Fonterra's wide forecast milk price range for the new season is realistic, says BNZ senior economist Doug Steel.
The BNZ Shift Happens report showed only 58% of primary producers were positive about the opportunities for the future of agribusiness pre Covid-19, compared with 89% during the April lockdown.
Much has happened since lockdown. A crystal ball on weather patterns, labour availability and regulatory requirements for 2020 would have saved some sleepless nights, let alone the ensuing trade and market tensins as a result of various governmental responses to Covid-19.
However, in general the primary sector was in good shape as we closed out 2020. Product prices were holding up better than they might have over recent months, with both lamb and dairy pricing around their five-year averages, while horticulture was up on 2019 (and more than 10% above average). Low interest rates, and some positive news on Covid-19 vaccines and associated medium term world growth prospects have no doubt helped.
Looking to 2021, cautious optimism may well define the mood as we consider the opportunities for the sector. There are still compliance challenges from environmental regulation, the ever-present weather threat and finding good people, but there are also opportunities:
Farm sales market
We're seeing positive movement in farm and orchard sales. Interest from local investors and new entrants, as well as established farmers is helping to buoy the market.
Agricultural yields look more attractive for investors as interest rates remain low and banks actively look to support these new opportunities. This is good news for farmers who are considering succession options, exiting the industry or maybe about heading to the beach permanently.
Make hay while the sun shines
Low interest rates and historically strong commodity prices mean that 2021 is well set-up to deliver cash surpluses, enabling the repayment of debt and further strengthening balance sheets.
Having a clear plan is a great way to get into a strong position, both financially and environmentally.
Know your numbers
When it comes to environmental management, the same thinking about business strategy applies. 2021 provides an opportunity to ensure your business numbers include not only your financial budget, but also a nutrient budget and ideally and emissions profile.
Banks consider environmental, social and governance (ESG) factors when analysing a business's operations, making lending decisions and assessing risk.
Being able to provide evidence of these aspects in business planning and decision making is no longer just a 'nice to have'.
Compliance related costs are part and parcel of farming. Farmers must have a clear plan, a staged approach and understand what investment their farm may, or may not, need to achieve compliance while keeping costs manageable.
We encourage farmers to consider Good Farm Management Practices and how they relate to their business, what the ESG risks are across their business and what appropriate mitigation options could be.
The government has declared a climate emergency and while Mother Nature's ferocity is nothing new, the droughts, floods and extreme weather events of 2020 will almost certainly continue.
For a sector which relies on its ability to grow high quality food, business plans need to have robust contingencies for these events, and a long-term plan for how your business may need to change as the climate does.
The rise of sustainable finance
With a focus on tackling the "climate emergency" and ensuring business plays its part in delivering a more sustainable economy, the finance sector will progressively adopt stronger sustainability policies that influence lending and investment decisions throughout 2021.
The primary sector presents an opportunity to structure sustainable finance opportunities or link the ESG goals of ambitious farmers, to their cost of borrowings, incentivising them to continually strive for ESG excellence.
Supporting farmers to make continuous improvements and excel when it comes to the sustainability of their business and land is essential to the ongoing success and ambitions of the sector.
With continued uncertainty for the next 12 months, it pays to be prepared, ambitious and plan ahead.
New Zealand's reputation for safe and natural food remains as strong as ever and as other sectors have struggled with the challenges of Covid-19, our primary sector has stepped into the breach and carried its fair share of the economic load.
Not many will tell you in person, but the country thanks you.
- Dave Handley is the general manager of agribusiness for the BNZ.