Budget pumps $1.3bn into railways but almost forgets farmers while Fonterra delivers the economy-boosting goods

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.