Over a 48 year period, agriculture's share of the national economy has gradually shrunk. But during the Covid-19 crisis, the industry sector proved its resilience, after being classified as an essential service.
Agriculture, partnered by horticulture, showed it can still be relied on to attract important foreign exchange earnings. Often described as the backbone of the economy, the agricultural industry reacted quickly as Covid took hold — production and primary exports continued to flow while supply chains were disrupted and markets were switched.
In 1972, agriculture was the leading industry contributor to the national gross domestic product (GDP), producing wealth of $660 million, 12 per cent of the $6.85 billion economy. Food, beverage and tobacco product manufacturing was third with $491 million. By 1992, agriculture had shifted to third with $3.99b or 8 per cent of the $76 billion New Zealand economy. Food and beverage moved to second with $4.55b.
In 2018, things had turned. The national GDP was $289b (it's now $314b) and the leading industry contributor was professional scientific and technical services at $23.15b. Agriculture was 10th with $12.46b or 7 per cent, and food and beverage had fallen to 12th with $10.6b.
But while many of New Zealand's workers were stuck at home during the lockdowns, the meat, milk and dairy product processing plants and the apple and kiwifruit picking and packing operations churned on. Agriculture/horticulture and the food and beverage sectors became the shining lights of the Covid disruption.
As Traci Houpapa, Federation of Maori Authorities (FOMA) chairman, said: "Overall, the primary sector has held up well against Covid-19 given the lockdown happened in the second quarter and the majority of the industry was deemed essential and continued to trade."
But like other business leaders surveyed in the Mood of the Boardroom, Houpapa warned: "We all know the impact will be felt in the next two financial/trading sessions. It's going to be hell."
She said though the government subsidy and other financial support were welcome during Level 4, the true cost on employment and business will be uncovered once the subsidies are lifted.
"Businesses have some way to go before they have any confidence of business turnaround, and the further uncertainty about impending lockdowns if Covid-19 cannot be contained and managed is palpable. We need a co-ordinated approach which allows New Zealanders to live, work and pay within the Covid context — the lockdown approach is simply not sustainable."
This was the strong feeling amongst business leaders in the agriculture sector: We've got through so far, but what of the future?
Sirma Karapeeva, chief executive of the Meat Industry Association, said exports had remained strong despite global disruption, but the global market is softening and "I suspect we have not yet seen the full impact on world prices and consumption patterns."
Simon Limmer, chief executive of meat processor Silver Fern Farms, said the problem was in judging the global economic outlook and knowing where the markets will go next. "We won't have a good sense of that till the livestock numbers creep up in November and December and the pressure goes on to move the product through the export markets."
Another issue for primary exporters like Silver Fern Farms is adapting to the new foreign exchange rate with the NZ dollar rising from 58c, in March, to above 67c against the US greenback. The big meat processors, Silver Fern Farms and the Alliance Group, experienced production declines of 20-50 per cent during the past three months, but expected no impact in the next four to six months and thereafter. T&G Global had a less than 10 per cent decline in the past three months and expects production growth to resume from four months on and after.
When it comes to the future, agricultural companies are not so positive. They were asked: "Are you more or less optimistic than you were one year ago?" Ten firms were slightly optimistic about the general business situation in their industry, one was much less optimistic and three said it would be the same as last year. On the New Zealand economy, 11 were much less optimistic, two slightly less optimistic and one felt it was the same as last year.
On the global economy, three were slightly less optimistic and 10 much less optimistic. And that's the catch. Most agricultural leaders commented about the future uncertainty.
Ballance Agri-Nutrients CEO Mark Wynne said New Zealand had navigated the crisis extremely well. "If we can establish a bubble with Australia, this will be very advantageous. However, our big trading partners in US and Britain/Europe have ugly outlooks — both the current wave and next wave. Asia looks okay. But they too will ultimately be impacted by anaemic demand in the US. "For fertiliser, demand is driven more by global dairy, meat, fruit prices and weather conditions than direct impact from Covid. But Covid offshore is likely to have an impact on New Zealand protein exports, both volume and value and in the near term this still looks minimal."
