The latest Global Dairy Trade (GDT) has continued its downward slide. This is now starting to get to the stage where producers will be getting concerned.
This week’s auction fell -3.9% overall with the specifics of our main products below. Not all products went down with both cheddar and butter having small lifts. However, these lifts are swamped by the falls occurring with the powders.
- Butter index up 0.2%, average price US$4,868/MT
- Cheddar index up 0.9%, average price US$4,802/MT
- SMP index down 8.5%, average price US$2,972/MT
- WMP index down 3.4%, average price US$3,279/MT
Westpac have come out with a reduction in their forecasts for this season going from $9.25 down to $8.75. A couple of observations made by that bank analyst make the continued fall more concerning. The first is the lower production in milk occurring in many countries, but particularly in New Zealand that should be providing some protection to falls.
The other thing is the continued weakness in purchasing from China. The ongoing heavy responses to Covid are showing no sign of abating with yet another round of lock downs. The numbers infected are relatively low by most countries standards and so China’s response does appear somewhat draconian. They seem stuck in a ‘lock-down mindset’ which they are finding difficult to get out of.
Meanwhile, New Zealand is diverting considerable product elsewhere from China as Westpac’s graph below shows largely to other Asian countries.
Source: Westpac Dairy Update November 2022
On a more positive note largely because Westpac is predicting the Chinese economy to pick-up into next year, they are forecasting a lift in MS per kg price in the 2023-24 season to $10.00. Interestingly, they predict that “It pays to note that the 2023/24 season will also receive a large boost from the weak NZD/USD”. Given that this year has seen the NZ$ versus US$ plummet from a high this year of near 70 USc in March to around the current 57 USc now makes one wonder just how much lower they see it falling (or the US$ rising).
Encouraging lower national productivity
Moving away from dairy prices, all food producers are facing what seem to be an increasing number of challenges; climate change, diet trends shifting, input costs etc etc. One that is raising its head at the moment and doesn’t seem to be getting much discussion, except from a positive view point is the “pay for five but only work four” idea. It has been around for a while but has gain prominence since Covid forced many people to become more flexible in the way they worked.
Being a little old fashioned the first things that hits me is how unproductive some businesses must be and presumably over-pricing for goods and services where there is 20% of slack in the system.
In the article linked, businesses mentioned range from a panel-beater firm to a software construction firm, so of scope to include more. Plenty more seem to be picking up the trend.
From an employee’s perspective the idea of getting paid the same but being required to be ‘at work’ 20% less must sound very appealing. However, where does that leave businesses that do not have the flexibility or slack in the system to incorporate this? I’m thinking particularly around the Primary Industries sector. Many firms are struggling to get enough staff now to get work done, if they increasingly have to compete with a -20% regime in many other firms it is going to get increasingly more difficult.
The Primary Industries, while the obvious losers in such systems, are not the only sector. Any business which requires someone to front to the public or operate a machine at least 5 days a week is either going to have to employ more staff to provide the required flexibility or remain closed for longer. Either option is going to add more costs to the employer and for many instances no extra productivity.
The end outcome is likely to be costs will have to be pushed on to the consumer, assuming that is possible.
The work-less-for-the-same-money theory has come from the British historian and writer C. Northcote Parkinson in 1955 who believed that the nature of man and time operated to the principle. “Work expands so as to fill the time available for its completion,”. If this trend grows it is likely to increase the divide between the 'blue' and 'grey' collar workers and the 'white' - not only in income but also into the hours worked to achieve it. Unfortunately, I can’t see dairy cows or fishing boats totally rearranging their schedules to fit with a 4 day week. I wonder how long it will take for the habits that have led to 20% unproductive time being incorporated into a 5 day week will be incorporated into the 4 day week. There is likely to be a theory somewhere that deals with that also. (A 3-day weekend does seem attractive though, but a 4-day one would be better especially if getting paid for five).
15 Comments
The interview I saw with the CEO of some company that was doing the 4 day week said that the staff had very specific production targets they had to meet to qualify, so they chose to cut out all the mucking around that many workers do to get through the day. I agree there's a lot less scope for that in rural or manufacturing jobs.
