Wednesday, May 18, 2022

Inflation stalks NZ agriculture

The inflationary thief is active in New Zealand and it is not clear whether it will be transitory or more persistent, independent economist Cameron Bagrie says.

Economist Cameron Bagrie says cost increases during the past 12 months had risen rapidly.

The inflationary thief is active in New Zealand and it is not clear whether it will be transitory or more persistent, independent economist Cameron Bagrie says.

The Reserve Bank said inflation is 4.9% currently and expected to rise to 5.7% in the first quarter of next year and it has assessed its presence as “somewhat transitory”.

After the sharp peak, the bank expects that it will take until 2024 to return to the 2% target zone.

But the economic commentators are having a bob each way.

Bagrie was addressing the first online session of the DairyNZ Farmer Forum, called Navigating Economic Uncertainty.

The dairy industry is one of those that can benefit from inflation and is experiencing that with high prices presently.

But core on-farm costs are rising strongly, some 15% over the past three years, not including labour, livestock and interest.

Bagrie says cost increases during the past 12 months had risen even more rapidly.

In categories like labour and climate change, cost inflation is going to be sticky.

“Yes, dairy product prices are high, and some would say temporary, but when are we going to arrest that ballooning cost line?” Bagrie asked.

NZ is caught up in sugar candy economics, such as how big are the house price movements, the low unemployment and haven’t we done incredibly well with covid.

He says this is the time to address the much harder questions.

Demand is not a problem for our goods and services, it’s all about supply.

Growth is being slowed by environmental requirements, labour shortages, cost inflation, covid and compliance.

“Coping with demand is easy, shifting our growth is not,” he said.

“We need to have hard conversations about things like water and resources, benefit dependence, lack of competition (for example, supermarkets), compliance costs and infrastructure.

“We need to focus on growing supply and on NZ’s unique comparative advantages.”

The dairy industry has improved its resilience during the past three years, such that credit availability is now positive.

The proportion of dairy loans classed as potentially stressed has fallen from over 12% to 9% and dairy debt has fallen from $41.5 billion to $38b.

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