Former Finance Minister Ruth Richardson — a Synlait Mik director and NZ Merino Co-chair — didn't hold back. "Covid has grounded the global economy — the next six to 18 months will be grim once fiscal and monetary madness runs out of steam and everything depends on the adjustment to the new normal. New Zealand has only two wings on which to fly — what we can produce and sell from the soil and sea, and what we can commercialise using our smarts. The lucrative tourism and foreign student sectors are knackered."
She suggested the trick is to manage in an optimum way the risks we can control.
In the face of a constrained global trading environment, she says it is scandalous that much of our valuable produce from the soil leaves our shores as a commodity, not at a premium price point.
"It is imperative to address the drag on the economy from Fonterra in particular and the co-operatives in general which account for much of our soil-base businesses," she said.
Among the top 10 issues impacting on business confidence in New Zealand, the agricultural leaders highlighted strong concern about the international trading environment. Other concerns were: skills and labour shortages; government regulation; level of government debt; level and quality of government spending; quality of the border protection against Covid; potential for community transmission of Covid; water use and emission reducing policies; restrictions on resource management/land use; and immigration restrictions.
Exchange rates and infrastructure constraints were also a big worry, but 11 of the business leaders also scored highly the general uncertainty around the impact and direction of current or proposed government policies.
Sirma Karapeeva, chief executive Meat Industry Association
Sirma Karapeeva. Photo / Supplied
The combined impact of increased regulations and regulatory cost, land use changes, lack of skilled labour due to immigration settings, and international market disruptions could have a significantly negative impact on the meat industry. It could mean reduced stock numbers, the inability to fully process all products to capture the greatest market value, and lower global prices. It's critical government policy is carefully considered and regulations do not impose unnecessary costs and compliance burdens that stifle innovation, have unintended consequences, and not lead to the desired outcomes. We also need to find a sustainable solution to Halal migrant workers who collectively contribute $3 billion of export earnings but are here on visas that are due to expire early to mid next year with no clarity on whether they will be able to return to New Zealand.
Terry Copeland, chief executive of New Zealand Federated Farmers
Terry Copeland. Photo / Supplied
With the reliance on agriculture to make the biggest gains in export earnings vital for the economy, heavy-handed environmental policies are going to reduce the amount of product available. There won't be a premium paid for our products because the heavy legislation makes the minimum standard the highest quality amongst world peers — so they won't have to pay more if we have to produce it that way anyway. De-carbonising the economy is also vital, and incentives to move away from fossil fuels are imperative.
Carol Campbell, independent director of T&G Global
Carol Campbell. Photo / Supplied
Campbell asks three questions:
1. Which party do we trust to rebuild a viable ongoing economy complete with public health strategies that will allow us to stay safe? 2. Who do we have that has the vision and skills to lead us into a decade that looks like being tougher than we have ever had before? 3. How do we get top class quarantine facilities at our borders so we can allow skilled returning New Zealanders plus skilled foreigners to enter the country and contribute to our economic recovery?
Ruth Richardson, Synlait Milk director and chairman of The NZ Merino Co
The Government refuses to swim in two lanes: securing health and wealth concurrently.
Instead, it is pursuing a consecutive strategy — nail the Covid risk and the economic risk which mounts by the day can wait. We are like a grounded wide body jet, and while the five million passengers are shielded from the worst of Covid, they will suffer high unemployment, face an enormous debt burden and will suffer falling prospects.
The jet must fly if New Zealand is to not just survive but thrive, and relies on two wings — what we can sell from the soil and the sea, and how well we can sell our smarts.
The Government offers no clue as the how the five million will adjust to the new normal beyond throwing short term money at the problem and hasn't a clue how we as an island nation can take flight successfully into a pandemic planet.
