By PHILIPPA STEVENSON
Landcorp chief executive Chris Kelly apologises for the cliche but, he says, 2002 really does show that "a lot can happen in a year".
He's unlikely to get an argument from farmers, manufacturers and exporters across the country. Even for people used to volatility and the cyclical nature of everything that affects their business - from overseas markets to weather - few can recall a year of such extremes.
In the Ministry of Agriculture and Forestry's end-of-year forecasting report, assistant director general, policy, Paul Reynolds said last year's export returns were "as good as it gets".
But after last year's boom, the value of pastoral exports is expected to fall from $14 billion in the year to March to $12.6 billion in the year ending March 2004.
It was, as Kelly says, a roller-coaster year.
"This time last year we had the unique situation in agriculture of high international commodity prices in US dollars, a benign [low] exchange rate, and an exceptionally wonderful spring and summer.
"A year later we've got a 10 per cent appreciation in both the TWI [Trade Weighted Index] and the NZ-US dollar exchange rate, the worst spring in 20 years, and international commodity prices coming off a high.
"A year ago we were looking at dairying at $5.30/kg of milksolids, it is now $3.70. Wool was about $3.10/kg greasy, it's now $3.30 - that's the one that's risen. Lambs were getting around $70; we're now getting around $60. Beef were over a $1000 a head; we're now getting around $800. Deer were $9.50/kg and now are $6.50 or so.
"That's largely been driven off the appreciating exchange rate and the softening of prices."
State-owned enterprise Landcorp is New Zealand's largest farmer with most of its 424 staff on 108 farms covering more than 379,000 hectares and carrying 678,873 sheep, 123,062 beef and dairy cattle, 87,543 deer and 3463 goats.
Kelly, who since March last year has headed the corporate farmer with $677.5 million in assets, came from the Dairy Board where most recently he was global head of strategic industry relations.
The former veterinary lecturer is also chairman of AgResearch subsidiary AgVax, which commercialises new products in the animal pharmaceutical business.
Landcorp is an animal farmer, so Kelly has few observations about the horticultural sector, but his summation of the year applies equally to it. Despite exceeding $2 billion in exports for the first time, horticulture too was along for the wild fairground ride.
Last December, apple growers were enjoying unprecedented attention from a swag of new exporters keen to compete with former monopoly seller Enza to get their business in the newly deregulated market.
In its forecast, MAF commented that a resurgence of confidence in the apple sector reflected higher grower returns over the past two seasons, industry deregulation, and premium prices on the world market.
"For the 2001-02 period, the average grower export returns are estimated to have been $12.30 per carton - up 5 per cent on the previous season. Apple exports jumped 21 per cent to 17.7 million cartons for the year ended September 2002."
And the rollercoaster's dip? "New Zealand's apple exports for the 2002-03 season are expected to fall by about 12 per cent to 14.5 million cartons due to frost damage at the time of blossom."
Kiwifruit, too, has ridden the ups and downs. The number of trays packed and exported in the year to March was 68.7 million - nearly 7 per cent more than the previous year despite weather causing a difficult growing and harvesting season, MAF said.
"Market conditions were challenging, with increased volumes, smaller fruit, strong market competition and slow economic growth in some Asian markets. Average prices for New Zealand fruit fell in Asia, including the key Japanese market. An aggressive marketing approach by the major marketer Zespri held prices in Europe, and some favourable exchange rate movements also contributed to a good price out-turn in New Zealand dollars.
"The average supplier price for kiwifruit for the year rose by 5 per cent on the previous year."
The downside came with hail and spring frosts and production levels for the 2003 harvest are down, to an as-yet unknown degree.
Grape growers' new season production will also be affected by late spring frosts in Gisborne, Hawkes Bay and the Wairarapa, but wine export volumes for the year to June were 19 per cent higher than the previous year, despite a low harvest last year. The average export price per litre rose by 4 per cent in the year.
But true to its reputation for providing conviviality, wine offers a barely faltering good-news story.
During the 1990s, research by the Australia-based Centre for International Economic Studies shows global trade in wine has increased by 5 per cent a year in volume terms, the New World wine producers share of it increasing by more than 500 per cent (to 16 per cent in value terms), reported MAF policy analyst Irene Parminter.
"New World producers have also been more successful in penetrating markets which have traditionally not consumed wine, for example the UK," she said. "The increasing interest in these wines is considered to reflect a desire for new taste experiences, and the premium, single variety, full fruit tasting wines produced in New Zealand provide such an experience. New Zealand wines have the highest average price on the UK market."
At Landcorp, Kelly's sober recollection of the year, though, is that he cannot recall one when the agriculture industries weathered such an extreme swing from the "best ever times to a hell of a lot worse".
"The change has been enormous and it knocks your budgeting to hell," he said.
"On the plus side agriculture continues to enjoy productivity gains, particularly in sheep breeding. Four years ago our lambing percentage was less than 100 per cent [but] is now around 130 per cent. So we are producing more lambs off fewer ewes.
"We've got some increasingly exciting new forages like puna chicory, rye corn and plantain, and we're starting to use new technologies to help us. So to some extent that is offsetting the appreciating dollar."
Landcorp, which had record revenue of $129.3 million in the year to June, expected a less productive new year but "still pretty good", Kelly said.
The SOE had completed the first year of a five-year business plan of building deer and dairying from 20 per cent to 50 per cent of its revenue but without affecting its sheep and beef operations.
It was a risk management strategy designed to spread Landcorp's business risk over an increased number of animal types, Kelly said.
Last year Landcorp recruited 11 new dairy managers for eight new dairy farms, each of about 800 cows.
