According to ASB, sharp rises in commodity prices have strengthened farmers' and horticulturalists' businesses – and now is an excellent time to start planning for the new future.
That's the advice from ASB's rural banking General Manager, Ben Speedy, following one of the advantageous consequences of the Covid-19 pandemic: the importance of, and demand for, healthy and sustainable food grown in reputable and trusted countries like New Zealand.
"To continue to capitalise on this, we need to keep investing and improve the way we grow our food and fibre and be unwavering in the need to listen and adapt to evolving consumer demand," advised Speedy.
"Fortunately for New Zealand, we have some amazing role models and leaders, from The New Zealand Merino Company to Lewis Road Creamery."
The demand for healthy whole food, grown sustainably, will continue to hold commodity prices at strong levels, he says. The prices will ease at some point because supply chain pressures are contributing to high values on the demand side; high input prices are constraining the supply side.
But demand for quality protein will not abate, especially with the rising middle class worldwide.
A global supply response will continue to be constrained by climate change limitations and growing dissatisfaction with 'factory farming', over-tilling soil to increase inputs, and concern over animal welfare.
Speedy noted that the demand for healthy and sustainable food is best seen in China's demand for kiwifruit, given its Vitamin C properties. In the past two years, horticultural export volumes have grown more than 40 percent.
That's resulted in increased demand for horticultural borrowing, with lending rising 30 percent in the past two years, while dairy lending has decreased by 8 percent.
"While we are currently seeing record prices for many commodities, input costs have also risen sharply – driven by inflation, constrained supply chains and reduced supply of some materials. However, most producers will have a strong year, especially those with lower fixed costs."
So, how can rural businesses prepare for the year ahead?
"I was recently speaking to a dairy farmer in Horowhenua, and he was commenting that, given the labour challenges, he was torn over whether to expand the farm or accelerate debt repayment to be in a better position to capitalise on future off-farm investments.
"These are everyday conversations right now, so it's essential to speak with rural professionals to understand the medium- and long-term implications of inflation and constrained labour – and make an informed plan for the future.”
Farmers, therefore, must think through what costs within their business are likely to permanently increase, what are transitionary and driven by temporary supply challenges, and what are variable costs linked to income decisions.
"As we embrace 2022, our reputation of feeding the world with healthy whole foods and clothing the world in sustainable fashion garments continues to provide the most significant opportunity in the rural industry,” concluded Speedy.
"What is critically important is to get engaged in the environmental and social influences which shape our ability to meet evolving consumer demand."
