Thursday, May 19, 2022

Swings and roundabouts: what’s ahead in 2022?

The calendar year 2022 has continued to pick up where 2021 left off, with strong commodity prices, rising inflation, tight labour supply and ongoing pandemic challenges and response.

ASB general manager of rural Ben Speedy says it’s important for New Zealand to continuously invest in improving the way we grow our food and fibre and be unwavering in our need to listen and adapt to evolving consumer demand.

The calendar year 2022 has continued to pick up where 2021 left off, with strong commodity prices, rising inflation, tight labour supply and ongoing pandemic challenges and response.

While covid will pass, there are some systemic remanets we need to consider as we plan our way into the future, as well as pushing forward on the ‘known knowns’, which will have a continued and more significant impact on our industry, such as climate change and availability of labour.

Demand for healthy whole foods grown sustainably from trusted countries has and will continue to hold commodity prices at strong levels. It is expected that commodity prices will ease at some point, noting that supply chain pressures are contributing to high values on the demand side and high input prices are constraining the supply side, demand for quality protein will not abate, especially with the rising middle-class around the world. Furthermore, a global supply response will continue to be constrained by climate change limitations and growing dissatisfaction of ‘factory farming’ abroad, given the inefficiency of protein production, over-tilling of soil to grow inputs and concerns over animal welfare.

To continue to capitalise on this of course, we need to continue to invest in improving the way we grow our food and fibre and be unwavering in our need to listen and adapt to evolving consumer demand. Fortunately for NZ, we have some amazing role models and leaders, from NZ Merino, Lewis Road through to the Campbells that run Earnscleugh Station in Central Otago.

Of course, it is never all beer and skittles. We do have some headwinds, not only in our sector but in the broader economy as we adapt to rising inflation, a concept that is in fact quite foreign to many businesses and business owners. When we think about inflation, it is important to remember that the Reserve Bank’s settings of managing inflation at 1-3% means that inflation is effectively ‘banked’ each year, meaning if we get inflation back to 3% next year, it is still 9% over two years (inflation is currently 6%). 

With this in mind, it is really important to think through what costs within your business are likely to permanently increase, what is transitionary and primarily driven by temporary supply challenges, and what variable costs are linked to your income decisions, for example, increased feed to achieve high production while the payout is high. What fits in what bucket of course is the challenge and is often linked to other factors, for example, the dairy sector alone is currently 4-6000 workers short, so this together with rising living costs will mean that labour costs will continue to increase with some certainty. Fertiliser on the other hand is harder to get a line on, as it is hard to determine how much of the increase is due to logistic challenges and how much is due to increased production costs or protectionism in countries of origin.

Unfortunately, inflation also impacts interest rates, as this is the primary tool that the Reserve Bank uses to keep inflation in check. Fortuitously for our industry, inflation has come at a time of high commodity prices, providing the opportunity to cashflow higher interest rates, repay debt or invest in the productivity and performance of the business to lift income levels further.

But as we embrace 2022, it is our reputation of feeding the world with healthy whole foods and clothing the world in sustainable fashion garments that continues to provide the greatest opportunity in our industry. What is critically important for all of us to get engaged in this year are the environmental and social influences which shape our ability to meet evolving consumer demand.

It is important that we do not leave this to processing companies and understand the positive difference we can make on our own properties. Get across He Waka Eke Noa, understand the requirements of your business and, as importantly, read some of the amazing success stories we are hearing internationally by nailing sustainability.

We are the future of food and fibre production across the world. Let’s embrace it and be proud of our achievements – #producingrealproductsnotjunk

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