Until 18 months ago, the herds on Landcorp's dairy farms were all owned by sharemilkers but the SOE is becoming a substantial herd owner and will own 35,000 cows in another 18 months.
After the announcement by dairy giant Fonterra at the beginning of the year that the payout for the 2002-03 season would be a much reduced $3.70/kg, Landcorp re-did analysis of its expected internal rate of return. It decided to stick to its planned dairy development.
"Dairying is also cyclical and we came off an extraordinary year of $5.30/kg, which I doubt we will see again for a while," Kelly said.
"But even around $4 is pretty good, particularly for us, because we can gain efficiencies through size and productivity improvements."
But although Fonterra's payout is a benchmark, most of Landcorp's dairy investment is on the West Coast, where independent Westland Milk, which last season paid higher than Fonterra, is the manufacturer.
Kelly said relations with Westland were very good, and Landcorp's size meant it carried weight with the manufacturer, whereas within Fonterra it would be "just a drop in the ocean".
He was confident Westland would do well.
"Under the Dairy Board regime Westland was always the company that produced the highest quality milk powder but because of the payment system it wasn't able to be recognised as such."
Last season Fonterra marketed all of Westland's product, but this season the West Coasters will handle about 70 per cent of their own product after entering the local market and doing much of their own exporting.
Kelly applauded Westland's strategic alliance with the top performing Tatua dairy co-op in the Waikato.
"Tatua has the know-how, particularly in protein technology, and Westland has the milk. Between them they'll do well, " he said, adding that Westland's new chief executive Barry Richardson, formerly of Tatua, was another of the company's strong points.
"I think they'll be small enough and nimble enough on their feet to take up niche opportunities where a bigger company might not be able to do so quite as easily."
Fonterra, too, had committed to a value-added strategy, which Kelly applauded, but he said the volume of milk the giant company handled inevitably meant it would continue as a substantial commodity trader.
Reviewing Fonterra's troubled first year, Kelly said it was always going to be challenging because its formation arose from the merger of sworn enemies Kiwi Dairies and NZ Dairy Group with the Dairy Board, which were both regarded as paternalistic and autocratic.
The former Dairy Board man said many seemed to underestimate the size of the challenge, including insiders who drafted the time line for the merger, but he deemed himself less surprised than others that it had been a rocky road for Fonterra which included board upheaval and posting a $50 million loss after paying farmer shareholders at the telegraphed $5.30 even after commodity returns had fallen sharply.
Kelly supported Fonterra's end-of-year moves to incorporate major subsidiary NZMP into its heart and, despite the hardship it caused Wellington staff who will be forced to move or leave the company, to have the head office in Auckland. The plan would remove duplication, he said.
Landcorp bought an extra 20,000 hinds and put deer fencing around 21,000ha during the year as part of its expansion in deer farming.
Despite venison's sharp price cycles it had a good future, Kelly said. "We command a significant premium, particularly in Europe. We have well established markets with the appellation brand, Cervena, in North America and meat in Germany. It is a very healthy meat that seems to have escaped the tainting of general red meats [by] the diseases that have ravaged particularly Europe - BSE and foot and mouth.
"High in iron, low in fat, it is being positioned as a healthy food. I think that will increase the market pool quite significantly.
"The problem is that it is a pretty thin market and, at times, is a feast or famine, and unlike the dairy industry which has been collectively controlled and managed from one central point, there are a number of processors of deer meat and often competition gets in the way and prices overshoot either up or down."
Kelly was confident prices would rise from their present historic low.
In their favour, deer were easy to manage: one Landcorp herd of 600 is managed by one person. "So [there are] low inputs, [and] production per hectare is high even at $5 a kilogram."
Deer velvet needed truly scientific claims of its health benefits to have similarly assured prospects, Kelly said.
Research backing for some claims was emerging "but there is still more heat than light at this stage", he said.
To ensure its future, the sector also needed to expand out of the highly cyclical Korean market, and deal with animal welfare and drug residue issues.
He was happy with the concentration of deer processing and marketing into fewer hands, including those of major South Island company PPCS, which put much effort into marketing venison.
"I've always been for critical mass in size, as the Dairy Board was."
As meat companies got bigger they could afford to spend more on marketing, although he acknowledged the fineness of margins did not seem to alter with greater size because companies continued to be hampered by procurement wars.
But Kelly said Landcorp was moving towards longer term fixed price contracts to create more certainty.
The year was again one in which agriculture's once significant presence in Wellington diminished. Federated Farmers sold its Wellington head office but will continue to lease it for six years, and Fonterra proposes to sell Pastoral House. The process is set to continue in the new year, the Wool Board scheduled to disappear on July 1.
A supporter of producer board deregulation, Kelly was critical of the slow pace of change by the Meat and Wool boards, which continued to set up a raft of successors during the year including Meat and Wool Innovation on October 1.
It brought together the Meat and Wool Economic Service, Meat NZ's research and development division, Sheep Improvement, and on-farm technology trainer, market information provider and quality overseer, WoolPro.
Staff recruitment problems, which plague the entire agriculture sector, were also difficult for Landcorp. Despite not paying top dollar, the SOE did find new dairy managers and other staff to increase employees by about 50 by offering other benefits such as training, and a chance to experience different farm types. The company was attracting sufficient staff, but the industry was not, he said.
The message of the opportunities in agriculture needed to be made clearer to address the staffing problem, Kelly said. New technology could only go so far to meeting the labour shortfall.
The movement to free up world trade continued its glacial pace during the year, but Kelly said despite that it had to be pursued.
"We must continue to push free trade because it is of so much benefit to us."
Four seasons, big changes
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