This week we saw discussion around a report from Ag First economist Phil Journeaux which estimated that land values could fall by $40 bln across the country as environmental limits (such as limits on water use, nutrient leaching or greenhouse gases) are put in place.
To understand this figure, and whether it is right, we need to understand the drivers of land prices, and how they might change when environmental limits are in place. That is the subject of this Whiteboard Friday.
The report has been criticised by experts for a number of reasons. The report itself shows that link between the productive return on land and land prices is tenuous at best. This shows that consumptive and particularly speculative reasons are key drivers, yet the report only looks at the productive impact.
The scenario chosen for the costing is very much worse case scenario, and could easily be offset by improvements in water quality, which increase the consumptive drivers for owning land.
However, we must acknowledge that in some sensitive environments, limits will impact on the productive uses of land.
This is likely to impact on land prices as it has in Taupo.
But is this necessarily a bad thing?
Are higher land prices the main measure of success for farming? They have been in the past because of the focus on farming for tax free capital gain.
Obviously a drop in land price isn’t good news for the current owner, but all businesses face a risk that the value of their business will rise and fall.
Over time, lower land prices lead to lower costs, so the return on farming would normalize as a result.
Geoff Simmons is an economist working at the Morgan Foundation. This article is here with permission and first appeared here.
Finding good relief staff can be difficult, and once you have found someone that you think will be great they then ask you to pay them cash (with no paper work), what do you do?
You should refuse this request, even if it means losing them and having to start the process again of finding good help.
The fact is you must record and pay relief and casual staff exactly the same way as you would any other employee in your payroll system. So they have to be in your system and have PAYE deducted and holiday pay paid (for relief, casual staff)
Should your business be looked at by either MBIE or IRD, your employment records and practices need to be solid and able to withstand scrutiny. It is essential, as with all things in employment, having the correct processes in place.
Recent laws have only made having accurate records of employees work hours (timesheets), payrolls, leave and holidays more stringent and these rules apply to all staff whether fulltime, part time or casual.
It may be tempting to cut corners especially with temporary relief staff, and especially when you think they are going to be great but it is simply not worth it, employment requirements are requirements not “nice to haves”.
By putting your casual, relief staff on your PAYE system means you will also be able to claim their wages as an expense. There are great software programs available to help you keep a clear picture of, timekeeping, rostered days off, comply with minimum wage, leave owed and taken.
Farm prices dropped at little in September, though on relatively light volumes, while lifestyle block sales annually hit a 20-year high - though this market is now starting to slow, new REINZ figures show.
The REINZ All Farm Price Index fell 2.4% in the three months to September 2016 compared with the three months to August, however it is 9.6% higher than it was a year ago. The index adjusts for differences in farm size, location and farming type, unlike the median price per hectare, which does not adjust for these factors.
A total of 9,122 sales of lifestyle properties were recorded in the year to September 2016, which was 20% more than were sold in the year to September 2015 and is now the largest number of lifestyle properties sold in a 12 month period in the past 20 years. The value of lifestyle properties sold was $6.86 billion for the year to September 2016.
The median price for all lifestyle properties sold in the three months to September 2016 was $5,000 lower at $530,000 compared with the three months ended September 2015 (-0.9%). The median price fell $15,000 (-2.8%) compared with August.
In terms of farm sales there were 51 more farm sales (+15.1%) for the three months ended September 2016 than for the three months ended September 2015. Overall, there were 388 farm sales in the three months ended September 2016, compared with 393 farm sales for the three months ended August 2016 (-1.3%), and 337 farm sales for the three months ended September 2015. A total of 1,790 farms were sold in the year to September 2016, 3.7% more than were sold in the year to September 2015, with some 25% fewer dairy farms and 5% fewer grazing farms sold over the same period.
More details are here.
The median price per hectare for all farms sold in the three months to September 2016 was $26,825 compared with 26,020 recorded for three months ended September 2015 (+3.1%). The median price per hectare fell 2.5% compared with August.
In the volatile dairy sector, prices retreated again in the past month after rising in August. For the three months ended September 2016 the median sales price per hectare for dairy farms was $33,132 (12 properties), compared with $40,469 for the three months ended August 2016 (14 properties), and $25,108 (11 properties) for the three months ended September 2015. The median price per hectare for dairy farms has risen 32.0% over the past 12 months. The median dairy farm size for the three months ended September 2016 was 112 hectares.
