Reading world news and one can understand why farmers might be gloomy.
There’s the Brexit shambles, trouble in the Middle East, all too frequent changes in Australian prime ministers and then there’s President Donald Trump’s tweets.
Indeed, reading his twitter feed alone might make a farmer nervous.
This past month is case in point.
Trump caught financial markets by surprise, ratcheting up tariffs on $200 billion worth of Chinese imports on May 5. Following that announcement and just when the going was good, the key US S&P 500 sharemarket slid as much as 5% at one stage.
In some ways, then, a farmer has cause to worry.
Global economic growth has slowed since late 2018 and so far over 2019. And, after all, New Zealand dairy is reliant on exports for over 90% for its income.
But this article aims to provide farmers with some comfort. Indeed, it’s comforting NZ is a food exporter in times like these.
Why is that so? Well, when global incomes get tight businesses put off investment plans. However, more importantly, households go back to basics. Generally people have to eat, so food consumption often remains little changed during these periods of tighter incomes.
The other factor propping up food demand is that while growth in the key Chinese economy is slowing, consumer demand is still humming.
Indeed, annual retail sales growth so far over 2019 is still averaging a healthy 8% while overall Chinese economic growth has slowed to about 6%.
This changing composition of growth is consistent with the Chinese economy becoming more modern.
Looking back on the transition of other modern Asian economies, like say Taiwan or Korea, as industrial and export growth slows, the household sector picks up the economic growth baton.
And a key part of this transition is that Chinese consumers, as they become wealthier, are demanding more and better food, including protein.
Theory is one thing but cold hard facts are another.
Even then, looking at the data, this theory stands up to scrutiny.
Chinese imports of whole milk powder have jumped 24% over the 12 months to March 31 compared to the 12 months prior. More critically, and despite slowing global economic growth, global dairy prices are rising with dairy auction prices jumping well over 20% since the start of the year.
At this point, though, you might rightly ask, whether this is a dairy-specific thing?
Well, looking more broadly, we see NZ food exports are solid almost across the board.
Nationwide lamb prices are above the lucky $7/kg mark while annual kiwifruit exports have passed $2 billion for the first time and continue to climb.
That said, pockets of weakness still remain. During these times, some of the more luxury-type products might struggle.
Manuka honey exports, for example, could be subdued this year for the first time in a while.
In fact, the one premium product where we do know this is already the case is our wine exports. Firstly, it’s a more expensive product and, as mentioned, premium/luxury products struggle in times of tighter incomes. And secondly, wine exports are concentrated in the markets like the United States, Australia and Britain, where economic growth has dipped, while the exposure to the more robust Chinese market is small.
With that in mind, more premium dairy product exports could be affected in a similar vein.
All things considered, though, it’s a good time to be a food exporter.
For dairy, we have set our 2019-20 milk price forecast at a bullish $7/kg despite the global economic headlines. In that sense, dairy and many of our other food exports are indeed comfort food.
