Farmers who believed Labour when it said it wanted to double agricultural exports may have experienced a sense of disillusion as they absorbed the messages of Budget 2021. While the government is allocating $1.3bn to modernise rail infrastructure and build locos and wagons in Dunedin, it could find only $62m for agriculture.
Someone has calculated that the country’s 40,000 farm businesses, if they shared the $62m, would each receive $1550 or $29 a week (less than the ongoing minimum benefit increase).
This comparatively meagre sum is to be applied as follows:
- $37m towards a national integrated farm planning system for farmers and growers.
- $24m towards agricultural greenhouse gas mitigation research and development.
- $900,000 to collect vital statistics on agricultural production, such as greenhouse gas emissions.
Critics may conclude the small outlay for agriculture reflects Agriculture Minister Damien O’Connor’s influence in Cabinet. Others may see it as evidence of the traditional antipathy of Labour MPs towards farmers.
Fortunately for the rural industries, commodity prices are strong at present, and in themselves offer a powerful incentive to increase production .
Dairy farmers in particular can look forward to a repeat of this season’s excellent returns, with ASB economists earlier this week predicting Fonterra will set a farmgate milk price of $8.20kg/MS.
Then Fonterra announced its opening forecast range for the 2021/22 season at $7.25 – $8.75kg/MS, with a midpoint of $8.
Fonterra also narrowed its 2020/21 forecast range, which reduces the midpoint by 5c to $7.55, and reported a strong performance for the nine months ended April 30.
However, it cautions there will be significant pressure on earnings in the last quarter of the year due to the normal seasonal profile of the business combined with tightening margins.
CEO Miles Hurrell says that the improving global economic environment and strong demand for dairy, relative to supply, are underpinning the $8 midpoint of the co-op’s 2021/22 forecast.
“At this point it would see the co-op contributing more than $12bn to the NZ economy next season.
“Global demand for dairy, especially New Zealand dairy, is continuing to grow. China is leading the charge as its economy continues to recover strongly. Growth in global milk supply seems muted and the global supply of whole milk powder is constrained.”
Since March Fonterra has seen prices settle, somewhat, the reason why it has revised the midpoint down 5c. In what Hurrell calls “that extraordinary March GDT event, where prices jumped 15% “, the average price for whole milk powder was over US$4,350 per metric tonne.
In the last three GDT events, however, the average price has reduced to close to $4,100 per metric tonne. GDT butter prices have gone from almost $6,000 per metric tonne to below $5,000 per metric tonne for the first time since January.
Those are still very good prices so the rest of the country – as well as the farmers themselves – should be cheering.
For the nine months ended 30 April 2021, Fonterra delivered a normalised net profit of $587m, up 61% year-on-year, reflecting the co-op’s improving underlying business performance and stronger balance sheet. Reported net profit was $603m, up 2%.
Fonterra’s total group normalised earnings before interest and tax was up 18% to $959m, due to higher margins and reduced operating expenditure.
Whether Fonterra’s outstanding result wil do what the government has failed to do in the budget and encourage farmers to plan on expanding production remains to be seen.
Equally in the balance is whether O’Connor can redeem himself with farmers by succeeding on his mission to the UK in securing the shape of a free trade agreement.
He will have to be at the top of his game to achieve what Australia appears to have negotiated. Reports are that Australia is said to have won tariff-free access (though over 15 years).
So far NZ’s negotiators are not within reach of that for dairy products. O’Connor will have to argue NZ’s supplies are largely timed to reach the northern hemisphere when local production is normally low.
Watch this space.
While waiting, let’s note the ACT Party is celebrating the achievements of our dairy farmers
“The latest Fonterra announcement of a heightened 2021/2022 farm gate milk price is a big thumbs up for rural New Zealand performance,” says ACT’s Primary Industries spokesperson Mark Cameron.
“Cheers to our dairy farmers for all their hard work. What this means to New Zealand economic recovery in these crazy COVID times, is greater economic certainty.
“After last week’s la la budget which spent billions of dollars, this boost is exactly what the country needs.
“The new pay-out will mean hundreds of millions of additional dollars that flood into the national economy. A fiscal kick up the backside of a struggling economy. It’s great news to help spirit on our recovery and pay for our ballooning debt.”
Cameron noted that the Government had rewarded farmers with a “backhanded slap in the face to rural New Zealanders”.
“When the New Zealand economy needed farmers, we just kept working, we had a nation to feed, debt to clear, economy to salvage.
“In return, the Government is a non-stop shop of on-farm compliance. The plethora of shoddy law making targeting New Zealand farmers continues.
“This is how the Government rewards the rural sector for all its hard work. It’s an absolute disgrace.
“The freshwater reforms, winter grazing rules and limiting migrant workers – just to name a few.”
Cameron pledged ACT would always acknowledge the country’s winners, wherever they are, and said “our farmers are certainly those”.
He hoped the blinkered Government would wake up and join his Party in celebrating the rural sector.
At Point of Order, we are not putting our money on this happening any time soon.