New Zealand Agribusiness Report

The second quarter of 2009 proved to be another difficult one for New Zealand's agricultural sector. With the sector so heavily dependent on exports, the rapid strengthening of the New Zealand dollar against its US counterpart has hurt producers. Between March and mid-August the New Zealand dollar rose from just under NZD0.50/US$ to above NZD0.67/US$. This has negated the positive effects of a slight recovery in commodity prices over the period.

The renewed strength of the New Zealand dollar has contributed to Fonterra's decision to set its forecast payout for milk solids in 2010 at NZD4.55/kg, down from NZD5.20/kg in 2009. Coming down from a high of NZD7.90/kg during the dairy boom of 2008, the new price will mean 2010 will be another difficult year for dairy farmers. Many farmers invested in expanding production in the years leading up to recession and are now left servicing large debts with reduced incomes.

While prices and exports held up well for the first half of 2009, New Zealand's beef producers are also in for a tough time. As for dairy, the competitiveness of the country's meat exports will be hurt by the strengthening of the New Zealand dollar. New Zealand's meat industry is at a low ebb at the moment.

Stock levels of both sheep and cattle are the lowest in decades and confidence among farmers is down.

Even before the current problems there had been a major restructuring in New Zealand's livestock sector.

Many sheep farmers have switched to dairy in pursuit of higher profits.

Industry body Meat and Wool New Zealand is hoping to breathe new life into the sector by plotting a strategy for the development of the industry. Meat and Wool New Zealand is aiming to develop leadership and managerial skills in livestock farming, helping to rectify the difficulty the sector faces in attracting new talent into the oft unglamorous world of farming. The body will also aim to develop new markets for New Zealand's meat exports. While a growing appetite for meat in the emerging markets of Asia should see demand for New Zealand's beef exports grow, lamb will likely be a harder sell as it is not well established in the cuisine of much of the region.

All this investment does not come without a price and a rise in the levy for sheep and beef farmers announced by Meat and Wool New Zealand has not gone down well with farmers. Under the new levy structure, from 2010 to 2014 the price farmers pay Meat and Wool New Zealand will rise annually by NZD0.05 per head for sheep and NZD0.20 per head for cattle from their current level of NZD0.40 per head for sheep and NZD3.60 for beef cattle. Farmers have complained that with profits already erased by the recession and high input costs, this is not time to ask for more from farmers. Despite the short-term pain of increased costs, we believe investment in the future of the sector is essential for the long-term health of the sector.