On a price per kilo of milk solids basis the median sales price was $43.05 per kg of milk solids for the three months ended September 2016, compared to $45.51 per kg of milk solids for the three months ended August 2016 (-5.4%), and $33.09 per kg of milk solids for the three months ended September 2015 (+30.1%).
The REINZ Dairy Farm Price Index rose 2.4% in the three months to September 2016 compared with the three months to August. Compared with September 2015, the REINZ Dairy Farm Price Index rose 18.3%. REINZ cautions that care needs to be taken during the winter months as the low level of sales (12 for the three months to September) can distort the Index figures.
Speaking on the farm sales generally, REINZ rural spokesperson Brian Peacocke said sales volumes for the three months ending September 30 reflected "a status quo position or a slight easing compared to volumes for the previous three month period”.
"As farmers were concluding their annual peak workload activities over this period, many parts of the country were enduring a continuation of the wettest period for many years, to the extent that waterlogged pastures were desperate for relief and sunshine. By contrast, coastal regions in North Canterbury continue to suffer in silence, while Southland has experienced the most favourable winter / early spring period for many years.
"From a rural property perspective, September has been a month when appraisals have been carried out in anticipation of marketing programmes being launched for the spring sale period of October, November and December. Volatility of prices for rural produce has been a frustration for many but the counterbalancing factor for all, including the keenly focused banking sector, has been that in the main, signals from the marketplace have been positive as opposed to the more pessimistic outlook of 12 months ago."
Back on lifestyle blocks, there were 155 more lifestyle property sales (+7%) for the three months ended September 2016 than for the three months ended September 2015. Overall, there were 2,230 lifestyle property sales in the three months ended September 2016, compared with 2,354 lifestyle property sales for the three months ended August 2016 (-5%), and 2,075 lifestyle property sales for the three months ended September 2015.
"The very high volumes of lifestyle block sales for the three month period ending 30 September 2016 again confirms the strength and health of the market, to the extent that those high volumes appear now to be the norm,” Peacocke said.
In Auckland the median price eased slightly to $1.15 million in the three months to September compared with $1.21 million in the three months to August, but the median price in the latest period was still some 18.1% higher than a year ago.
Peacocke said listing supply had been tight in Auckland but was now easing; sales are strong and improving, reflecting the strong residential market; sellers of rezoned land are re-entering the market at a very strong level but for some participants, a lack of understanding of the Auckland Unitary Plan is causing roadblocks.
By Keith Woodford*
Dairy farmers fit broadly into two camps: those who believe dairy farming should be ‘all grass’, and those who favour a role for supplements. I don’t fit neatly into either camp, because as in so many things, I think there is more than one way to succeed. It all depends on the situation.
As a visiting farm systems professor put it to me this last week, amongst academics this is called ‘flat-line optimality’. Or as Mark Twain made famous, drawing on others who had gone before, ‘there is more than one way to skin a cat’. And just to set that story straight in terms of political correctness, the cat was actually a catfish.
Although there is usually more than one way of doing things, there are also different levels of efficiency with which it can be done. So last week I spent a morning with Peter Hancox, the manager of the Lincoln University Dairy Farm (LUDF), learning how he was making all-grass farming work at Lincoln.
First of all, to define the term ‘all-grass farming’, it only applies to the lactation period. In the South Island, there is no way we can farm efficiently without making use in winter of forage crops, silage, or other forms of supplement such as grain or PKE. And at the LUDF it is also influenced by reliable irrigation, which means there is no such thing as a drought.
The opportunity to pick Peter’s brain is open to anyone who wants to undertake the weekly farm walk which involves 8km of power walking and plate-metering across every paddock each Tuesday morning. Last week, we were somewhat like the United Nations, with some ten or so disciples from Brazil, Argentina, Ireland and New Zealand, plus a DairyNZ adviser who comes from Uruguay. Following the walk, the data all went into the computer and we talked about what it meant for this week’s operational tactics.
The march of the plate-metres at LUDF
The reason I was so interested to spend time with Peter Hancox is that he has been manager at the LUDF for about 12 years. Most recently, he has been the person who has had to operationalise the evolving strategies as the focus has shifted from simple profit maximisation to working within environmental limits.
