Wednesday, 29 June 2022 09:55

Inflation remains a big worry - bank

Written by  Peter Burke
The dairy industry is experiencing uncertainty despite a 'normal' pricing outlook. The dairy industry is experiencing uncertainty despite a 'normal' pricing outlook.

There is uncertainty in the dairy industry despite a 'normal' pricing outlook.

That's the view of the ANZ Bank's latest Agri Focus report which predicts that the farmgate price for the 2022-23 season looks strong, but says dairy farm operating costs for such items as fuel and fertiliser are "rocketing away". This, along with rising inflation, is a worry.

It says farmer confidence remains low as they grapple with a tsunami of legislative changes associated with improving envrionmental standards.

The report adds that interest rates are also on the rise but that in the recent good years, dairy farmers have managed to pay down a lot of debt, which means that the rises will have less impact. It goes on to say that average interest rates are still quite low and those farmers with fixed interest rate loans won't be impacted by the change until they have to renew their loans.

The other niggling issue raised in the report is the potential impacts of farmers having to deal with methane emissions. ANZ says while the actual emissions pricing has yet to be agreed by government, the recently announced proposal by He Waka Eke Noa would see the price set at 11 cents per kg of methane emissions.

"These costs will have a greater impact on less efficient farms and those with no options to off-set methane costs," says the report.

On the international front the ANZ report says that global dairy prices are picking up following a fall in March and April and that this bodes well for the 2022/23 season.

Meanwhile, the Ministry for Primary Industries' (MPI) latest Situation and Outlook for Primary Industres (SOPI) report paints a similar picture, but also points to the volatility that continues to haunt the dairy sector. It notes that while export revenue for dairy is up by a record 13% to $21.6 billion, it will drop to $21.1 billion for the following two years. But in another twist, it says that weakening global supply of dairy products is being countered by strong demand from importing nations.

In terms of China, NZ's largest dairy market, the SOPI report says demand uncertainty there has increased as a result of the Covid lockdowns and the food service sector there has been greatly impacted. There are reports that sales in this sector could be down by as much as 15% in 2022.

Back in NZ, the MPI report says unfavourable weather caused a 4% drop in production.

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