Meat Industry Association (MIA) CEO Sirma Karapeeva led a technical delegation to China this month. Photo / Supplied
China’s economic slowdown dominates the mood of many agribusiness boardrooms this year. The Chinese economy slowed in the aftermath of the Covid-19 pandemic and weakening export demand.
Agribusiness exporters consistently marked the slowdown as a “significant concern” in this year’s Herald CEOs’ survey.
China is New Zealand’s largest trade partner and the top destination for our food exports. Last year, Kiwi farmers and other producers exported more than NZ$20.4 billion worth of goods ranging across dairy (milk powder, butter and cheese), meat products, wood products and preparations of cereals flour and starch.
Beijing’s official goal was for annual growth to hit 5.5 per cent this year. That’s no longer likely. The economy came close to contracting during the June quarter. But a Reuters poll of 76 analysts based in and outside China earlier in the month predicted the economy would still grow at 5 per cent this year.
There is less demand both internally and externally for China’s output while trade tension with nations such as the United States is also hindering growth.
New Zealand agribusiness CEOs disagree on how long China’s market will stay weak. Views range from months to years, but everyone the Herald spoke to is optimistic about the medium and long term.
READ MORE: Click here to read more Mood of the Boardroom stories
Many producers are still working through the effects of Cyclone Gabrielle and the extreme weather earlier this year. The impact varies from sector to sector.
Climate change remains a major concern for the agribusiness sector with all but one leader ranking the challenge at nine or 10 on a scale where 10 is “extremely concerned”.
Two words that surfaced again and again during our interviews with agribusiness bosses were “uncertainty” and “bipartisan”.
Often they were used in the same context. The sector’s leaders agree that both main political parties need to reach a bipartisan agreement on issues such as climate policy in order to reduce the uncertainty surrounding regulations and allow business owners to better plan their responses.
Views are split on immigration. Most respondents from the agribusiness sector identify immigration as an area of concern, yet a minority are significantly less worried.
The consensus is that New Zealand’s immigration policy settings are about right, but a number of industry leaders mentioned there is work to do on streamlining the processes.
Sirma Karapeeva, CEO, Meat Industry Association
Meat Industry Association CEO Sirma Karapeeva says many in the industry expected China to resume its strong economic path when the government removed zero-Covid policies.
The feeling was that consumers would go shopping and spend after a period of inactivity. “That didn’t happen to the expected level. Consumers have been cautious,” she says.
Karapeeva says the He Waka Eke Noa primary sector climate action plan partnership with the outgoing government had left a bad taste in some people’s mouths.
Looking forward she says: “We are asking for any new government to take a much more aligned view of the value that the sector brings to the New Zealand economy. We want decisions to be made with a clearer view of the impact on the sector and therefore on the wider economy.
“We’d like the government to acknowledge that we are very large employers, predominantly in the rural areas; that we export billions of dollars worth of product around the world; and we want them to take a much more systemic and bipartisan approach to the fundamental settings needed for this country to thrive.”
Karapeeva argues three-year political cycles are not helpful. “We know it is possible to have a bipartisan approach that will endure. We see that in the support we get in the trade space where both main parties agree. That has put us in a really good position to negotiate free trade agreements and the great network that we’ve currently got,” she adds. “The bipartisan approach to trade has delivered fantastic benefits. So why can’t we do this around climate change regulation or around the science and innovation system?”
Karapeeva echoes others when she says she is also looking for greater clarity on immigration. There are opportunities to use the labour shortages, which are right across the primary sector as well as other industries, as a point of leverage when building relationships with other countries.
“We did analysis that showed labour shortages during the Covid pandemic meant we were leaving something like $600 million worth of export revenue on the table, because product couldn’t be fully processed. A lot of product was sent down the waste chute for rendering.”
David Chin, CEO, Livestock Improvement Corporation
Livestock Improvement Corporation CEO David Chin wants an incoming government to “continue supporting the dairy sector to remain the most efficient producers in the world”.
He says the sector gets great support now, but innovation is only going to become more important if we are to remain competitive as a nation.
The Livestock Improvement Corporation is investing in what it calls “adaptation strategies” to prepare for weather events and a hotter climate. Chin says this means using genetics to develop cows that are more heat tolerant.
“We’ve done some great collaboration with the government via the New Zealand Agricultural Greenhouse Gas Research Centre to develop low methane cows,” he says. “Strategically, we need to develop a cow that’s better adapted to the environment.”
Chin says support is needed on multiple levels. “We need support for research and development, whether that be through AgResearch or Plant and Food.
“That’s where the innovation is going to come from. It’s going to be very applicable to New Zealand. So I’ll be looking for an incoming government to continue and double down on those programmes.”
He says New Zealand has done a good job cementing trade agreements.”We’ve been well serviced by our trade negotiators. I want to see the incoming government carry on supporting them because the more high-quality trade agreements we have, the more options for our primary sector to export to different markets and on favourable terms.”
Looking at the wider agricultural sector, Chin wants the next government to focus on policies that are practical and implementable. “Farmers do a lot of administration in order to stay farming. We need to keep the balance right of being innovative, pragmatic producers of really good food and doing it in efficient way.”
Rising costs remain a concern for LIC members, along with rising interest rates and uncertainty about the regulatory environment.
