“Stop being so polite and drive the key changes in the things that you can control.”
He includes the adoption of new technology, making use of industry data and taking a risk on hiring an upstart young person.
“You have to innovate faster than the disruptors build up distribution capability,” he said.
Capitalism is being disrupted and shareholders are no longer at the head of the priority order – the focus has now gone on to staff, customers, the environment, communities and delivery on a social licence to operate.
This is more of a long-term value creation model and it should resonate with rural sector stewardship but it costs money to implement.
Bagrie suggested keeping an eye on what he calls the big fights under way – corporate versus workers, young versus old, especially around housing affordability, rural versus urban and the environment and climate change.
The biggest risk is global economic shock such as the coronavirus outbreak in China.
He predicts the Chinese government will announce a stimulus package within a month and hopes it will target consumption not investment.
China needs to grow consumption and that will be good news for NZ primary sector exports.
The fundamentals of dairying look good, including modest milk supply growth, environmental constraints on herd sizes, the uncertainty of drought and good world product prices.
“The world is going to have two billion more people in 30 years and we are going to need the disruptors to help feed them.”
NZ does not face the environmental pressures weighing on Australia.
“You have come a long way and other countries are just starting,” he said.
He urged farmers to get behind Reserve Bank governor Adrian Orr, who is export friendly.
The bank is acting early rather than late and the NZ dollar is falling and buffering some of the uncertainties over exports.
A false picture has been painted of the NZ trading banks sailing through the global financial crisis unaided but they needed a lot of help from the Government and Reserve Bank at the time.
“That is why the Reserve Bank is imposing on the banking sector additional capital requirements.
“The Reserve Bank is being smart and sensible in trying to shore up the resilience of the NZ banking system.
“But it is like taking out an insurance policy – someone is going to pay.”
The adverse impact will be something in the range of 30 to 60 basis points higher interest rates, lending will be curtailed and rural loans will have larger margins.
Trading banks will target more residential lending rather than to business and agriculture and some might choose to stop farm lending or exit NZ.
However, the historical pre-tax return on equity across the banking sector in NZ is 20%.
“That tells me the NZ financial market is a very attractive one for newcomers and I believe that new players will come in.”
Agricultural debt is 14% of total lending and about one in three dairy farms are characterised as having high debt.
Bagrie said 60% of dairy debt is still interest-only and that is alarming but the good news is it used to be in excess of 70%.
“The dairy industry needs to deleverage and that is what we are seeing at present.”
The adjustment in dairying will bring in new buyers at the right price, he concluded.
