to increase rather than abate as governments and regulators look for ways to improve New Zealand's long-term sustainability.
Farmers are already heavily engaged in this discussion, but again farmers need to have a plan about how they are going to meet these requirements, what investment is required and how they will fund this.
There is a growing appreciation that on-farm systems must adapt to changing expectations.
Agriculture in the 21st century has already evolved a long way in terms of harnessing technology to understand farm inputs and outputs, but there is room to do more.
Regenerative farming practices are also growing in both application and understanding, and farmers — as well as their banks, as an integral part of a farmer's trusted adviser group — should understand these trends and embrace the opportunities they offer.
Farmers will also be keeping an eye on trends offshore, particularly the rise of protectionist trade policies pushed by some of our trading partners.
Fortunately, resilience is woven into the fabric of NZ agriculture.
Despite the challenges, we see a bright future for agribusiness — so much so that we've actively increased our market share in the sector in the past 12 months.
We're pleased to have been able to support our customers as they faced into the unknown challenges of a pandemic and happy to be supporting a sector that continues to play such a vital role in our economy and national DNA.
- Mark Steed is Westpac NZ Head of Commercial and Agribusiness.
