Kiwifruit has had a great year and Zespri has done an outstanding job in diversifying where it ships kiwifruit to, says Aidan Gent, ASB general manager - rural.
Aidan Gent says the feedback his team gets from bank customers suggests there are clear signs of positive momentum in the food and fibre sector despite farmers and agribusinesses having to cope with what he calls “pockets of challenge”.
Gent, who is general manager — rural at ASB, says in the medium term things are bright and there is “a mountain of opportunity as the sector prepares to resume the incredible growth in exports over the last 20 to 30 years”.
“Our horticulture industries are going very well. Kiwifruit has had a great year. The dairy payout is looking strong, and it now appears to be more likely that interest rates will soon start to ease. That’s even more the case after the recent inflation data was published. We are seeing green shoots that weren’t there six or nine months ago.”
Moreover, he says, there is renewed optimism in rural New Zealand. That’s important for the industry because it performs better when farmers feel confident and are more willing to invest or innovate.
It’s not all plain sailing.
Gent says: “The sheep meat market is still quite depressed. Many of our customers are still recovering from last year’s cyclones and the more recent flooding in Wairoa. People outside the rural community don’t hear so much about it, but a lot of New Zealand had a late drought this year and went into winter with very low feed reserves.”
This is especially the case in North Canterbury, but Gent says other regions are also affected. The farmers concerned are yet to work through the consequences.
Many farmers are getting better at responding to changing conditions. “We’ve got some customers who have invested in more resilience for their farming systems.
They are now thinking about alternative land uses or altering the mix of what they grow or farm.
We understand these customers are finding it easier to get through the weather and climate events than those customers who haven’t invested in continuous adaptation. This is something that all businesses need to do, but it is essential in the rural sector.”
An aspect of this, says Gent, is some de-conversion from dairy: “It turns out dairy might not be the best use of some land that was converted in the early 2000s at the height of the dairy boom.
“We are seeing that convert back to its former use. We’re also seeing a trend with horticulture, especially with high-value crops like apples, hops and kiwifruit going into places that used to be dairy farms.
“There’s a notable migration to a higher earning use of that land than dairy farming could provide.”
The process was sparked by an unexpected source: the changes that have come in with environmental reporting.
Gent says when armed with the additional data, it becomes a lot easier for farmers to quantify the impact of how different types of land are used, giving a much better idea about the best use of that land.
“If you go back to the early 2000s, we didn’t have that maturity in the farming sector.”
Take the question of where trees and forestry fit into the wider picture. He says widespread forestry planting on productive farmland is not the right thing for New Zealand, but forestry might be the most effective use of otherwise marginal land. And that has led to more diverse farming.
“Things change if you look at all the different parts of a farm and decide to operate all of them as efficiently as possible,” he explains.
“That becomes practical when you dig down into the data. You then have greater flexibility in your farm system. That leads on to a few different revenue sources and that diversity can, hopefully smooth out some of the bumps.”
Gent says a modern farm might include specialist crops, some horticulture and maybe a corner of the farm given over to solar generation, a back section with some trees and bees, even tourism. “There are so many different facets to a farming business now than just a traditional farming system.”
While New Zealand’s food and fibre sector has a long history of innovating, Gent says somewhere along the way the innovation mindset was beaten out of people. However, with renewed optimism it is coming back.
“Farmers are starting to think differently about how they are farming and what they are farming. That leads to all those little 1 per cent changes here and there which across the system add up to quite a bit. It’s really pleasing to see that we are now back out the other side of that and people once more have a strong belief in food and fibre farming.”
Another change is in New Zealand’s relationship with China. Gent says: “China continues to take a lot of our food and fibre. But a lot of our companies have done a great job of keeping other lines of trade open.
“If you look at the data for the dairy industry, we are seeing significant volumes going to Southeast Asia, the Middle East and Africa and regions which traditionally might not have taken quite so much of our product.
“And then there is Zespri, which has done an outstanding job in diversifying where it ships kiwifruit to.”
Farmers have learned that there is more than one way of doing things on a farm, and that sticking to the tried and tested can end up being risky.
“The same thinking is now finding its way into the export sector. With market diversification, New Zealand is shielded from potential shocks that can be damaging if we are limited to dealing with a single country.”
Gent says rural banking means talking to those in the sector who operate outside the farm gate as much as those on the inside.
“It’s important we understand our exporters, what they are thinking, where they are exporting and making sure we, as a sector, have the products they need. There’s no point doing an outstanding job inside the farm gate and not being able to take the product to market. We need to see that the whole value chain works.
“It’s a useful role because insights from inside the farm gate feed through to what you might see in processes outside and vice versa.
“The exporters might see things that inform trends on-farm. Over the next year or two we are going to see a lot more linkages between the two. If you think about things like farm emissions, we are seeing that the people who buy our products have far more influence on what goes on behind the farm gate than any official policy.”
Modern New Zealand farming is a sophisticated industry. Farms and businesses in the food and fibre sector are major employers with large payrolls, many employees and substantial revenues.
Some remain family concerns, others are global-scale corporations. The sector has long focused on producing high-quality products while remaining price-competitive.
Maintaining that position means continuing to innovate and adapt at a time conditions in the outside world are changing fast.
As a rural banker, Gent wants to see farmers working more on the business and less on the day-to-day of running a farm.
“You can argue the previous generation spent as much time improving the farm property as they spent thinking about the farming business. Today you need to spend more time working on all those little 1% business improvements.”
ASB is an advertising sponsor of the Herald’s Agribusiness & Trade report.