Before the days when nitrogen leaching was perceived as being a major issue, the LUDF strategy was straight forward. Essentially it involved high stocking rates of about 4.2 cows per hectare, grazing down to about 1500 kg dry mater (DM) per hectare or even slightly lower, and using lots of nitrogen. Under this system, and with dry cows grazed off in winter, then production per hectare increased to between 1700 and 1800 kg milksolids (MS) per hectare. Production per cow was about 400 kg MS, or in some years a little more.
Starting in 2011, the focus has moved to lower stocking rates, less nitrogen, and increasing reliance on tetraploid ryegrasses. The tetraploids give higher production but with different seasonality and also different grazing metrics. The cover can be increased to about 3600 kg DM before feed quality starts to drop, and desired grazing residuals have also increased to about 1700 kg DM.
Last year, with this system, per cow production peaked at 2.5 kg MS per day in October and 522 kg MS for the lactation. This is from cows weighing about 495 kg ’walk on’ weight at the shed. Production per hectare was 1812 kg and farm working expenses, with all wages and salaries included, were $3.47 per kg MS. The cash operating surplus based on $4.30 total payout (milk price plus dividend) was $1711 per hectare.
This year the cows have reached 2.45kg MS but may not have peaked yet. So lactation production is on-track again for at least 500 kg, and farm working expenses, including fully-costed labour and some catch-up items, are budgeted for $3.85 per kg MS.
Under the old system, and prior to 2013, it was possible to reduce nitrogen leaching by use of Eco-n. However, that is no longer allowed because of concern about chemical residuals getting into the milk. Last year, with the new system and no Eco-n, the leaching calculated out as approximately 30 kg of leached nitrogen, compared to a baseline allowance of 40 kg.
Environmental fencing at LUDF, allowing cows to graze but not trample where surface waster drains
In this article, I have no wish to get caught up in the debates about Overseer. We all know – or should know – that the calculation method has serious limitations. There are lots of anomalies. But the big-picture message is that in relative terms, nitrogen leaching is being seriously reduced. However, as part of the Selwyn-Waihora catchment, Lincoln will need to get down even further by 2022.
This current season has been a funny season. Soil temperatures are considerably warmer than last year but a lack of sunshine has meant the grass has low dry-matter content – right down to 11.9%. That means that the plate metre readings, this week giving pasture growth of about 95kg DM per hectare per day, are tending to over-estimate. So the plate-metre is used as a guide to overall planning but the cows move to the next paddock whenever utilisation is at the desired level. On the day of our farm walk, Peter expected to be changing paddocks at about 8pm.
The key to maximising production and also maintaining cow liveweight during the spring is maintaining high metabolisable energy (ME) and making sure intake is not constrained. The Lincoln pastures are currently round 12 megajoules of ME per kg DM which is about as good as it gets.
Whereas the old system of high stocking rates, heavy grazing and lots of nitrogen was very simple, manging the new system is more complex. One of the tools in the kitbag is pre-graze mowing. Another is placing more weight on grazing at the three-leaf stage rather than just accepting what the plate-metre says.
Farmer experience is that pre-graze mowing increases cow intake and also sets the paddocks up better for the next round. This is despite the currently available science-trials suggesting no benefits. Nevertheless, many of the financially better-performing Canterbury farms that I see are now using this as an operational tactic. What is evident is that it works best when there are no volume constraints on cow intake. On the Lincoln dairy farm, about half the paddocks are pre-graze mown once during the season, and the other half twice.
Grazing at the three-leaf stage – preferably just as the fourth leaf is about to emerge – is another key metric. The science on this has been around for about ten years, but it is only now becoming routine in farm monitoring.
One of the biggest challenges with the LUDF system is getting cows pregnant. Heifers calve two weeks before the older cows, and this helps them get back into calf the next season. But there is still an overall 12-14% dry rate each year. There are no easy answers within the current system.
Lincoln also now has an active program of testing for Johnes disease and culling accordingly. Last season this meant that 18 healthy-looking high-producing cows were culled. It is expected that it will take between four and six years to solve the Johnes issue.
