New Zealand agriculture faces an uphill trek in 2023, with the difficulty of the climb set to
hinge on four ‘wildcard’ factors: the re-opening of China, global and domestic inflation
policy, market signals for low or zero emission products and the upcoming New
Zealand election campaign, according to a new report by agribusiness banking specialist
Rabobank.
hinge on four ‘wildcard’ factors according to Rabobank’s latest Agribusiness Outlook.
In the bank’s annual flagship report, New Zealand Agribusiness Outlook 2023, titled
Rising to the Challenge, Rabobank says the industry traversed a mountain of challenges
in 2022 and a testing climate confronts the sector as it begins its 2023 journey.
“During the course of 2022, Covid-19 pandemic aftershocks continued to impact our key
export market, China, with the strict zero-covid policy in force for much of last year
negatively impacting New Zealand export volumes and returns,” report co-author senior
agricultural analyst Emma Higgins said.
“On top of this, war broke out in Europe, which disrupted market access and trade flows,
and added fuel to the inflation fire taking off around the globe. These issues contributed to
surging costs for farm inputs with fuel, fertiliser and finance costs all jumping significantly
throughout the course of 2022.
“This in turn squeezed New Zealand farmer margins, with margins coming under even
further pressure in recent months as agricultural commodity prices have moved to more
modest levels following the near or record highs seen at the start of last year.
“If this wasn’t enough to contend with, we saw La Niña conditions for a third consecutive
season, with 2022 turning out to be the warmest year on record for New Zealand. 2022 also
achieved the accolade of having the wettest and warmest winter on record – bringing floods
for Nelson and Marlborough – and already this year we’ve seen the lingering impacts of this
weather pattern create significant flooding issues for food producers across the East Coast
and top of the North Island.”
The report says these factors have drained sentiment among the country’s food producers*
and New Zealand agriculture is now deep in a period of what feels like considerable
frustration.
“Government policy impacting the sector continues to be a major source of concern for
farmers and the industry. Additionally, weakening market prices across multiple sectors is
further contributing to already low confidence levels,” Higgins said.
“And all of this exists amidst a potent background of climate change urgency, a cost-ofliving crisis, geopolitical fragmentation and extremely tight labour markets.”
With many of these challenges looking likely to linger longer, the report says, 2023 runs the
risk of being characterised by margin pressure for many operators.
“In particular, the first quarter of 2023 looks tough,” Higgins said. “And we anticipate low
profitability will push some businesses to assess income diversification streams and explore
complementary revenue options over the course of the year ahead.”
Four ‘wild cards’ set to shape sector prospects
Within this challenging outlook for the sector, Higgins said, several divergent paths are
possible.
“And we anticipate the sector’s fortunes will largely be shaped by four ‘wild cards’,” she
said.
Four wild cards
The first of these, according to the report, is the re-opening of China after the country’s
Covid U-turn.
“China has now lifted its previously-strict Covid-19 policies alongside reopening its borders
to international travellers for the first time since March 2020. With the Covid-19 wave now
spreading rapidly in China, adverse short-term impacts will likely be felt on supply chains
via temporary labour shortages,” Higgins said.
“We expect a light recession in China, already kicked off in quarter four 2022, to end in the
first quarter of this year. We think the journey might still be a bit bumpy, but there remains a
chance that demand could improve earlier than forecast, with food services picking up after
long lockdowns – providing a boost for commodity prices and New Zealand farmer bank
accounts.”
The report says the second wildcard is global and domestic inflation policy.
“Policy makers – here in NZ and elsewhere – have already made concerted efforts to
wrangle inflation back to desired levels. Upside risks of inflation persisting mean that
interest rates still have a way to go, with central banks not done with hiking – yet,”
Higgins said.
“As the fight against inflation continues across the globe, recessionary risks are clear in
several of our important export markets including China, Europe, and the US. Markets,
however, also indicate that a turnaround of interest rates in several key countries could
come as early as the second half of 2023.
“Here in New Zealand, the RBNZ expects demand will become increasingly constrained by
higher levels of debt servicing costs which will help bring demand back in line and stamp
out inflation.”
The third wildcard identified in the report is market signals for low or zero emission
products.
“From free trade agreements to supply chain giants setting zero-carbon targets, the market
signals for a lower emissions future are getting stronger and clearer,” Higgins said.
“We have an early-mover advantage in New Zealand to supply low-emissions produce into
these supply chains and countries, with the opportunity to leverage our emissions pricing
framework to unlock further value. The direction of travel for change in New Zealand
agriculture is largely set – so this is the time to leverage the opportunities presented locally
and globally. To take advantage, we must act quickly, ahead of our competitors.”
Finally, the report cites the upcoming election campaign as a further variable that will
influence the year ahead for New Zealand ag.
“October 14 is D-Day for kiwis to hit the polls for the 2023 election. Any change of
government is unlikely to shift the direction for pending and proposed sustainability
regulations, but the broader pace of regulatory change may be altered with this having
already been flagged as an issue by recently-installed Prime Minister Chris Hipkins,” Higgins said.
“The New Zealand ag community vote will be sought after, and we await to see how
prominent specific New Zealand agriculture policy features in the upcoming election
campaigns.”
Navigating the path ahead
While the year ahead is expected to test the industry’s resolve, Higgins said, New
Zealand’s farmers and growers have shown over the years that they can successfully tackle
the many challenges that come their way.
“Business success in 2023 will balance on the sector’s ability to adopt a back-to-basics
approach focused on reduction of business costs and selection of the right supporting
team,” she said.
“This isn’t the first time commodity cycles or regulation have changed and there’s a wealth
of experience in our rural communities which our farmers and growers will need to draw on
over the months ahead.
“Where possible, food producers should also allocate time for themselves off farm to
support their mental health and wellness.”
