Friday, July 1, 2022

Soaring costs put onus on food security

The new season for New Zealand arable farmers could be one of the most challenging ever as domestic and international cost pressures send input prices soaring.

It will see food security taking on an importance previously not seen in New Zealand, Waikato Federated Farmers arable chairman Keith Holmes said at the group’s annual meeting in Hamilton.

“We have the colliding forces of a ‘storming inferno’ made up of the ripple effects of the dreadful Ukrainian situation, the covid and post-covid aftermath, 30% more ‘covid’ [printed] money pumped into the world economies, inflation at 7% and rising, and cost of money/credit ramping up.”

While urea prices in New Zealand were around $1100 a tonne, in Europe,that figure was closer to $2500 largely because of the impact of the Ukraine war.

That has huge implications for New Zealand grower, Holmes said.

“Half of New Zealand or even more are saying, you have to be environmentally responsible, but they are also saying,we want cheap food and we can’t afford to be subsidising the rest of the world.”

Arable farmers have to make sure they know their costs right through the supply chain as food security takes on a new importance, he said.

“We as an industry have to make sure we know our costs thoroughly from dirt to plate, so we don’t naively end up subsidizing the end user, be it the dairy farmer or the consumer-supermarket chain.

“We must also stand up to the Government-council demands as sustainability has to also mean economic sustainability for us farmers also.”

All parts of the food chain had a part to play, he said.

NZX head of insights Julia Jones said the world was facing the “most awesome calamity ever” with a pandemic, geopolitical concerns along with inflation.

“The cost of food is going through the roof,” Jones said.

To illustrate this, she said the cost of producing a cheese scone has jumped 45% over the past two years.

The biggest influence on that increase has been the cost of wheat or flour, which has lifted 27% since mid-March.

Other grains have also gone up with feed wheat up 10%, feed barley has lifted 18%, oats 10% and both maize and palm kernel have risen 22%.

Jones said there were multiple reasons for the increases. 

Domestically, a large amount of NZ milling wheat was reduced to feed wheat.

Drought in Southland was a big driver of this, as well as drier and hotter conditions across the central North Island. 

Internationally, the conflict in Ukraine has scared the market with prices in the US and Australia increasing massively.

This had a trickle-down effect on New Zealand prices.

“Ukraine is one of the worlds largest soybean and corn exporters while Russia is one of the world’s largest wheat exporters. While this doesn’t affect NZ directly, it puts pressure on Australia which is where we import our grains as other countries source elsewhere.” 

As well as fertiliser, another influence was oil prices with reports of over $1/L increases for 91 unleaded over the last two months. 

This is a 30% increase over the course of three months.

Jones said hope was not a strategy for farmers and they have to adapt to these headwinds and work more closely with other farming sectors.

“We have to get real and we cannot continue to think hope is a business plan.”

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