Tim Henshaw says the Westpac NZ Agribusiness and Economic teams are seeing positives for the year ahead, and are keen for primary producers to keep these factors in mind. Photo / Supplied
It is fair to say this has been New Zealand's winter of discontent, but looking forward we see many positives for our farmers and growers.
The rising cost of living, widespread illness and, yes, some disappointing All Blacks results have cast a pall across the nation's towns and cities.
For Kiwis working on the land, it's been particularly tough.
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These months will be remembered by many for the grey clouds and sodden pastures, a persistent lack of workers, ongoing supply chain issues, and an incoming tide of regulations. Most recently, the rain has descended once again, just as many regions are calving and lambing and growers prepare for spring priorities.
Farming can be a lonely profession at the best of times. When the chips are down it's natural to feel even more isolated — few will be surprised that a recent Federated Farmers survey found farmer confidence was at its lowest level in 13 years.
The sentiment arises from real issues, many of which are structural and difficult for farmers and growers to solve individually.
However, the Westpac NZ Agribusiness and Economic teams are seeing positives for the year ahead, and are keen for primary producers to keep these factors in mind as we see out the winter season.
Firstly, farmer incomes remain robust. Commodity prices may have moderated, but remain firm, and we expect them to stay elevated as we head into 2023.
In the words of our Agri economist: "prices have simply moved from the peaks to a high plateau".
The farmgate meat and milk price outlook are being supported on several fronts. Notably, the weak global supply in meat and dairy in New Zealand, the United States and Europe, the low New Zealand dollar and, more recently, falling shipping rates are all supporting the outlook. Meanwhile, farmgate meat prices are likely to receive a leg up as meat processing capacity improves further over the coming months.
Similarly, horticulture prices have dropped off their highs, but also remain healthy.
Indeed, agricultural incomes have been firm right through the Covid years and have helped offset weakness in other areas of the economy.
With strong incomes over recent years, farmers and growers have been able to build their financial resilience.
Many have been using the cash flow in recent seasons to pay down debt, which has strengthened their balance sheets.
Figures from the Reserve Bank of New Zealand show dairy debt has reduced by $4.8 billion in the past three years to June. Agriculture deposits are also up across the same period 25 per cent to $10b. This strengthens farmers' and growers' ability to invest in farms to adjust to the evolving regulatory environment, and build a farm that is physically and financially more resilient.
Longer term, confidence can also be taken from a recent report that confirms the place of New Zealand agriculture on the world stage — a position that leaves us well placed for future success.
A Ministry of Business, Innovation and Employment (MBIE) study confirmed that our already strong exports of animal products, food products, vegetables and forestry had outpaced robust global growth in recent years, and were deemed 'star performers in terms of comparative advantage. And, these sectors continue to dominate our exports.
Dairy, meat and wood remain our top three exports by product, with fruit not far behind.
To keep our nose in front we'll need to keep innovating, raising the bar in terms of the quality of our food and the efficiency with which it is produced.
I'm confident our farmers and growers are well placed to rise to the challenge given our record of innovation across many generations.
Looking further into the future, we can expect the world to keep on demanding New Zealand food and animal products.
With the world's population set to increase to 10b people around the middle of the century, and a growing consciousness around sustainability, markets will pay a premium for quality food that is produced with the environment and animal welfare in mind.
We recently announced a Sustainable Agribusiness Loan pilot, and are not the only bank working in this space. Expect to see more innovative financing in the agriculture sector as banks deliver products that support farmers' and growers' ambitions to be more sustainable.
Food security is also a real issue and has been highlighted by the war in Ukraine. In a world facing increasing global instability and a changing climate, agriculture has a strong future in countries like ours with relatively stable geopolitics and temperate climates.
So what advice can I offer? If you're worried about your finances, or even just want a chat about how things are going, give your banker a call. We're here to listen.
We can talk about your goals and where you are headed and can support you to understand the challenges that are coming and what you can do to prepare.
As always, keep an eye on your costs and keep managing your debt requirements to ensure you can handle any unexpected events.
Lastly, the days are getting longer and boggy pastures will firm up.
The excessive rain that has brought so much mud through winter will create favourable conditions as we head into spring and summer and the wider picture remains strong.
• Tim Henshaw is Head of Agribusiness at Westpac NZ
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