This issue of Johnes is a sleeper on many if not most New Zealand farms. Increasingly, I get emails from overseas asking me the status of New Zealand herds. For too long we have put it in the ‘too hard’ basket. I see overseas market attitudes to Johnes disease, and the associated health status of our milk, as one of the two big long term risks for the New Zealand dairy industry. Sweden and Western Australia are the only places that I know of where the disease is absent, so we are not alone in having some challenges to face.
One significant change this year is that Lincoln is mating the 15-month heifers by artificial insemination given that the grazier now has good handling facilities. When writing about the LUDF a year ago, I noted that the failure to use AI on heifers meant that Lincoln was foregoing the opportunity to get replacement animals from the cohort with highest genetic merit. So I see this as a step forward. Overseas visitors to New Zealand are always perplexed as to why most New Zealand farmers forego this genetic merit.
In Lincoln’s case, given the challenges in getting cows pregnant, and the additional three percent culling for Johnes-positive cows, then increasing the availability of replacement animals is important. Given the premiums for A2 cows in Canterbury, I remain surprised that Lincoln is not also using A2 semen. In time, I think they will regret this.
The over-riding issue for many Canterbury farmers, as elsewhere in New Zealand, is nitrogen leaching and the associated emerging permission-to-farm situation. The prospects are that come 2022 Lincoln may well be able to meet the new Selwyn-Waihora standards, but with the important proviso that the cows, as now, are wintered off the farm. That means the leaching-burden is shifted elsewhere rather than eliminated.
Lincoln is currently investigating off-paddock wintering systems, but this is on its Ashley Dene property some 15 km distant. These issues of off-paddock wintering are going to be issues that many New Zealand dairy farmers will have to wrestle with in the years ahead.
Keith Woodford is an independent consultant who holds honorary positions as Professor of Agri-Food Systems at Lincoln University and Senior Research Fellow at the Contemporary China Research Centre at Victoria University.
By David Hargreaves
Dairy prices lifted slightly in the overnight GlobalDairyTrade auction, going some way toward reversing the disappointing drop in overall prices at the auction two weeks ago.
Five of the eight product categories traded saw prices increases last night, with the key whole milk powder price gaining 2.9% to an average of US$2,760 per metric tonne. This somewhat unwound the 3.8% drop in WMP prices at the last auction, but the latest average price is still a little below the US$2,782 achieved two auctions ago.
Of note though, was the fact that longer dated contracts - for later delivery of the product - saw the biggest gains. The February through to April 2017 contracts all saw gains in excess of 5% in price. This suggests some future demand and confidence in future pricing levels.
Across the whole range of dairy products, prices overall, as measured by the GDT Index, were 1.4% higher in the latest auction.
These results - pointing to some consolidation in prices at around current levels, were sufficient to convince ANZ economists to raise their forecast milk price for the season to
ANZ agri economist Con Williams said the current prices being achieved at auction supported the view that a milk price around the $5.25-$5.50/kg MS mark should be achievable in 2016/17.
"So this is our revised forecast, which is up from $4.75-$5.00/kg MS – a view we had held since early 2016."
On September 21 Fonterra increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $5.25 per kgMS on the back of the recent global price gains. When combined with the forecast earnings per share range for the 2017 financial year of 50c to 60c, the total payout available to farmers in the current season is forecast to be $5.75 to $5.85 before retentions.
Westpac economists have today raised their forecast milk price to $5.30 from $5, while ASB economists have maintained their longstanding forecast of a $6 price.
ANZ's Williams said that while last night’s auction result perhaps disappointed versus expectations of a larger rise after a reduction in WMP supply, there were other positives.
"One was a steepening in the WMP curve suggesting there remains buyer interest after the Chinese free-trade window shuts. How much will depend on how supply dynamics evolve.
"With the catalyst for lower GDT supply being wet weather conditions in the Waikato, it appears buyers are prepared to take a wait and see approach for now.
"Our feeling is that things will improve as temperatures heat up, but GDT supply will remain restricted due to low inventory levels providing Fonterra with flexibility. Offshore will be interesting, with lower European and Australian production set to continue through to Q1, but stronger US supply potentially providing an offset."
In a speech to the Environmental Defence Society Climate Change and Business Conference, the Climate Change Minister Paula Bennett said the Government is looking at measures to encourage more forests to be planted.
This is tantamount to an admission of the failure of the short-term thinking that led to our Emissions Trading Scheme being flooded by fraudulent foreign credits, which caused new forest plantings to completely crash.
