Stronger business investment – by farmers, too – is essential for NZ’s post-Covid recovery

In  its Thursday editorial  the NZ  Herald  speaks an important truth:  “Investment important to  stay  on  track”.  This  won’t  have  startled  its  more literate  readers but  in  its text  it notes  the  strong result  in the latest  Global Dairy Trade auction, which  prompted Westpac  to raise  its  forecast  for  dairy giant Fonterra’s payout  to its farmers to $7.50kg/MS  this season.

“If  this turns  out to be correct,  it will represent the highest  payout in  seven years for  a  sector of  the economy that is arguably still  NZ’s  most  important, even before international  tourism was effectively suspended by Covid-19”.

The  Herald editorial  goes on to make the case that despite the buoyant mood,  the  only  realistic  way for  NZ to remain   in such  solid shape in the  post-Covid era  is  through stronger  business  investment.

This  is  the theme  which  Point  of  Order  set  out  earlier  this  week when it  contended  Fonterra  should go hard  with this  seasons’s payout  to  encourage  investment  by its farmer-shareholders  in expanding  production.

Dairy farmer  confidence  has been   eroded  by urban critics who  have adopted  the slogans  of  anti-dairying  lobby groups, without  (apparently) being aware  of the huge strides  made in recent  seasons  within  the  industry  to  eliminate  what was  painted as  “dirty dairying”.

The  prospect  is  that  commodity  prices  will  remain  firm  and   the  NZ  dairy  industry  as a  whole   has  sought to become  more  dominant  at  the  top   end of international market.

In that  context, it  is  interesting to  note that one  of  Fonterra’s  international  competitors,  Danone,  has been in the headlines  with  an activist  shareholder  demanding the  company  replace  its  leadership.

Back  here  Fonterra  CEO Miles  Hurrell   is  not  quite  ready  to  concede  the  latest  GDT  auction result will  lead the  co-op  will  lift  its  forecast  on the payout.  Prices  rose 4.8%, which  on  top  of the  previous  rise  of  3.9% – according to Hurrell – defied expectations.  He described it as a great  start to the year.

“The last five events have been heading in the right direction, you know farmers should be feeling positive about this.”

But Hurrell said while things were heading in the right direction, Fonterra will wait for more events before changing its  forecast.

“On the back of some increases we saw in early December, we did increase our guidance for the year, so our forecast range is now $6.70 to $7.30. We’ll continue to do our numbers on this over the next few weeks to see how things play out.”

One rural business kept afloat by farmers is Power Farming, a company which sells tractors and agricultural machinery.

Richard Clarke is the Dealer Principal of the Morrinsville branch. He said auction results have a massive impact on investment.

“We’ve seen commodity prices rising steadily and that improves sentiment and confidence within the industry. I mean they (farmers) can have all the money in the world available to them but if there’s no confidence, and the expectations are poor, they don’t spend. So it’s incredibly positive news for us.”

Clark said that rise in confidence made all the difference.

“It’s not gang-busters yet but we’re miles ahead of where we were, confidence wise, and even what we’re selling now than where we were 18 months to two years ago.”

Proof  surely  of  how  confidence,  based  on an affirmative outlook  for the undustry, can do for spending, in vestment—and the  country  at large.