New Zealand food market could still feel shocks
Price increases due to the inflation spiral will be felt mainly by consumers and farmers, according to an agricultural economist.
Rabobank said in its recent Agribusiness Outlook that food markets will be very dynamic over the coming year, with various factors influencing supply chains, commodity demand and consumer spending.
He noted that despite ongoing vaccination programs, many governments around the world have reinstated containment measures.
“For food and beverage companies, this means higher supply chain costs and challenges in getting products to consumers.”
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ANZ agricultural economist Susan Kilsby said that in the medium term the food value chain will face many of the same issues it faced in 2021.
“There will always be difficulties in finding shipping containers and there could be delays at ports. A big challenge concerns the export of perishable foodstuffs, such as fresh meat or autumn fruits. Delays can take a product from a high value product to zero value if it doesn’t get to market on time,” Kilsby said.
She said these challenges affect smaller businesses more, as larger companies have more leverage when booking shipping space, as they often export year-round.
“The ongoing challenges year after year have a cumulative impact on the financial and mental health of those who operate, especially small businesses.”
The outlook indicated that spiraling inflation was a global phenomenon and was on the steepest path in 30 years.
“All eyes will be on the level of central bank intervention, which will determine whether structurally higher inflation persists for years to come or whether we enter a period of slower growth as consumer demand is hit by the economic crisis. inflation and the costs of the supply shock,” says the prospect.
Agribusinesses in all geographies reported pressure on margins due to inflation in all areas of the business, including raw materials and distribution. Additionally, consumers faced additional cost of living pressures.
Kilsby said the impact of inflation would be felt primarily by farmers and consumers.
“It depends on the specific product and the balance between supply and demand for a product. But usually consumers pay the price. But in the case of fresh produce, which, for example, cannot be picked due to labor shortages, the producer will bear the full burden, with little risk to the processors,” said Kilsby.
The Rabobank report said international challenges would also have a local impact.
The relationship with China would create both opportunities and challenges, and the conflict between Russia and Ukraine would also have a global impact.
“Over the past year, China has bought around a third of New Zealand’s exports, paying 20% more than in 2020. [However] declining population [in China]pressure on property prices, debt repression and dairy product inventories, remain important red flags for the strength of our export returns. »
Kilsby said the Russian conflict could increase energy costs in general.
“High oil costs feed into fuel prices, and then into high synthetic fertilizer costs. Cereal prices could also be much higher due to shortages from Ukraine.
“It may not have a direct impact on New Zealand, but could influence our competitors. It may not necessarily be bad for New Zealand in the short term,” she said.
The outlook indicates that 23% of world trade in ammonia, 14% of urea and 10% of phosphates is exported by Russia. The interruption in supply could push prices up from already high levels.
However, over the past several weeks, some of the demand and supply drivers that have driven global urea prices higher have subsided, with prices slowly declining over the next six months.
The outlook, however, indicates that these challenges have helped secure record farmgate prices for Kiwi farmers.
“This marks five years of large-scale profitability for New Zealand farmers.”