Getting more trees in the ground and (even better) reducing our emissions are certainly cheaper in the long run than continuing to buy credits from overseas. The Government’s about-face on forestry has two problems; we would have been better off if we’d planted these forests years ago, and the forestry industry has rightly been burnt by their past experience.
They are wary of making investments when the Government so easily ran roughshod over those investments in the past.
That rough-as-guts intervention has raised the cost of New Zealand meeting our climate change mitigation responsibilities significantly.
The new Climate Minister Bennett seems to have woken up to the mess left by her predecessor Tim Groser. New Zealand’s emissions continue to grow; net emissions were at a record high in 2015. Yet we have made promises to reduce our emissions back to 1990 levels by 2012, 5% below 1990 levels by 2020, and 11% below by 2030. In light of that performance, any reasonable person has to ask whether such pledges are at all credible.
We achieved the 2012 and 2020 target thanks to the pine forests fortunately planted in the 1990s (well before we were talking about reducing emissions) and by purchasing cheap foreign credits, the majority of which turned out to be fraudulent. Those fraudulent credits crashed the carbon price, wiping out the investments of many foresters that had planted on the assumption of a steady price. This rightly leaves those foresters wary of making investments in the future.
Now that the Government has woken up to the results of their short-term thinking, they acknowledge the need for the forestry industry to participate if we are to meet our 2030 (and future) targets in the most cost effective way possible. But damage has been done to the confidence of the forestry industry, which implies serious commitments will be required from Government to rebuild that confidence. Whoops.
Too little, too late
The Government has spent the last five years destroying the industry that they now want help from. Foresters are rightly once bitten twice shy about investing in new planting, when the Government showed it was able on a political whim to crash the price of carbon, decimate the return on new forest investments and spark a rash of deforestation. Who in their right mind would invest in that kind of environment?
Because of the government’s deliberate destruction of the market for forestry credits it is already too late to get the full benefits of forestry planting by 2030. The fact is that forests take a while to grow, and during the first few years they sequester very little carbon. The old adage applies here – the best time to plant trees to help our 2030 target was actually a few years ago.
The only trouble is that a few years ago our Emissions Trading Scheme was flooded with cheap fraudulent foreign credits, and land-owners were falling over themselves to cut down forests and convert to dairy. It has turned out to be a bit of a climate change own goal.
The Minister’s conversion to now become a fan of forestry is welcome, but the scale of her ambition doesn’t seem large. The example she used in her speech was planting 10,000 hectares in 2018 in order to sequester 3 million tonnes of CO2 by 2030. That is a little over 1% of the total emissions reductions the Minister says we need to make by 2030.
To make a decent dent in the 2030 target we need ten times that effort; up towards 100,000 hectares per year over several years. That level of planting is doable – we have achieved it briefly in the mid-1990s – and we have over a million hectares of low-value, erosion-prone land in the country. That sort of effort could potentially contribute up to a third of the current shortfall in our 2030 target, so the timidity of the Minister needs to be reviewed. However, to scale up planting from pretty much zero to 100 in a hurry is a challenge – especially given the foresters’ understandable lack of trust in the Emissions Trading Scheme. This kind of scale will only be achieved with very ambitious and concerted government policy.
Of course forests planted in later years will contribute less by 2030, and less again if they are native plantings, which grow slower. A typical pine forest will sequester 1,000 tonnes of CO2 per hectare over 30 years of growth. Planting a tree in 2018 means that only one third of the total possible carbon will be sequestered by 2030 (although it would continue to contribute to future targets). Again, it would have been cheaper for our country if the Government had realised the importance of forestry some years ago.
What will it take to get forestry on side?
Government has some serious making up to do if they want foresters to trust them again. That will take more than hiking up the price of carbon, they will need some commitments to show they are serious about keeping the price of carbon high. There are a number of ways to do this: they could expand the Afforestation Grant Scheme, or guarantee a minimum price for carbon sequestered (which the Minister hinted at yesterday), or pay for advisers to help hill country farmers assess the value of planting erosion prone land.
The fact remains that none of these bribes would have been needed if the Government hadn’t screwed over the forestry industry in the first place. So in the long run this Government has actually increased the cost of meeting our emissions targets by its dealing in fraudulent foreign credits. The public needs to hold it accountable for this impost, otherwise we have a high risk of Minister Bennett’s recent epiphany being buried down the track by a government interested only in short term political gains as this government was.
