Light at the end of the tunnel for New Zealand agriculture

Both opportunities and challenges for New Zealand agriculture will be abundant in 2023. As we start the year, global economies are feeling the negative impacts of inflation, slower economic growth and tighter monetary policy.

Click image to zoom Tap image to zoom

But forecasts of global growth are generally now being revised up rather than down with more resilience than expected in European growth, in particular.

" China’s demand for New Zealand export goods should start to improve later this year once the impact of the removal of the zero-COVID policies starts to flow through their economy. This should help farmgate returns in the latter part of 2023.”

And we are now learning to manage the risk posed by COVID-19 without using lockdowns. This is allowing for greater mobility of labour and fewer businesses having to close. It is also helping with logistics as ports, shipping schedules and freight prices normalise.

China has abruptly abandoned its COVID-zero policy, causing a degree of short-term chaos but will help normalise supply chains over the medium term with the country rapidly re-opening both internally and externally.

Prices for New Zealand’s main export commodities have eased but the situation should improve later in the year when demand, primarily from China, is expected to lift.

Fertiliser prices are now trending down; one of the few inputs where prices aren’t still rising. Operating margins have tightened considerably.

The situation on farm varies considerably across New Zealand. The recent heavy rains in northern regions have severely affected some properties. This will negatively impact production and exports this season as well as having further implications for properties devasted in the recent cyclone..

2023 will definitely deliver challenges but, as the year progresses, commodity prices should gradually improve and this will help producer returns.

Click image to zoom Tap image to zoom

Further tightening of monetary policy will be required in the first half of 2023 but we now expect rates won’t have to go quite as high as we previously forecast. Global economic growth is expected to be lacklustre in 2023.

China’s demand for New Zealand’s export goods should start to improve later this year once the impact of the removal of the zero-COVID policies starts to flow through their economy. This should help farmgate returns in the latter part of 2023.

Global demand for high-value food products is expected to be relatively subdued. Tighter monetary conditions and reduced spending power mean many consumers will exercise greater caution when considering how to spend their money.

Egg shortage, a sign of the times

The recent egg shortage is an example where changing regulations (including unanticipated decisions at the retail rather than government level), combined with unsustainably low returns to egg farmers, resulted in a lack of confidence to invest in new production facilities that meet the new cage-free regulatory requirements. This is the main reason for the current New Zealand egg shortage.

It is now clear returns to egg producers need to be higher than they have been in order to encourage additional investment into the industry. Profits have been hampered by the large rise in grain prices in recent years which was not reflected in increased consumer prices. Retail prices for eggs have now increased sharply but producers will need to be confident egg production will remain profitable in order to justify the investment required.

Steady improvement in commodity prices

Overall market demand for New Zealand export goods is expected to improve in the year ahead. But the improvement is likely to be gradual and therefore we may not see any significant lift in farmgate prices until the second half of the year. Improving prices are also conditional on global supply from competing nations remaining subdued.

However, muting the benefit of higher prices, production costs remain elevated, particularly for fuel and labour. Fertiliser prices are starting to recede a little but remain high.

We anticipate that dairy commodity prices will gradually appreciate during 2023. While this is unlikely to be all one-way traffic, we do expect the overall trend to be positive.

Beef, lamb and wool

Global beef demand is starting to improve but farmgate prices are expected to fall further before improving later in the year. The US remains the market of choice but demand from China is expected to pick up again soon. Demand for store cattle remains very strong and this is likely to be the case for some time due to the large quantities of feed on-hand in the North Island.

The throughput of lambs at the processors has slowed considerably since Christmas as excess feed is encouraging farmers to hold onto stock for as long as possible. Farmgate returns for lamb and mutton have also dropped sharply as international demand remains lacklustre. This situation is expected to improve as demand from China gradually rebuilds.

Property sales volumes ease

The property market is starting to show signs of oversupply, putting downward pressure on prices. High-quality properties are still attracting buyers but properties where there is uncertainty as to future productive potential, or poor quality infrastructure, or which are located in less desirable regions, are finding it increasingly difficult to attract buyers. During 2022 fewer rural properties were traded than in the previous year and the median price fell. While the quantity of properties fell for every property type, price movements were mixed. The median sale price lifted for dairy, horticulture and forestry properties while the median price of arable and livestock properties fell.

Click image to zoom Tap image to zoom

Susan Kilsby Agriculture Economist & Sharon Zollner Chief Economist NZ at ANZ Institutional

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

10 Feb 2023

China reopens; Australia wins

Felicity Emmett, Raymond Yeung, Adelaide Timbrell & Madeline Dunk | Senior Economist, Chief Economist, Senior Economist, Economist, ANZ

China’s move past COVID lockdowns is good news for the Australian economy

23 Nov 2022

Future of Australian agriculture ripe for the taking

Michael Whitehead | Executive Director for Agribusiness Industry Insights, ANZ

A decade after ANZ’s first Greener Pastures report into the future of Australian agriculture, a second edition reveals Australian agri has performed better than forecast and highlights the sector’s opportunities and challenges.