NZ agriculture set to extend profitable run in year
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NZ agriculture set to extend profitable run in “year of transition” – industry report

New Zealand agricultural producers are poised to enjoy a fourth consecutive year of profitability in 2020 – with strong returns set to support farmers through a year of significant transition – according to a new report from agribusiness banking specialist Rabobank.

Releasing the bank’s flagship Agribusiness Outlook 2020, Rabobank New Zealand CEO Todd Charteris said while farmer concerns over the direction of government policy had weighed on confidence in the rural sector, market settings remain largely in New Zealand agriculture’s favour.

“We anticipate prices for New Zealand’s key agricultural exports will remain strong in the year ahead, with Chinese meat imports set to remain elevated as China rebuilds its pig herd in the wake of African Swine Fever, while strong dairy prices are likely to persist due to slow global dairy supply growth,” he said.

“Demand for New Zealand’s fresh horticultural produce is also picked to stay firm supporting horticultural export prices, while disruption in global wine markets should create opportunities for New Zealand wine producers.”

Mr Charteris said a host of other positive market settings were also playing into New Zealand farmers’ hands.

“Our proximity and superior access to the Chinese market will continue to be a key advantage in the coming year,” he said.

“Relatively low debt costs will be another plus for New Zealand farmers in 2020, as will a weaker New Zealand dollar – with the dollar forecast to fall to its lowest level since the global financial crisis.”

Tim Hunt

Tim Hunt - Head of RaboResearch Food & Agribusiness - Australia & New Zealand

While another profitable year was likely, Mr Charteris said New Zealand’s food and agribusiness sector was wading through a period of frustration.

“The agricultural industry is dealing with increased environmental regulation, the prospect of more onerous regulation in the future and uncertainty over the timing and degree of what is to come,” he said.

“Changes in the banking industry are a further source of concern for farmers, with agricultural investors now facing more constrained access to capital.”

With New Zealand’s agricultural sector industry in a transitional phase, the report says, the extended run of positive market factors comes at an ideal time.

“Beyond the obvious appeal of a further consecutive profitable year, now is a particularly opportune time for New Zealand agriculture to extend its recent good run,” Mr Charteris said.

“With land values inflated, the positive market settings should help to ease the adjustment to more sustainable land values in coming years. We’ll also see increased sustainability regulation lead to increased costs, and this will be easier for the industry to tackle from a position of financial strength.”

Island of profitability

Report author, Head of RaboResearch Tim Hunt said while New Zealand’s agricultural sector had its own challenges, it was important to note that the sector’s recent run of profitability had come during a period when farmers in many other parts of the world have struggled to make a margin.

“Over recent seasons New Zealand has been an ‘island of profitability’ in a difficult world,” he said.

“Farmers in countries like the US, China and Australia have all faced significant challenges in recent times, with a combination of drought, flood, market disruption and disease ensuring painful seasons for primary producers.”

What to watch in 2020

The report cites a number of key watch factors for the year ahead including upcoming elections in New Zealand and the US, carbon investments and trade developments.

“Farmers will be closely watching how prominent agriculture is in New Zealand’s election campaign and how this impacts public perception of the industry and scrutiny of industry practices. They’ll also be showing plenty of interest in the election outcome, as while a change in the New Zealand government is unlikely to alter the direction of sustainability regulation, it would likely impact the pace of change,” Mr Hunt said.

“Similarly, industry participants will be keeping close tabs on the US presidential election, as while a democrat in the White House won’t mean the US goes soft on China, it may mean China policy becomes more predictable.”

Mr Hunt said the level of carbon investment was a further watch factor for the sector given the recent passing of the Climate Change Response (Zero Carbon) Amendment Bill.

“Proposals to limit the number of New Zealand carbon units and lift the price cap are likely to put upward pressure on New Zealand carbon prices in 2020 and beyond,” he said.

“And this is set to accelerate the interest in forestry from investors and landowners looking to capitalise on the opportunity to generate carbon income from tree planting.”

An additional watch factor, according to the report, is the outcome of key trade negotiations impacting New Zealand.

“Trade negotiations between New Zealand and both the EU and UK can formally commence on January 31. And obtaining access to markets like these, where consumers value sustainable supply chains, will be important as New Zealand’s agricultural sector continues to improve its sustainability credentials,” he said.

“The “phase one” deal between the US and China is also likely to have implications for New Zealand. While it is unlikely to herald a step change in the competition New Zealand farmers face in 2020, it will likely increase competition from the US in dairy and beef over the next five years if the China/US truce holds.”

Outlook for 2020

 

New Zealand Commodity Outlook 

Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.

 

Media contacts:

David Johnston
Marketing & Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153
Email: david.johnston@rabobank.com


Denise Shaw
Head of Media Relations 
Rabobank Australia & New Zealand 
Phone: +612 8115 2744 or +61 2 439 603 525 
Email: denise.shaw@rabobank.com