After a rough ride since Covid-19 struck, the New Zealand economy is in better shape than might have been predicted at the onset of the pandemic. Yet labour shortages, an energy crisis in Europe and China, and massive inflationary pressures suggest that the passage ahead will be anything but smooth.
With the government abandoning the elimination strategy and moving towards living with endemic Covid, the country is adjusting to the prospect of a new normal. But without any sign of the number of cases of the Delta variant diminishing, restrictions may persist for longer than might have been imagined just weeks ago.
It’s a blow to industries looking to inflows of workers to ease labour shortages, particularly in the rural regions, which last season sustained the economy with the production of commodities that were in relatively tight supply in world markets, fetching excellent returns.
Economists have been predicting that prices for the commodities NZ specialises in could reach new heights this season. Only this week ANZ agri-economists forecast farmgate returns for beef and sheepmeat to be at record levels, while prices for dairy are holding at relatively high levels.
And there was more encouragement this week as investors took heart from signs China sales channels for infant formula had improved. That is particularly important for A2 Milk, whose shareprice slumped from above $20 at its zenith to below $6.
Reports from Australia indicated that the daigou channel in which A2 Milk had specialised is recovering. A positive first-quarter result from infant formula company Bubs Australia which specialises in goat milk formula included the news that China demand has strongly rebounded.
Bubs reported a 156% rise in China revenue, compared with the same quarter last year. Its daigou sales for infant formula surged 648% and cross-border e-commerce increased 49% .
A2 Milk has achieved huge success in China, the world’s largest infant formula market, where its A2 protein infant milk powder with the characteristic of being easier to digest than the more common A1 protein had been in high demand.
The collapse of the daigou trade affected A2 Milk’s other sales channels as well because daigou traders were effectively like online social media influencers for A2 Milk’s products and their recommendations reached parts of China where A2 Milk didn’t have a presence.
As recently as August, A2 warned that the coming year would be challenging and volatile.
Greg Smith, head of research at Fat Prophets, was quoted in the NZ Herald as saying A2 shareholders have been looking for some good news after its share price has fallen 70% since August last year.
“Maybe the worst is behind them and they are seeing good growth.”
If that’s the case for A2 Milk, it may be equally good news for Synlait, the Canterbury-based firm which processes a significant proportion of A2’s supply…
And for the country in these Covid times.