“If you’re uncertain about what your future is, you’re hesitant to invest. The more certainty we can get around the environmental regulations, the better farmers can plan”.
Stephen Guerin, CEO, PGG Wrightson
PGG Wrightson chief executive Stephen Guerin says the reality is New Zealand needs a successful China to buy our food to “have a positive impact on our economic prosperity”.
“Year-on-year sheep meat prices are back close to 24 per cent,” Guerin observes. “Whatever business you’re running, that sort of fall is significant.
“At those prices we can see there isn’t going to be a rebound at least until this time next year”.
Guerin says the untapped marketplace from New Zealand’s perspective is India. “We’ve been slow there. Dairy is always going to be a challenge because of protectionism but there are other opportunities for our agriculture and horticulture. We need to focus on those opportunities.”
PGG Wrightson didn’t feel the full impact of Cyclone Gabrielle when it hit earlier this year. But it was devastating for customers. Guerin says it will have an impact on the current year.
He has a nuanced take on climate issues: “We can sometimes take an insular view of climate change from an agricultural sector perspective, but as a country we have commitments.
“What does that look like from outside New Zealand in our international markets? We’ve got to sell products in those marketplaces.”
Craig Ellison, acting CEO and executive director, Sanford
Sanford turned in a solid first half performance on the back of a strong full year result for 2022.
The business has yet to return to pre-Covid levels of profitability, but it appears to be on track with the ability to increase prices. The squid season has been poor across the sector but that’s been matched by gains at the high end of the market including products like scampi.
Sanford acting CEO Craig Ellison says the exchange rate is in running in the company’s favour. Reining in costs remains a challenge. But there is help coming from lower freight bills and fuel costs.
For now, the China slowdown is not impacting Sanford: “We’re still getting good pricing and strong demand for a range of products.
“We’ve invested heavily in our customers and our product quality. I’m happy with how our team and our products are performing in the marketplace. We need to be well placed and to do that we talk multiple times every day with our customers in China.”
Navigating the Chinese economy into the future remains a concern.
“I give credit to some of the work Foreign Affairs Minister Nanaia Mahuta and her team have done ensuring that we have good market access while remaining a questioning friend of China in the geo-political sense,” Ellison adds.
“I’m hearing this elsewhere in the market.”
Simon Limmer, CEO, Silver Fern Farms
Last year saw record returns for the farmers supplying Silver Fern Farms.
Chief executive Simon Limmer says revenues hit $3.3 billion and net profit was $189 million.
“The last four years have been good. Despite the Covid disruption there was a relatively strong market,” he says. “We were quite dependent on the Chinese and US markets. If one was down, the other was up and we had an ability to move between markets”.
This changed in October 2022 when China came out of a lockdown. But the recovery was at nowhere near the expected pace. China remains relatively flat while the US is also under economic pressure.
Meanwhile there has been more product from South America and Australia entering global markets.
In the recent past China has remained positive despite any policy change in the country.
Limmer says this time it feels different. “We’re still waiting to see any green shoots start to emerge”.
He says this year’s extreme weather events hurt the business with power outages and flooding taking plants out of action for weeks. “The impact on our farmers was not the same as horticulture. Our farms are on hill country so they may have seen damage to fences and structures. The bigger damage was on how farmers feel about the world, how they see their future.
“Of course, we are always impacted by events and pressures.”
Consumer sentiments are changing and Limmer sees an opportunity for getting ahead of that becoming more relevant to consumer needs.
He says New Zealand has an advantage with a farming system that is more in tune with trends. But he says we may have been guilty of underselling this in the past.
Richard Wyeth, CEO, Westland Milk Products
Last year Westland Milk enjoyed record sales at it staged a $120 million profit turnaround.
Chief excutive Richard Wyeth says the business is on track for a similar strong result this year.
Despite it being Chinese-owned, Westland Milk has less exposure to that country’s market than many other New Zealand-based primary producers. It accounts for just around a quarter of sales.
Wyeth says the success comes down to, “having a strong focus on understanding the competitive set that we work in.
“Because of the company’s location and geography, we need to be clever and have a good culture of execution. Which means the people side of the business is important.”
Westland Milk has a significant immigrant workforce in specialist technical roles, particularly in engineering and automation.
Wyeth says the immigration policy settings are about right, but the speed of processing new immigrants has been a challenge. He wants to see the applications processed in a timely manner. The job for the incoming government is to improve productivity in that area.
He would also like to see more clarity from government.
“The hardest thing in the regulatory space is the uncertainty around what’s coming. That applies to any incoming government.
“People struggle with uncertainty. Once there is clear direction of travel, people can react and respond to that. When it’s ambiguous, it creates noise and it’s difficult to deal with.
“Bipartisan support on New Zealand’s big issues is important. The three-year term makes it difficult for that, but we’re stagnating in areas because we don’t have bipartisan support on key initiatives, whether it’s regulatory change or infrastructure.”
When it comes to infrastructure, electricity is a particular concern for Westland Milk. “From a climate change perspective, we’re going to have to exit coal in the near future, but we don’t have the electricity infrastructure to be able to take power from the East Coast to the West Coast to drive an electric boiler, for example.
“We will be looking for government support around either getting electricity to the coast or creating energy on the West Coast to support the likes of our industry, the hospitals and everything else”.
Many business leaders rate the Opposition Finance Spokesperson highly.