Covid-19 coronavirus: Why agriculture is ‘not a bad industry to be in’

March 25, 2020

BY Alexander Kalis

By the NZ Herald

Although New Zealand’s agriculture sector will not remain unscathed from the Covid-19 outbreak, it is well-positioned to get through the crisis for three reasons, says head of RaboResearch Food and Agribusiness – Australia and New Zealand, Tim Hunt.

“One of them is that New Zealand’s export reliance means that the value of the New Zealand dollar is hugely important and the worse things get offshore, the further we’ll see the New Zealand currency fall. So there is some automatic offset there partially in the declining prices we’ll see around the world.

“Secondly while people don’t have to eat premium food, they obviously have to eat food.

“Thirdly China’s still dealing with [African] swine fever which has left a huge hole in the animal protein industry.

“It’s not going to be a great run in ag, but it’s not a bad industry to be in if you have to choose right now,” Hunt told The Country’s Jamie Mackay.

Dairy seemed to be coping at the moment, and the market had factored in China’s reduced buying power which was beginning to ease. However, Hunt said now was the time to focus on the “huge income effects” on Europe and the US as industries are shut down.

“People lose work at an alarming rate and incomes fall and that will impact demand – and the problem in dairy is it’s hard to switch off the tap. So a little bit of reduction in demand leads to gradual accumulation of inventory that will start to rear its head as we see coming months go, and we see further declines in US dollar pricing.”

As for the read meat sector, Hunt predicted the impact of African swine fever could be beneficial for “a couple of years.”

“That is a huge offset. There are two crises going on in the global animal protein markets. One of course is corona[virus] which is negative for beef and sheep in New Zealand.

“But swine fever is just as big a crisis in terms of ag market implications. This year will see more reductions in Chinese pig production. That means that even if your demand is hit in China – they may well buy just as much as they did last year at those record levels.”

The market for healthy food could keep horticulture afloat and as a result, Rabobank was seeing less “demand risk” for pip fruit and kiwifruit said Hunt.

While a lot of horticulture exports went to China, the industry was more diversified than sheep and beef and less exposed to food service which “has been hit the worst” by the Covid-19 outbreak said Hunt.

“We expect particularly with a weak New Zealand dollar we’ll be able to shift those products to a world market. The pricing shouldn’t be too bad, as long as we can get it picked off the trees and vines and through the packing houses.”

Hunt predicted economic recovery from the Covid-19 outbreak would “kick in later this year, off a low base,” but it would be a “slow rebuild to where we’d like to be.”

“It will take a while to get the world economy going again so we can’t expect a quick rebound from this.”

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