NZ remains lowest-cost milk producer - report
The cost of producing milk in New Zealand continues to compare favourably with other exporting regions despite a lift in production costs over the past five years.
In the bank’s annual flagship report, Agribusiness Outlook 2021, it says while the outlook for the year is “bristling with risk”, and bumps are anticipated throughout the coming months, most agricultural sectors can expect to see average to above-average pricing, manageable cost inflation and production holding up well.
Report co-author, Rabobank senior dairy analyst Emma Higgins, says amidst significant global turbulence, New Zealand agricultural producers are poised to enjoy a fifth consecutive year of general profitability in 2021.
“The Covid-19 pandemic continues to rage in many regions around the globe, the finer points of the messy Britain and the EU divorce are now in full swing, and tensions in the US remain high following an acrimonious transfer of power to the new Biden administration,” she explains.
“More frequent use of market intervention is a further factor creating global instability as are ongoing trade wars, which have distorted the direction and price of traded goods.”
Higgins says while New Zealand agriculture had been unable to completely avoid the discomfort caused by this turbulence, the sector has done well.
“Given the extent of the turbulence, and compared to most other peers, New Zealand agriculture is travelling astoundingly well.”
However, she warns that while New Zealand agriculture is well placed, there are potential bumps ahead in the coming year.
“2021 brings more uncertainty than most years and there are a number of potential bumps which may need to be navigated in the year ahead,” Higgins explains.
“The pandemic in the US and the EU will probably not start to look materially better until quarter two, while the current spike of infections in key Asian markets is now looming as a major threat for New Zealand agricultural exporters.”
She points out that other risks – such as the threat of Chinese dairy destocking, labour shortages in the horticulture sector and the impacts on the animal protein sector of China’s pig herd recovery and a much stronger New Zealand dollar in 2021 – pose threats to the agri-sector.
Meanwhile, Higgins says developments in the Chinese market shaped as the key watch factor for New Zealand agriculture in 2021.
“In the 12 months to November 2020, the share of New Zealand ag exports to this market came in at 31% in value terms and, as a result, what happens in China in 2021 will be vital to shaping the year for New Zealand ag.”
She adds that maintaining strong relations with China will be crucial for the sector.
“New Zealand seems well placed to manage these tensions, but this will become harder if China becomes more strident in its actions in the region and/or the US continues to push back.”
Higgins believes NZ’s agri industry should also keep a close eye on relations between Australia and China following their recent fallout.
“Provided New Zealand does stay on good terms with China, it will be in a strong position to pick up market share if China further curtails access to its markets to Australian beef, sheep and seafood and/or extends restrictions to Australian dairy.”
