Demand for New Zealand dairy products should remain solid despite China’s mixed economic outlook, says Imre Speizer, Westpac.
A bold statement this might be, but on present course it’s going to happen.
Already we export 55% of total exports to Asia and we choose to do so. Soon it will be the lot and we won’t have any choice!
How did this happen? Exactly the same way it’s been happening for the previous 10 years.
China has money ‘dirty money’. Money gained at the expense of human rights, exploitation and environmental stewardship. This would not be tolerated in the western world and yet we find it quite acceptable to accept it. Make no mistake; this is government-controlled money and it is applied strategically.
This is the same Chinese government that recently criticised developed countries for not doing enough to reduce greenhouse gasses and for not providing developing countries with finance to allow them to do the same. Last December, in climate talks in Katowice, Poland; Xie Zhenhua – the minister who lead the Chinese delegation stated: “We (China) need flexibility. Developing countries have very varied capabilities; if more (financial and technological) support is given to developing countries they will have more capabilities and stronger actions (on emissions).”
At the same meeting, developed countries voiced concern that developing countries were not agreeing to adequate transparency in accounting for their emissions.
Can’t you see hypocrisy? Chinese Government money that could be channelled into reducing its GHG emissions (China is the largest emitter in the world), yet it is purchasing our agricultural processors.
And we’re all right with this? Not only all right, but hell bent on destroying our agricultural sector either by ideological NZ Government policy or poor strategic decisions at processor level.
Farm debt is high. Farm viability is average for the good dairy operators, but loss making for the poor performers or indebted ones. Dairy farm sales are non-existent presently.
Things are better currently in the meat space – after decades of poor returns. However, expansion opportunities are being quashed by government policy around trees. World outlook for nutrient rich meat and dairy product is excellent.
Farm confidence is low. Farmers have no stomach for further investment currently and neither do our banks. M Bovis and our permeable border are big concerns and costs. The Government is hell-bent on making us pay for agricultural greenhouse gasses – despite NZ farmers being in the most efficient producers of meat and dairy in the world.
We have to contend with a local population that demands the highest water quality standards in the developed world and a policy that forbids us storing it. Combine this with a warming environment and our costs of production continue to escalate.
On-farm production volumes can only fall. Less product to process.
At processor level we are in poor shape. Fonterra processes over 80 % of NZ’s milksolids and its woes are well documented. Most of the larger processors – in both dairy and meat – have had poor returns over the previous 10 years. Some have already succumbed to outside investment and most would love a capital injection.
On top of this, we have invited international investment that has resulted in the construction of new processing plants on Greenfield sites. The viability of New Zealand-owned processors is our Achilles heel.
The drive by the current government to reduce volumes of production will further exacerbate our fragility. Less volume of milk due to less cows on the ground, reduction in use of fertiliser N and increasing incidence of drought means much of the recently built capacity will be soon be under-utilised.
Because – in New Zealand-owned cases – this infrastructure was debt funded the leveraging will now work against the processor. The dairy industry is now becoming a dogfight to be ‘the last man standing’.
I have no concerns that our Chinese-backed processors will last the distance because they are Chinese government supported. As for our local business and co-op? All things being equal it’s just a matter of time till before they fail or are taken over.
In the meat industry a combination of the same factors as the dairy sector is exposed too – plus the Government’s mindless determination (and incentives) to turn good food growing pastoral farms over to trees for offsetting carbon dioxide emissions has a similar outcome. The industry is now (again) processor overcapitalised. The same competitive pressures to source a decreasing number of livestock ensure financial balance sheets are eroded to a point of financial capitulation.
Once our processors are acquired to a point of critical mass then they determine where the product goes. Don’t believe for one second that it will go to the highest paying markets. Product will go where the processor (owners) says it should go.
If you don’t know how the Chinese do business when they hold the upper-hand – then just watch how they do politics in Hong Kong over the next few years.
And like their politics they are patient with their businesses.
• John Jackson completed a Bachelor of Agricultural Commerce at Lincoln University and read Social Studies at Oxford (Philosophy, Politics, and Economics). He farms sheep and beef at Te Akau.