NZ imports an average of 2.9 million tonnes of animal feed a year, with a value of about $734 million.
More than 81 per cent of that is sourced from only three countries, Indonesia, Malaysia and Australia, with another 10 per cent coming from Argentina and 6 per cent from the United States.
PKE price jump
In its latest update, MPI's economic unit said demand for palm kernel expeller, used primarily as high-protein feed for dairy cows, had pushed spot prices jump up almost a third to $380 a tonne during March, reflecting not only high demand from NZ but also the stoppage in plantation and mill activity in Indonesia and Malaysia.
MPI said while the PKE pricing had since returned to normal, NZ's "susceptibility to the PKE spot price jump highlights the potential impact of single market dependency, especially for inputs the agricultural industry relies on and have limited affordable substitutes for."
PKE is NZ's largest animal feed import, at about 68 percent of total animal feed imports by volume.
NZ agriculture is also highly dependent on Argentina, which supplies 98 percent of NZ's soy derivatives, the country's second biggest animal feed category, and Australia, from which NZ buys about 98 percent of its wheat and 76 percent of its molasses.
The MPI report said that based on "single, or limited, market dependency for a number of other key agricultural imports, our susceptibility to shortages and price volatility is likely to impact the agricultural sector when future crises happen."
Covid agri-impacts
The MPI update - which replaces its economic intelligence unit's quarterly Situation and Outlook for Primary Industries report – shows that primary exports for the year ended June remain "on track" to record annual revenue increases for all sectors, except for forestry and seafood.
The logging sector saw revenues slashed by $308.4 million, or 43 percent, during February and March under covid-19 restrictions while export sales of rock lobster, mainly into China, were down 87 percent or $37.8 million over those two months.
The report notes that these falls were generally offset by gains due to good prices in dairy, excluding butter, which was down by 21 percent or $82.9 million.
Kiwifruit production was also up by 128 percent, or $104.8 million, and beef exports jumped on the strength of demand from countries other than China.
Despite recent commodity price corrections, which have seen NZX farmgate milk price futures for the coming season fall 14 percent to $6.30 per kilo of milk solids, dairy companies had contracted a high percentage of the season's milk supply and are expected to maintain current season milk prices, the report noted.
Subsidies
It suggests however, that the recovery for dairy may be affected by the impact of increased subsidies in the US and the European Union.
In red meat, despite the slowdown in processing resulting from social distancing measures at plants, the industry impacts were muted, while slowdowns in exports into China resulting from covid-19, were offset by exports to the US, which also had processing constraints as a result of the pandemic.
The outlook is "complex" for red meat, however, as strong import demand from China and reduced global supply due to herd rebuilding in Australia may combine to maintain higher prices. "However this may be offset by drought in NZ and an uncertain demand for food service-oriented cuts."
The forestry outlook is far from certain, however, as European spruce represents a competitive option for Asia and the extent of Chinese construction activity remains uncertain.
The MPI outlook remains fundamentally positive for fresh fruit, with strong harvests boosting volumes and consumer demand holding up even through trade disruptions related to the covid-19 response.
Agriculture Minister Damien O'Connor said overseas consumers are looking for healthy, NZ made food. "We've seen that with the sustained demand for fresh fruit, particularly in Europe and North America and the strong demand for red meat in China."
In reference to the longer-term impacts of covid-19, he said, however that "we are by no means out of the woods. The next few years are going to be tough on some sectors as importers and consumers re-evaluate their priorities."
- BusinessDesk
