KEY POINTS:
As the good ship NZ Rural Economy 2006 comes to the end of its voyage across an uncertain sea containing a fair share of icebergs, its officers have been casting their eyes towards the shiny new 2007 vessel they will soon be sailing in.
The strength of the
dollar has proved one of the biggest icy hazards to safe navigation this year - and will bring further challenges in the new year.
Federated Farmers president Charlie Pedersen is reasonably optimistic the dollar will start to melt away come April.
Yet even his confidence, he said, was tempered by the acknowledgment that he probably would have given the same answer this time last year. "But it can't stay there forever - we'll just see."
Other positives for next year were that commodity prices, particularly for our biggest export earner, dairy, were expected to continue strengthening.
"When you look at what climatic conditions are doing, and what regulatory conditions are doing in the Northern Hemisphere, I think there's no reason to expect that dairy production won't continue to contract [there] and, therefore, that will push the prices."
The short to medium-term outlook for lamb prices was also very good.
"The style of the lamb we produce [is of] a quality and a type that will be a lead meal on many restaurant menus."
But other "officers" warn that a continued high dollar could constrain earnings despite better commodity prices. One senior executive said a high currency could force some farmers to sell up and another warned farm prices could plateau or even fall a bit.
Pedersen, meanwhile, said an issue to watch was the way various countries reacted to climate change, and what economic effects this had.
"That's kind of a big question mark for me. It just depends what countries decide to do that will set what will actually happen. That's a significant threat and we just don't know how that will affect us in New Zealand."
The way the Government developed climate change policy would present challenges and opportunities on the domestic front.
"You'll probably see some swapping between sectors as people try to take advantage of opportunities they see or the disadvantages they see in the industry they're currently in.
"So we'll see a whole pile of things happen quite quickly."
It seems the deckhands of NZ Rural Economy 2007 will, as usual, need to have their wits about them to help ensure they don't hit any situations they can't handle.
New hat
PGG Wrightson director Craig Norgate has a new hat to wear at the farm services and supplies giant - deputy chairman.
The new appointment for the former Fonterra CEO - whose family has a joint 30 per cent stake in PGG Wrightson through Rural Portfolio Investments - puts him even more centre stage in a company of which he has effectively become the public face.
As deputy chairman, his job will be to support the conventional chairman and chief executive roles.
The move recognised "the significant stakeholder demands of a national agribusiness", the company said, and Norgate will work with the chief executive on major strategic initiatives.
Norgate said the difficulties farmers faced because of the "overvalued currency" meant the synergy benefits from the merger of PGG and Wrightson were even more important for the future of the sector.
Milk fountain
Livestock Improvement Corporation figures on last season's bumper milk production raise questions over how well the industry is responding to the challenge of a 4 per cent annual boost in productivity - the ratio of outputs to inputs.
A reported failure to get anywhere near that 4 per cent target was a key driver behind the recently announced review of farmer levy-funded R&D. Productivity gains are said to have been less than 1 per cent recently.
One widely discussed scenario for achieving 4 per cent has been to keep lifting production by 3 per cent, which the dairy market could absorb, and cut costs by 1 per cent.
The LIC figures for 2005-06 show a 4.5 per cent jump in overall milk production following particularly benign climatic conditions. The statistics show average production per effective hectare grew 5.2 per cent over 2004-05 and 5.5 per cent a cow.
Dexcel economist Matthew Newman said his best guess at present was that cost increases meant the overall productivity gain for last season was probably close to 4 per cent.
Final figures won't be ready till March. But the general manager of LIC's FarmWise consultancy, Mark Dodd, said last year's result "shows you what a kind autumn does" and that the average gains were the result of "one-off" conditions rather than any underlying surge in productivity.
And the chairman of industry group Dairy 21, Graham Fraser, did not believe last season's production surge negated the need for the R&D review.
He said a key issue in considering all the figures was how much profit farmers were actually getting from production growth.
Doug Leeder, the chairman of leading research funder Dairy InSight, said he was keen to see the final productivity figures in March to help get a clearer picture of how farmers were actually faring.
Eating fruits
Australia's National Foods, subject of a takeover tussle between Fonterra and San Miguel last year which was won by the latter, is reportedly doing very nicely as it pushes for earnings of more then A$200 million next year.
The Australian Financial Review said National Foods was poised to reap the benefits of A$40 million-plus in cost synergies from its merger with juice group Berri and generate organic sales growth of more than 10 per cent from its dairy operation. It was also preparing to make further acquisitions in dairy, specialty cheeses or juice.
The business is performing ahead of budgets, says the firm's New Zealand-born managing director, Ashley Waugh. His crowing contrasts with Fonterra's admission in October that its performance in Australia was not satisfactory, although the co-op's chief executive, Andrew Ferrier, hoped then the return on Fonterra's $1 billion investment across the Tasman would lift above the "minimum threshold" within 12 months.
And finally ...
This is my last column for the year. Thanks to all who have provided information and opinions. I hope you find calm and restful waters in which to shelter and restore yourself over the holidays.
