by Nick Clark, Federated Farmers Manager General Policy
Monetary policy unchanged
The Reserve Bank has kept monetary policy settings unchanged at this week’s review, keeping in place its big stimulus.
The OCR was kept on hold at 0.25% while the Large Scale Asset Purchase Programme and Funding for Lending Programme were both unchanged.
In its statement, the Reserve Bank Governor noted that although the global economic outlook has improved on the back of fiscal and monetary stimulus there is much divergence between and within economies and uncertainty remains high. On the positive side higher international commodity prices are supporting New Zealand exports.
The domestic economy has slowed over the summer following the earlier rebound. The Trans-Tasman bubble should help the tourism sector but New Zealanders are also likely to travel to Australia making the net effect uncertain. Similarly, the Reserve Bank noted that “the extent of the dampening effect of the Government’s new housing policies on house price growth, and hence consumer price inflation and employment, will also take time to be observed”.
In terms of inflation, the Reserve Bank observed that “temporary factors are leading to specific near-term price pressures”, including disruptions to global supply chains and higher oil prices. However, it considers that “medium-term inflation and employment would likely remain below its remit targets in the absence of prolonged monetary stimulus”.
So, the Reserve Bank reiterated it will maintain its current stimulatory monetary settings until it’s confident that annual consumer price inflation will be sustained at the 2% target midpoint, and that employment is “at or above its maximum sustainable level” (meaning unemployment around 4% or so).
The Reserve Bank’s next review will be on 26 May.
Our land 2021
The Ministry for the Environment and Statistics NZ released a report this week Our Land 2021, presenting data on land cover, soils quality, and land fragmentation. Some key points…
- 87% of New Zealand’s population live in towns and cities. About 80% of our population growth for 2018–43 is expected to be in the main urban centres.
- 15% of land is particularly good for food production. This highly productive land has a good climate, suitable soil, and is flat or gently sloping. Here, less irrigation and fertiliser are needed to grow food than in other areas. Highly productive land is often on the fringes of our cities.
- Highly productive land became more fragmented between 2002 and 2019, especially through residential development of land sized 2–8 hectares (lifestyle blocks are about 5 hectares on average). The area of highly productive land that was unavailable for agriculture (because it had a house on it) increased by 54% during this period, from 69,920 hectares in 2002 to 107,444 hectares in 2019.
- The total area of land used for agriculture and horticulture has been decreasing since 2002 with an overall reduction of 1,878,409 hectares (14%) between 2002 and 2019, and a reduction of 207,747 hectares (2%) between 2017 and 2019, and the number and size of farms has decreased during the same period, with a reduction of 19,980 farms (29%) and 2,028,710 hectares (13%) between 2002 and 2019. However, the export income from farming products has increased, from $23 billion in 2010 to $44 billion in 2019 (primary industries export revenue excluding seafood)
- Dairy cattle numbers have more than doubled since the 1980s, rising from 3.4 million in 1990 to 6.3 million in 2019 (but have dropped in recent years). Sheep numbers have more than halved, down from 57.9 million to 26.8 million.
- The use of irrigation, especially on land used for dairy farming, has nearly doubled since 2002. In 2019, 5% (735,073 hectares) of agricultural land in New Zealand was irrigated, with dairy farming making up 58 percent of irrigated agricultural land 2019.
- The sale of phosphorus fertiliser peaked in 2005 at 219,000 tonnes per year. It has reduced since then, with 154,000 tonnes sold in 2019. The sale of nitrogen fertiliser increased sharply from 62,000 to 452,000 tonnes per year between 1991 and 2019.
Federated Farmers expressed concern about the encroachment of housing onto highly productive land. To see our response, see here.
Food prices flat
Food prices were unchanged in the month of March (and were down 0.4% when seasonally-adjusted), according to Statistics NZ’s Food Price Index.
In March 2021 compared with February 2021:
- Fruit and vegetable prices rose 0.3% (but down 2.7% after seasonal adjustment), with fruit up 0.5% and vegetables up 0.1%.
- Meat, poultry, and fish prices fell 0.6%, with beef and veal down 1.3% and mutton, lamb, and hogget down 2.6%.
- Grocery food prices fell 0.4%, with bread and cereals down 0.3% and milk, cheese, and eggs up 0.3%.
Food prices were up 0.5% for the year, the lowest annual rate since June 2019. Comparing March 2021 with March 2020:
- Fruit and vegetable prices rose 2.3%, with fruit up 5.7% and vegetables down 0.1%.
- Meat, poultry, and fish prices fell 3.0%, with beef and veal down 5.9% and mutton, lamb, and hogget down 3.0%.
- Grocery food prices fell 1.1%, with bread and cereals down 0.8% and milk, cheese, and eggs down 0.4%.
Confidence up but so is cost pressure
NZIER’s latest Quarterly Survey of Business Opinion has shown a modest improvement in business confidence in the first quarter of 2021, with demand holding steady.
A net 11% of businesses expect a worsening in general economic conditions over the coming months. This was a modest improvement from the 16% of businesses which were pessimistic about the economic outlook in the previous quarter.
Retailers were the most pessimistic sector, with a net 38% expecting conditions to deteriorate. Agriculture is not surveyed although businesses serving the agricultural sector are.
Meanwhile, firms’ own trading activity was unchanged from the previous quarter. Respondents reported supply chain constraints driving cost pressures and price increases. However, they were more upbeat on hiring and investment.
Housing strength continues
The housing market continued to run hot in March, according to the Real Estate Institute’s monthly Residential Market Statistics.
In March 2021 the median sales price was $826,300, up 2.7% on February to another new record high. The median sales price was up a whopping 24.3% on March 2020’s $665,000.
Auckland’s median sales price was $1.12 million, up 18.5% for the year. There were much bigger percentage increases in other regions, such as Gisborne (up 56.9%), West Coast (up 36.4%), Manawatu-Whanganui (up 31.9%), and Otago (up 30.8%). Southland had the slowest annual growth, but still a double digit increase (up 12.2%), followed by Nelson (up 13.7%).
With 9,721 sales, volumes were the highest for a March month in 14 years and were up 31.2% compared to March 2020. The median days to sell also dropped to 28 days.
This data pre-dates the impact of the Government’s announced changes to housing taxation and the full effect of reimposed LVR restrictions. These should together slow the rate of growth but it is too early to tell by how much.
Traffic noise
The ANZ Truckometer has continued its recent run of increases. Comparing March with February, its Light Traffic Index was up 1.7%, while its Heavy Traffic Index rose 2.8% (both increases seasonally adjusted).
Compared to the same period last year the Light Traffic Index’s three month average was up 11.7% and the Heavy Traffic Index was up 10.3%. While this looks strong, ANZ noted that comparisons with last year’s lockdown induced slump and its post lockdown rebound means annual data will be extremely noisy over the coming months.
Retail sales up
Retail spending increased 0.9% in the month of March, according to Statistics NZ’s Electronic Card Transactions.
Compared to February there were monthly increases for motor vehicles (up 4.1%), durables like furniture, hardware, and electronics (up 1.8%), and fuel (up 1.1%). However, there were declines for consumables, like groceries (down 3.3%), and apparel (down 2.4%).
On a quarterly basis, the March 2021 quarter was down 1.9% from the December 2020 quarter, in part due to New Zealand moving in and out of alert levels several times during the quarter.
On an annual basis, retail sales were 5.1% higher in March 2021 compared to March 2020. March 2020 included nearly a week of hard alert level 4 lockdown. For the next few months comparisons will be very noisy due to last year’s lockdown induced slump followed by post-lockdown bounce-back.
Greenhouse gas emissions
Statistics NZ’s Greenhouse Gas (Household and Industry) Statistics showed New Zealand’s greenhouse gas (GHG) emissions were down 1.7% in the December 2020 quarter compared to the September 2020 quarter.
On an annual basis, comparing the year ended December 2020 with the year ended December 2019, emissions were down 4.8%, largely driven by a fall in transport emissions from the impact of COVID-19 on the economy and society.
Agriculture, forestry, and fishing emissions were little changed for the quarter, down 0.2%, while they were also down 1.4% for the year.
BNZ Seek Employment Report
Job ads were bullish in March, according to the monthly BNZ-Seek Employment Report.
March saw a 10.6% jump in job ads compared to February. Almost all sectors enjoyed healthy increases in ads, including the farming, animals, and conservation sector which was up 12% month-on-month. All regions posted increases, with Bay of Plenty, West Coast, and Otago all had month-on-month increases of more than 20%.
While good news for job seekers, strong job ads aren’t necessarily a sign of a healthily functioning labour market. They can in fact be a symptom of problems as anyone in agriculture or horticulture will know as they struggle to fill vacancies.
Migration continues to shrink
Statistics NZ’s International Migration Statistics show, unsurprisingly, a continued shrinking in migrant arrivals and departures.
In February 2021 there were 2,200 migrant arrivals (down 89.5% on February 2020) and 1,600 migrant departures (down 75.8%), resulting in a net gain of 700 (down from 14,900).
For the year to February 2021 there were an estimated 49,600 migrant arrivals (down 72.5% on the year to February 2020) and 32,100 migrant departures (down 66.0%), resulting in a net gain of 17,400 (down from 85,500). Highly unusually for recent history, the overall migration gain is due to a net gain in NZ citizens offsetting a net loss of non-NZ citizens.
Travel still squashed
Statistics NZ’s International Travel Statistics show, again unsurprisingly, only a trickle of international arrivals and departures. There were only 5,300 overseas visitor arrivals in February 2021 (down 98.6% on February 2020) and only 3,000 New Zealand residents returning from an overseas trip (down 98.4%).
The Trans-Tasman travel bubble will see some recovery in these numbers from April but not anywhere back to ‘normal’ levels.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 15 April) show soils significantly drier than usual along most of the east coasts of both islands, and especially so in Opotiki, Gisborne, Wairoa, Hurunui, and South Otago, and much of Southland. In contrast, soils are significantly wetter than usual in Taranaki, Tasman, Nelson, and the Marlborough Sounds.
Exchange Rates
The NZ Dollar was stronger this week, up 1.4% against the TWI. It was up against all our key trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up 1 point, while the 10 year Government Bond yield was down 3 points.
The Reserve Bank will next review monetary policy settings (including the OCR) on 26 May.
| This Week (8/4/21) | Last Week (1/4/21) | Last Month (8/3/21) | Last Year (8/4/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.34% | 0.33% | 0.32% | 0.44% |
| 10 Year Government Bond | 1.72% | 1.75% | 1.79% | 0.96% |
Source: Reserve Bank of NZ