While New Zealand fights to stem the fallout from the damaging Fonterra DCD crisis, a new report by Rabobank has revealed that the country’s strong trade links to countries with importing markets will be central to the performance of its agricultural sector this year.
The specialist food and agribusiness bank’s Agriculture in Focus 2013 report, which examines the outlook of New Zealand and Australian agriculture, identifies key opportunities and challenges in New Zealand’s competitiveness.
Overall, the report suggests that the outlook for New Zealand agri-commodities remains generally robust, despite some ongoing challenges to competitiveness.
“Global supply and demand fundamentals indicate an increased reliance on exportable supplies from New Zealand in 2013, which should help bolster local prices, largely off-setting the currency drag [from the high dollar],” the report states.
However, it warns of the importance of maintaining competitiveness in order to take full advantage of the opportunities.
“Enhancing the international competitiveness of New Zealand agribusiness is becoming increasingly challenging. Where possible, these challenges must be tackled in 2013 to mitigate the impacts of the elevated New Zealand dollar and to unlock the growing opportunities for the sector into the future,” it says.
Food security and safety
Chief among the opportunities for the New Zealand agricultural sector is the pressing global need to provide food security to rapidly-expanding and increasingly wealthy populations, particularly in developing Asian economies.
Like Australia, New Zealand is well-placed to increase the volume of agricultural exports into the Asian region due to its competitive advantages, including superior product quality, developed trade links and geographic proximity.
“Both countries have an ample supply of high-quality food and agricultural products, and comfortably sit on the doorstep of a fast-growing region,” the report continues.
However, extracting and retaining maximum value for that production—along with maintaining and developing competitive advantages—will be key to ongoing growth in exports, according to Rabobank senior analyst Hayley Moynihan.
“The New Zealand agribusiness sector is expected to play a major role as a reliable supplier of safe and high-quality food over the next decade, however it is not the only country eyeing the opportunities presented by the increasing food demand from a rising middle-class in Asia. Maintaining competitiveness is vital to take full advantage of the opportunities,” she said.
Food safety is also an important factor identified by the report. “Plagued by local food safety issues, many trading partners are seeking the assurance of high quality imported food and agricultural products,” said Moynihan. “And stringent food quality and safety frameworks already underpin production systems in New Zealand.”
Throughout 2013, New Zealand’s strength in international trade links with key importing markets is expected to be a distinct competitive advantage for the country’s agri-exporters, according to the Rabobank report.
“The inability of many countries, and particularly those that are developing, to feed growing populations through domestic production means that governments are aiming to facilitate trade flows and offshore investment in agriculture as a means of securing food supply,” said Moynihan.
“Trade relationships and agreements are integral in developing and maintaining efficient access to global markets. The continued facilitation of trade flows to ensure stable food stocks globally in 2013 is expected to help support the local prices of agri-commodities in New Zealand.”
For New Zealand, a key focus is the ongoing negotiations with Russia, Belarus and Kazakhstan to form a Free Trade Agreement.
The report added that foreign interest in New Zealand’s agricultural assets also looks set to continue in 2013, with the country’s reputation for quality food production making it an attractive destination for investors.
Other key issues facing the agricultural sector in 2013 identified by the Rabobank report include the strong New Zealand dollar, increasing regulatory pressures and sector employment.
The dollar is forecast to remain elevated for at least another year, so challenging the competitiveness and profitability of the country’s agricultural exports.
In addition, increasing regulatory pressures are creating some extra headwinds across the agricultural sector adding to the cost of production, as well as creating uncertainty, limiting resource availability and driving change in farming practices.
While attracting current and future generations to agriculture is a priority for all of the farming sector, Moynihan adds: “The challenge is not just meeting and being able to afford immediate labour requirements to get the job done, but identifying from where the next generation of farm owners, managers and agribusiness leaders will emerge.”