Speaking at the DairyNZ Farmers Forum in Hamilton, he says the economy’s reliance on the farming sector was one of the blunt lessons that emerged from last year.
“Thank God New Zealand is one big farm and we can’t lose track of that. NZ needed the farming sector to be the backbone of the NZ economy, as covid gave us some pretty tough challenging times,” Bagrie said.
It will remain a big part of NZ’s economic future in a rapidly changing world.
He hoped that sentiment coming out of that sector was taking a more positive outlook over the next few decades.
The sector had reduced its debt to around $38 billion after being labelled vulnerable in the Reserve Bank’s (RBNZ) financial stability report over the past few years due to the large amount of interest-only loans being granted.
He doubted it will be a focal point in the RBNZ’s next report, due out in the next few weeks.
“The dairy sector is one of the few sectors across NZ that I am seeing less points of vulnerability because your balance sheet weaknesses have been addressed,” he said.
But there are still a small amount of non-performing dairy loans at around 3%, which was an indication that these people had embraced business models that did not work.
There was also another 8% of loans described as “potentially stressed”.
Another positive was that China was one of the few countries around the globe where its GDP was back up around pre-covid levels.
“My personal view is that you’re going to see milk powder come back from $4000/tonne back to around $3500,” he said.
He says covid had caused huge supply chain issues around imports and if it continued, importers might look to local suppliers instead.
“If NZ is starting to have that conversation around stuff that we bring in, you can bet your bottom dollar other countries will be having those conversations around the stuff that they bring in,” he said.
This could see an acceleration in investment around technology-driven food.
The good news was that population growth meant continued demand for naturally produced food.
NZ’s ‘she’ll be right’ attitude towards covid disruption had to change and businesses and central and local government needed to learn to take risks in this new environment.
“Not taking risks is no longer a risk-free strategy,” he said, adding it would lead to mistakes, but the public had to be forgiving when those occurred.
The era of low interest rates was also ending and had given way to a bigger, more interventionist style of government.
“That could be good, or it could be otherwise. We in all seriousness are going to need the Government to step up in the next 30 years because the era of central bank monetary policy dominance was coming to an end.”
Central government had to be able to identify problems and come up with articulate solutions and execute on them.
“Bigger government means taxes are going to follow the Edmonds Cookbook and be sure to rise,” he said.
And that was fine, as long as those taxes led to tangible investment that would deliver a long term payout.
Low interest rates had driven huge growth but were now at a turning point. He questioned what it would mean for asset values and growth if rates lifted.
“It’s got to come back to real productive investment,” he said.
The answer was getting more growth out of the productive part of the economy.
“We talk about this, but we don’t execute it,” he said.
Inflation has been pretty benign over the past 30 years, but there was now huge pressure on costs through input costs, insurance and wages across most sectors.
“I have not seen this sort of price pressure across NZ for 30 years,” he said.
This has all lifted the country’s inflation risk profile.
