Demand for New Zealand goods is likely to remain soft for some time to come but the biggest challenge for NZ exporters is constrained output, ASB Bank says in its latest trade disruptions report.
Export volumes are “steeply lower for most of NZ’s major export commodities relative to where we’d usually expect at this point in the year”, economists Mark Smith and Nathaniel Keall said.
The outlook isn’t great either.
Export volumes are likely to end 2022 sharply below 2021 and not return to their 2021 peak until 2024, they said.
Whole milk powder exporters are down 10%-25% on a year-to-date basis and skim powder exports are down by roughly 10%.
Beef exports are 3%-7% lower and lamb exports are down 12%-15%.
“Widespread labour shortages have been an issue plaguing both agriculture and manufacturing for more than 12 months now,” the economists said.
Some export-orientated industries – such as beef and lamb processors – are reportedly still working through production backlogs from last year’s lockdown and this year’s omicron outbreak, ASB said.
Wage inflation is also expected to hit businesses with a larger bill.
For the agri-sector, poor weather in many parts of the country over the past nine months has hit hard, with dairy output running well behind the previous season despite much higher prices.
“Rising input costs and difficulty securing key farm inputs are adding an additional complication to that challenge,” Smith and Keall said.
Capital investment designed to automate systems, streamline processes and boost productivity would be welcome but “with interest rates rising sharply and credit conditions tightening, we are not in an environment conducive to capex”, they said.
However, higher prices are still offsetting the weaker volumes as many of NZ’s competitors struggle with the same constraints that local exporters are dealing with.
The ASB Commodities Index was about 12% above its 10-year average in underlying US dollar terms.
Smith and Keall said they expect meat and dairy to continue to be the stronger performers in terms of revenue growth as “demand is likely to remain relatively inelastic for key food staples, particularly proteins”.
Forestry, seafood, wine and some horticulture are likely to continue underperforming, they said.
On the forestry front, demand for logs is likely to be hard hit by the looming slowdown.
The latest forecasts by the International Monetary Fund are for global growth to hit just over 3% after posting close to 6% growth last year, and forecasts for world trade growth have also been scaled back by the World Trade Organisation.
“The economic outlook is still uncertain, but it seems more likely than not global prospects will weaken before they improve,” the ASB economists said.
Meanwhile, weak demand for wine and seafood meant prices are also likely to underperform. Both tend to be higher-end rather than staples.
Horticulture, meanwhile, remained in the middle of the pack.
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