Farm confidence – already bruised by the effects of drought – becomes a victim of Covid-19

As the country’s  front-line export  sector,  NZ agriculture  is  bearing  the brunt of the global  trade slowdown.  ANZ Bank’s chief  economist  Sharon Zollner says  the  human and  economic damage from the  Covid-19 outbreak is taking a  heavy toll on sentiment in the agriculture  sector.

“Our  best  hope is that the  disruption proves  short-lived but there is not   question the export-oriented  sector is  reeling”.

Authorities   such  as  Keith Woodford  believe NZ, as well as most of the world,  will head into recession.  Woodford contends the key issue becomes rapid support for those who lose their employment.

He  sees  a  “considerable  risk” that the government and Reserve Bank will use the wrong macro tools.

Adjusting interest rates looks like the wrong medicine. The priority should be to get cash into the hands of those who currently live week-to-week”.

Many farmers are already stressed by the effects of drought and lack of feed.  The  latest  NZ Business Outlook  survey  recorded  confidence  among  the agriculture sector  collapsing, falling  30%, while  expectations on the part of individuals  have almost halved.

Hardest  hit   could be   meat   producers   who had been enjoying  high prices, but – as   Keith  Woodford  points  out – meat companies lack the financial power to purchase large quantities of stock without clear visibility as to where markets are going. They may well need bridging finance from government.

ANZ, releasing  its  latest commodity price index review,  says the meat and fibre index fell 4.6% in February continuing the downward trend in pricing which has been present for the past three months. Exporters have been diverting meat into other markets such as the US for beef and more lamb is heading to Europe, but stocks are building.

Prices for the higher-end cuts of lamb have been maintained but prices for the lower value cuts and manufacturing grade beef are rapidly falling.

For  the  dairy sector, it  was a  rather different  story.   ANZ  reports  dairy prices were stable in February as higher cheese prices offset lower prices for milk powders.

This data is yet to reflect the recent fall in GDT prices which are back 9% since early February. Dairy exports remain robust but are not immune to the supply chain challenges all industries currently face”.

Though  prices  fell again  at the  latest  GDT  auction this week, the  impact was  limited  because  of   the  decline  in  the  exchange  rate.

Dairy farmers  also have the reassurance  of Fonterra’s  reaffirmation of  its  farmgate   milk  price  and earnings forecasts for  the year,  though the  co-op conceded  the  coronavirus  outbreak  is affecting  Fonterra’s  food-service customers  in  China.  Fonterra  has  contracted  a  high  percentage   of the  2020   financial year’s milk  supply  “and this is  helping  us manage the impact of  coronavirus”.

A2 Milk  has  reported  demand  for its  products  remains  strong and its   staff  in China  have been  working hard to ensure  product  is  available  in the  online  sales channels. CEO  Geoff Babidge says   the  nature  of  A2’s product  means there is inherent  demand.

So our  main  focus is  on ensuring our product is  available for the  various channels of  distribution…Product is flowing and products  such as ours   are getting priority for  clearance  at  ports”.

 With $618.4m sitting  in the bank, A2 Milk,  which  until now  has been solely a marketer  of  a1 beta-free milk products,  said  it is looking at manufacturing  in its own right,  due to the increased scale  of its infant nutrition business.  For the  full 2019/20  year ending in  June the company said it anticipated  continued strong  revenue growth across its   key regions  supported by increased   marketing  in vestment  in China and the US.

In recent weeks the Chinese Government has advised its citizens they should consume the equivalent of 300 ml of milk per day to help with their immune systems.

Mengniu Dairy, China’s second largest dairy producer, is racing to add more vending machines to the 10,000 it currently has, saying the epidemic has driven unexpectedly strong demand for the sales channel.

Its system allows customers to order products like milk and yoghurt online which can then be picked up from their local vending machine.

So  if   the Chinese government’s actions  in  seeking to control  the Covid-19  outbreak   are  beginning  to succeed,    demand  for   NZ’s  dairy  products   may  return to  an upward curve.

That   will   mean  the  NZ industry  will  get   through the  current global crisis,  hopefully  with not  too many scars.

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