Top Performing Farms Thrive Despite 27% Increase in Operating Costs
The cost of running a New Zealand farm is now 27% higher than it was before Covid, putting sustained pressure on profitability acrfoss the sector, according to new ANZ research.
It says the time when global shipping routes and freight costs might return to pre-Covid levels are being continually pushed out. The report says shipping companies are making abnormally high profits and have lots of work, so have now incentive to reduce their prices to gain market share.
ANZ Agricultural Economist, Susan Kilsby, told Rural News that the high freight costs and shipping delays are directly impacting producers' returns. Some primary products are being downgraded because they slow getting to market and have a lower shelf life when they do get there. She says this applies particularly to chilled products.
"NZ has always had a really good reputation for delivering and getting goods to the market and it is just making that very challenging for our exporters to do that at the moment," Kilsby says.
The ANZ report says disruptions continue to plague the global shipping industry.
It notes, for example, that the port of Yantian in Southern China, which is the world's third largest port, was closed for several days in late May due to an outbreak of Covid.
This closure had a domino effect on other ports around the world and it will take about 80 days to clear the backlog.
Kilsby says that as a result of the disruption and uncertainty with shipping, many exporters and importers are holding more stock than they did pre Covid. She says the world previously had very reliable supply chains, but exporters now have to be more proactive and creative to get their goods to market at key times.
She adds that the problem is compounded by people who are unable to purchase services such as holidays instad spending on goods, driving predictions that global trade will lift by 8% this year and a further 6% next year.
The other problem for NZ exporters, according to Kilsby, is the trend towards larget container ships.
"All the investment in the global shipping industry in recent years has been in the bigger ships which are more efficient, but NZ has a limited number of ports that they can call at."
The report notes that Tauranga is the best equipped port to take these larger vessels. In 2020, 42% of all containers went through that port.
The report says a decade ago it was about half that volume.
Kilsby says with the larger ships heading for the main overseas destinations, NZ has to rely on feeder ships coming into some of the other ports and then into Tauranga.
"It also means that the shipping is a bit more lumpy, because if a feeder ship misses the larger ship, there could be a wait of several weeks before another one arrives," she adds. "That creates some real challenges for those chilled exports such as apples and the like."
While Tauranga is the beneficiary of Covid and the trend towards larger ships, container movements through the ports of Auckland, Wellington and Dunedin have declined. Kilsby says it doesn't seem like the situation is going to change anytime soon with the challenges of congestion in some of the overseas ports.
