Get prepared for a ‘Now Normal’ future, says Ian Proudfoot – Global Head of Agribusiness for KPMG – discussing the likely effects of COVID-19 in the months to come.
“At the moment, everything is about COVID and how New Zealand agriculture is going to cope,” he told Rural News.
“A lot of the journey is unknown, with supply chain interruption – both locally and internationally – and the impact of consumer demand, with the food service sector hit so hard.”
However, Charteris believes one key mitigant that gives Rabobank confidence about NZ farming is the expectation of the NZ dollar falling further in coming months.
“We expect the dollar to fall to 57 cents US within three months and stay there through till the start of 2021,” he says.
Charteris also believes that, in some cases, NZ has benefitted from missteps offshore.
“New Zealand has done a really good job in tackling the virus and this leaves us in a good place to begin a recovery,” he adds. “Many competing regions have seen shortages of picking labour, plant disruptions, port bottlenecks, and export restrictions – all of which have kept markets, like beef, tighter than what otherwise might have been the case.”
However, Charteris warns that there are some clouds on the horizon for the farming sector with dairy likely to be the hardest hit.
“It’s unlikely that New Zealand will escape the challenges currently facing the global dairy markets,” explains. “Despite New Zealand winding down milk supply for the season, the issues currently taking hold of the global dairy market and broader economy will persist into 2021 and likely beyond,” he says.
As such, Rabobank has what Charteris describes as “a reasonably bearish” outlook for dairy – forecasting a drop in farmgate milk prices for the 2020/21 season at NZ$5.60/kgMS.
He says the red meat sector has seen demand take a hit, with NZ exports to China down by 55% in February, but there are signs this market is coming back.
“It seems premium cuts have been the biggest hit with the impact of COVID on the food service sector.”
However, Charteris has praised the NZ meat industry for doing a really good job dealing with the interruption of markets and working within new safety guidelines to keep processing.
He says farmgate prices eased for both sheep and cattle in April, as reduced processing capacity saw processing costs rise, and supply far outweigh available killing space.
“Space for prime cattle will remain particularly difficult to secure until at least the end of May as processors work through the seasonal peak in the national cow kill,” Charteris told Rural News.
“North Island lamb supplies are starting to slow and space availability in the South Island is improving. This could support a degree of procurement competition in some parts of the country later in the month.”
Charteris says the horticulture sector has done a fantastic getting harvest completed during the crisis.
“The kiwifruit and apple sectors have shown best practices at a time of major disruption to NZ supply chains. Early season sales show markets are absorbing fruit, generally at prices above the same period in 2019.”
Keeping in touch
Charteris says Rabobank has worked hard during the lockdown to keep in touch with its farming clients.
“Our first priority has been maintaining contact with our clients,” he told Rural News.
“Staff have been working from home and unable to get on farm, but we have cranked up things like video conferencing with client groups.”
Charteris says his staff have been sitting down with farmers in a ‘virtual sense’ doing all they can to help them out.
“We are trying to be as responsive as possible and sharing as much information as we can with them.”
He says one good thing to come out of the Covid crisis has seen Rabobank develop and use online platforms to provide farmers with information and they intend doing more of this when things return to normal.
Meanwhile, Charteris told Rural News that drought has had a far bigger impact on farmers than Covid.
“The drought has been tough, with farmers having to sell capital stock and heading into winter with little or no feed reserves.”
He says Rabobank is working with its clients on a case-by-case basis and seeing what can be done to get them through.
Charteris says while the overall economic outlook is uncertain it is obvious that agriculture is going to take NZ forward economically.
“This reinforces that NZ’s economy is built on the agriculture sector and its exports and that is something all farmers can be proud of.”