Allan Barber notes that New Zealand agriculture has reached peak production volume. From here out, survival and prosperity will only happen up the value chain

By Allan Barber

Much to a lot of people’s surprise, the global economy is resisting the dire predictions of many commentators, just as the New Zealand economy continues to perform much better than businesses are prepared to accept.

But it is far from certain whether this just a question of timing or the genuine possibility the predictions are exaggerated.

Speculation, based on suspicion and anecdote, appears to be an unreliable guide to what is actually happening, so, while planning for an uncertain future is essential, it would pay not to ignore present realities.

For the agricultural sector, certainties include sheep meat prices at around all time highs, a high milk price, a fairly mild winter following good growth earlier in the year, continuing demand from trading partners, no new tariffs imposed on New Zealand agricultural products, a bullish, if potentially volatile, global economy, a stable domestic economy and an exchange rate which has stabilised at up to 10% off its 2017 peak. All these factors suggest the world isn’t about to end any time soon.

In contrast there are several uncertainties which have a tendency to instil fear of the unknown, but inevitably the reality is either more gradual or less disastrous than our imagination suggests. The slowing of China’s economy must have some impact on demand for our exports, but there is no indication this will be extreme. The rise of alternative proteins and cell based meat is clearly a future threat, but there will be a period of adjustment, during which the agricultural sector can enhance its product quality, improve its environmental performance and sharpen its communications strategy.

Domestically there is uncertainty about the impact of climate change and agriculture’s inclusion in the emissions trading scheme, while internationally there remains concern about the effects of climate change and what could be termed trade disagreements – USA and China, USA and its NAFTA partners (although suddenly Mexico seems to be a friend), EU and UK. 

The US economy, boosted by tax cuts and a plentiful money supply, is buoyant, even if some of Trump’s claims about how much better people are doing under his presidency aren’t actually true. Even the UK which is in a state of tremendous uncertainty, having apparently made no progress in 18 months towards negotiating terms of exit from the EU, is still rocking along with the highest rate of growth in Europe. The British must be wondering whether it will all grind to a standstill next March, but in the meantime they are making hay while the sun keeps shining. Meanwhile New Zealand can do nothing to accelerate the BREXIT process and its fallout, any more than it can plan for the side effects of the US trade war on China.  

By lifting the game away from the commodity level, as is the objective of Taste Pure Nature and the origin meat brand, New Zealand’s meat industry has the chance to move beyond head on competition with alternative protein and cell based meat. Equally the success of a2 Milk, Tatua and Synlait, compared with Fonterra, point to the direction the dairy sector should be moving in, if it wants to avoid competing directly with alternative milk products. There will continue to be a market, and a price, for grinding beef and whole milk powder, but the message is clear: use the notice period to move up the value chain.

New Zealand has chosen to address issues it can attempt to influence, notably in areas of trade agreements and quota rights, such as protesting against the draft EU and UK quota splitting proposal which is clearly a trade distortion mechanism and completely at odds with WTO regulations. It’s hard to see how the proposal has any chance of being implemented, unless there’s a resolution to the broader exit terms by the end of March. Progress towards introducing the CPTPP agreement and upgrading the China FTA are equally valuable initiatives, although it is of concern that Trade Minister David Parker has not yet visited China since last year’s general election.

For agricultural producers, whether meat, dairy or horticulture, one certainty is that we have reached the peak of volume production. The combination of carbon emissions, legislation and public opinion means farmers and growers can no longer plan to increase output purely in numbers, but must add value to what can be produced without unduly stressing the environment.

Farmers have been taken by surprise by the comparatively sudden growth in public antipathy towards what have been accepted as normal farming practices for decades. Suddenly it seems farmers have gone from being regarded as bastions of the economy to public enemy number one. This is patently unfair, but unfortunately it’s the product of the age of heightened environmental and social awareness in which we live. The only option from here is to work smarter not harder and, with a bit of luck, the world won’t fall apart.

This article first appeared in Farmers Weekly. It is here with permission. Current schedule and saleyard prices are available in the right-hand menu of the Rural section of this website.