Diminishing returns though. There's more and more resources needed to squeeze the last few % of productivity out of people, and I can't see our work culture experience improving if we go down the American route of intense micro-management trying to get it, and the layers upon layers of people who exist solely to monitor it.
Better to give people a carrot and let them do the heavy lifting for you themselves. It's literally a win-win situation. Then you don't need to piss away any more money on even more middle-managers and HR (usually the biggest inefficiency in most professional operations anyway). You have the same amount of people doing the doing and fewer people dreaming up work to justify their own existence.
Yeah from my experience working across a number of business types and from each side of the employer employee desk, by far and away the best method of getting the most out of people is paying based on output. That's not applicable for every job though, and carries risks of employees gaming systems, but the difference is night and day.
If you want something done fast, you give it to a busy person to do . I do think it is true , people tend to make the work needed to be done take the whole day.
Further , having people with nothing to do hanging around just slows down those with plenty of work to do .
The problem , as you point out is machinery or frontline positions that require someone to be there, 24/7.
Working age workforce reducing across the world.
Canada wanting 1.5 million more migrants etc, etc
The simple fact is well motivated workers have a lot of choice and will have more in the future. They can get paid more to do less and why wouldnt you.
You need to provide good motivations to get people to be productive and if you don't treat them well they will move and you will be left moaning and grizzling on your own.
The power is on the labour foot now, especially for those well educated and motivated.
Herein lies the problem for industries wanting labour to work long hours in remote areas on low pay in poor housing and less social and educational opportunities for families. Below sums up the real problem facing all industries in rural and provincial NZ.
https://www.farmersweekly.co.nz/its-not-just-trees-scaring-the-sheep-aw…
Being a little old fashioned the first things that hits me is how unproductive some businesses must be and presumably over-pricing for goods and services ...
This has been the case for a number of years with trades people - constantly on their mobile phones organising their next job, or finishing early to head out fishing / play golf.
Always interesting why the bank economists never acknowledge that China was stockpiling food, including milk powders, in that period from Dec 2020 in response to Covid and growing geopolitical tensions.
So demand was higher than usual and the prices went up. Stocks are currently being maintained, but this requires less demand than stockpiling so prices are declining.
What will be really interesting is if they decide to at some stage run down stocks. When this last happened the farmgate milk payout hit 3.90.
All of this is public knowledge and widely reported by the likes of Bloomberg. Why does no one in this country report it.
If farmers face a $5.00 payout, which is certainly on the cards, many of them will be in financial strife with escalating costs.
I have a different perspective.
High productivity is achieving more production with less human input. Look at the highly wealthy and productive economies in Europe and Scandinavia. Low working hours with plenty of high value production. Smart and intelligent.
In NZ we have taken a very dumb and lazy approach. Just import masses of low value low paid workers to keep wages down in sustain profits. The value of staff and productivity have therefore not been valued. Smart use of staff and the pursuit of productivity have not been a feature of our economy. I even remember John Key saying that Productivity is not important.
This has resulted in a race to the bottom with productivity going now where and undermining the export of higher value products that require more input.
We can see in Europe a wildly varying level of productivity, which NZ sits in the middle of.
A lot of the efficiencies they do achieve come from scale and location which NZ cannot replicate. And our main earners are fairly kinetic in nature which have considerable barriers to productivity gains compared to the likes of service industries.
Working people is a fairly cumbersome way for a business to make money, so if there was a financially viable way for humans to be made redundant, it happens.
If I take my socks off to count there's as many European countries with less productivity than us than more.
Not only that, but if we take Ireland as an example, they're ranked #1. That's largely because they made themselves a tax haven, attracting large multinationals and with it a much higher amount of income relative to labour.
Switzerland gets a good ratio, because it's the bank for a market of 600 million people.
Norway has very low investment of R&D, but it's saviour has come from Petro dollars and a subsequent sovereign fund.
So a large amount of "productivity" gains achieved by many of those higher up the rankings, are off the back of non-replicable exploitations of natural advantages or tax loopholes. They all also aren't immune from exploiting cheaper migrant labour, pretty rife in Europe.
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