‘Moment of truth’ for NZ agriculture in 2017 – industry report

Hayley Moynihan, Rabobank.

New Zealand agriculture faces a ‘moment of truth’ in 2017, according to a recently released Rabobank report.

In its recently-released New Zealand Agricultural Outlook 2017 report, Rabobank says as an industry traditionally characterised by a liberal operating environment, and a key beneficiary of several decades of global shift to freer trade, agriculture faces a period of heightened regulatory uncertainty and change on both fronts.

Releasing the report, Rabobank Country Banking general manager Hayley Moynihan says 2017 was ushering in a period of considerable change and uncertainty for New Zealand agriculture with developments throughout the year likely to have a significant impact on the
sector’s prospects this year and in the years to come.

“The industry will be keeping a close watch on global trade developments in 2017 following Donald Trump’s election in the US and the resulting breakdown of the Trans-Pacific Partnership (TPP) agreement,’ she says.

“The breakdown of this agreement brings with it increased risk of an escalation to rising protectionism already evident through the last few years in many parts of the world, as well as increasing the importance of this year’s trade negotiations with China – on an improved Free Trade Agreement (FTA) – and with the United Kingdom and the European Union on FTAs.”

According to Moynihan New Zealand’s tightening environmental regulations and the 2017 general election could also have a major impact on the outlook for the sector.

“Tightening environmental regulations, particularly in the Waikato and in Southland where significant plan changes are taking place, have the potential to increase costs and restrict intensification or change land use in 2017 and beyond,” she says.

“Environmental regulation could also become an election issue, as could other topics relevant to the sector such as greenhouse gas liabilities and rules around foreign investment. Policy relating to these areas may be subject to change, especially if a coalition government including Labour, NZ First and the Green Party were to be voted in.”

Moynihan says the agricultural sector has the opportunity to influence in some form each of these factors and industry groups would be lobbying hard to achieve favourable outcomes.

“The importance to the New Zealand agricultural sector of the coming year should not be underestimated. How the industry navigates through this period will fundamentally shape its prospects in the years to come.”

Despite the uncertainty, the report says the outlook in 2017 is still positive for many of New Zealand’s key agricultural sectors, including dairy.

“In the dairy sector, market fundamentals will further support farmgate milk prices in 2017 restoring profit margins and allowing dairy farmers to move on from two very difficult seasons,” Moynihan comments.

“We expect to see a slower rate of growth in New Zealand milk production emerge in the 2017-18 season and beyond due to increasing environmental regulation, resource constraints and social pressures. A further factor which will influence production levels is the investment appetite of dairy farmers, and the size of this appetite will become much clearer at the start of next season when dairy farmers make a call on whether to invest profit in further expansion or prioritise debt repayment.”

However, sheep and beef producers can expect a more challenging 2017, according to the report, with beef and sheepmeat price improvement looking unlikely over the next 12 months. “Record global beef production will see downward pressure on New Zealand cattle prices while the strong New Zealand dollar is the major headwind for greater sheepmeat returns during 2017,” says Moynihan.

“Industry participants will be keeping a close eye on the impact of recent corporate changes in the animal proteins sector with most hoping these changes will bring on-going benefits to suppliers through plant rationalization and improved access to China.”

Against the backdrop of record global beef production, the report suggests that Australian beef and veal production will again contract in 2017, after a significant drop to 2.1 million tonnes in 2016 from the drought-induced near-record beef production of 2.5 million tonnes in 2015. This reduced competition in key exports will help support demand for New Zealand beef, the report says. However, growing presence of South American beef, particularly from Brazil, will challenge New Zealand’s competitiveness in key markets.

Sheepmeat exporters will be watching the UK market where demand is expected to be weaker because of a two percent lift in domestic production and a weak New Zealand dollar making New Zealand imports less competitive.

“As a result, total EU quota fulfillment is likely to fall after rising to 76 percent in 2016 –from a low of 68 percent in 2014,” the report notes.

Australian sheepmeat supply is forecast to contract in 2017, says Rabobank in the report.

Be the first to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: