The bank’s Agribusiness Outlook 2021 report says while the year is “bristling with risk” and bumps are anticipated throughout the coming months, NZ agriculture is well placed.
Rabobank senior dairy analyst Emma Higgins and report co-author says as 2021 gets underway, the “world remains a turbulent place” for NZ’s agricultural sector.”
“The covid-19 pandemic continues to rage in many regions around the globe, the finer points of the messy Britain and the EU divorce are now in full swing, and tensions in the US remain high following an acrimonious transfer of power to the new Biden administration,” Higgins said.
“More frequent use of market intervention is a further factor creating global instability as are ongoing trade wars which have distorted the direction and price of traded goods.”
She says while NZ agriculture had been unable to completely avoid the discomfort caused by this turbulence, the sector had “done much right to keep itself on a strong path.”
This includes the country’s efforts to control covid-19’s spread better than almost any other country in the world.
“We also saw domestic agricultural supply chains pivot during the peak of infections last year, allowing these to stay open and continue to function at close to full capacity. In addition, we’ve seen diplomatic relations with key trading partners remain stable, keeping vital markets open,” she said.
While it sounded simple, they are achievements that have eluded most countries in 2020 and early 2021.
“And given the extent of the turbulence, and compared to most other peers, NZ agriculture is travelling astoundingly well,” she said.
The new year did bring more uncertainty than previous years with a number of potential bumps which may need to be navigated in the year ahead.
“The pandemic in the US and the EU will probably not start to look materially better until quarter two as winter passes and the vaccine rolls out, while the current spike of infections in key Asian markets is now looming as a major threat for NZ agricultural exporters,” she said.
Risks to commodities will need to be tackled, such as the threat of Chinese dairy destocking, labour shortages in the horticulture sector and the impacts on the animal protein sector of China’s pig herd recovery.
“We also expect to see NZ exporters facing a much stronger NZ dollar in 2021,” she said.
Developments in the Chinese market shaped as the key watch factor for NZ agriculture in 2021. In the 12 months to November 2020, the share of NZ ag exports to this market came in at 31% in value terms.
She says what happens in China in 2021 will be vital to shaping the year for NZ agriculture as a result.
“Maintaining strong relations with China will be crucial for the sector. At present, NZ is treading a difficult path between standing up for its own values and its allies and the desire to constructively engage with a country offering a huge market, preferential access and the ability and willingness to pay for premium NZ product and supply chains,” she said.
“NZ seems well placed to manage these tensions, but this will become harder if China becomes more strident in its actions in the region and/or the US continues to push back.”
In dairy, Rabobank expects limited supply growth in competing regions and firm Chinese buying will bring not only a fifth consecutive profitable season for dairy farmers in 2020-21, but probably supportive pricing for early 2021-22.
Farm gate prices for beef are expected to remain marginally below the five-year average through most of 2021 due to continuing foodservice restrictions, strong competition from South America and a high NZD.
Weak foodservice and incomes in the EU and the US will also impact demand for higher-value lamb cuts in the sheep market, pushing export returns below 2019-20 levels. But Chinese demand will help provide a healthy floor.
In horticulture demand for quality and safe horticultural produce will remain strong. Covid disruptions to labour supply may take the shine off this opportunity, while navigation of geopolitical tensions will be key.
