Agribusiness Report: The beating heart of the economy has kept working

Simon Power, General Manager, Commercial, Corporate & Institutional at Westpac.

Simon Power is bullish about Kiwi agriculture, saying it could be very well placed to lead New Zealand's economic recovery from the effects of the Covid-19 pandemic.

"There are plenty of challenges," he acknowledges.

"But when you think how well agriculture has come through Covid-19, the prospects are terrific."

Power, General Manager, Commercial, Corporate & Institutional at Westpac, says the overall performance of New Zealand agribusiness since the Covid-19 crisis began has been solid.

He notes agribusiness and partner industries have felt some effects from Covid-19, but in general the sector has shown its resilience, and while commodity markets have dropped they are generally in passable shape.

Most of the Covid-19 impact was off-farm (such as freight/logistics, supply, and packing/processing) rather than in production, he adds.

"If you think about the global recession, and if global demand falters, you would expect some downward pressure on prices," says Power.

"But when you offset very low interest rates, the slightly weaker dollar, petrol prices and fuel prices it is not too major."

Power cautions that rising economic nationalism and protectionism has the potential to challenge Agri and other New Zealand export-exposed sectors. "If the US-China relationship deteriorates then potentially that is going to have a pretty big impact on what these markets do," he says.

"We're watching that pretty carefully and I imagine the sector is watching that pretty carefully."

That said, he is confident about he pull of Asia's spending power.

Power is looking carefully at whether the coronavirus outbreak has altered consumer behaviour.

He says it is not about consumer spending patterns as such.

But on whether New Zealanders have altered some of their actual behaviours on a more permanent basis after New Zealand moved to Alert Level 1: "Are we going to cook more at home versus going to restaurants?" he questions. "What would that mean for our producers?

"Does that mean having to think differently about the way food products are brought to market?"

Though there has since been some pent-up demand released as New Zealanders get back to work and resume much of their normal lives, it may not be clear until the wage subsidies come off whether that consumer appetite for spending is bedded in.

Other micro-trends include the role of digitisation, online shopping and working from home.

As well as coping with the Covid-19 crisis, Power says agribusiness customers have been remarkably resilient given the extent of the environmental issues, including water, that they face.

"Climate change and a societal move towards sustainability will continue to play through to farms and agribusinesses, but there are also opportunities in this area and the sector appears engaged.

"As a bank, we're here to support our customers times of need.

"We encourage them to talk to us early and explore the support that is available."

Power says during the heat of the Covid-19 lockdown, Westpac's bankers had the opportunity to have conversations with farmers about their plans in respect of climate change and sustainability, reacting not only to Government policies but also issues like enforcibility of changes on water.

"That discussion is only going to get more complex and more detailed. I don't think that is going to go away."

He notes organisations like DairyNZ and Beef + Lamb NZ have actually had time to really think about the impact of trends on their industries.

"Covid has accelerated some of those trends starting to come into play," he says. "They have been remarkably resilient as a sector compared to other parts of the economy, such as tourism, construction and manufacturing, which are all facing a different set of challenges to agriculture.

"The beating heart of the economy — agriculture — has kept on working, however."