Geoff Simmons is an economist working at the Morgan Foundation. This article is here with permission and first appeared here.
Unpruned and pruned export log prices increased $2/JAS m3 and $4/JAS m3 respectively in October.
This confirms that pruned export log prices troughed last month having fallen up to $50/JAS m3 in the prior three months.
The expectation is a modest continued firming trend in export log prices for the foreseeable future.
The big drivers of CFR price (US$ price in destination port), exchange rate, and ocean freight costs were remarkably stable during the month, resulting in a modest increase in log prices ($2-$4/JAS m3).
Demand is steady and prices firmed slightly in China and India, and are stable in Korea and Japan.
The domestic market had price adjustments for fourth quarter supply (Oct-Dec 2016). Domestic log prices are typically set per quarter in contrast to export logs which are typically priced on a monthly basis. Pruned log prices fell on average $3/tonne with strong demand for good quality logs. Structural log demand remained firm with prices inching up $1/tonne on average. Domestic industrial and pulp log prices were steady.
Due to the welcome stability on the log market at present and heavy work demands on the editor, the October issue of the PF Olsen Log Market Report is shorter than usual. We include the usual metrics for your information but don’t have the fuller commentary.
To make up for this, next month’s Log Report will be more comprehensive and include intelligence gleaned from an upcoming in-market trip to China which includes visits to logistics and wood processing facilities.
PF Olsen Log Price Index to October 2016
The PF Olsen log price index is up marginally in October to $118. The index is now $31 higher than its 6-year low of $87 in July 2014 and $10 above the two-year average and $13 above the five-year average.
Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.
Indicative Average Current Log Prices - October
|Log Grade||$/tonne at mill||$/JAS m3 at wharf|
Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only.
By Allan Barber*
Just when we thought New Zealand was about to enjoy the benefits of several new agreements, not least TPP, the world appears to be growing more and more averse to signing up to trade deals.
There is a distinct trend towards self-reliance and protectionism among countries that have up to now been champions of the benefits of free trade, most obviously sizable blocs of voters in the United States, EU and Great Britain exercising their democratic right to protest.
The problem with free trade for disaffected voters is the direct connection with the theories of liberal economics and the rise of capitalism which have dominated the global economy for the last quarter of a century.
When the benefits of capitalism were shared, resulting in generally higher prosperity, free trade was seen as a force for good, but in the years since the GFC capitalism has got a bad name, deservedly so in many cases.
Economic hardship has not been shared equally – banking directors and executives were responsible for billions of dollars of shareholder losses, but most of them have got away with it and many continue to receive bonuses in spite of the losses.
The sophisticated tax avoidance structures set up by major corporations like Apple, Google and Amazon, confirm the evils of capitalism to the average person in the street. So the net result is a growing minority, even a majority, of the public who don’t trust the large corporates, merchant bankers or politicians. Therefore, capitalism, of which free trade is an important component, is increasingly seen as a force for evil instead of good. Against this backdrop of mistrust, it is hardly surprising free trade agreements between or involving first world economies are running into headwinds.
Mega agreements like TPP and TTIP between USA and EU appear doomed to fail in spite of years of negotiation and approval by participating countries, not so much because of the implications for removing restrictions on free trade, but because of the dispute settlement resolution mechanisms and perceived loss of control implicit in this type of agreement. A significant proportion of the public doesn’t trust the politicians and trade negotiators to protect democratic rights in their eagerness to sign ever bigger trade agreements. Other non-Democratic trade partners like China attract less protest from their population quite simply because their political system does not require them to satisfy the electorate or comply with the basic principles of democracy.
New Zealand is almost entirely dependent on free trade because without it we wouldn’t be able to sell much of the country’s output and would soon get indigestion and run out of foreign currency reserves. It would be a very short drop into recession. We must inevitably attempt to conclude new free trade agreements wherever possible, while also extracting the full benefits of all trade agreements, old and new.
This is where Trade Minister Todd McClay now intends to focus the ‘trade refresh’ programme, recognising the opportunity to get more out of what we already have, as it becomes more difficult to negotiate high quality trade agreements. Trade negotiation resources are relatively scarce and it is important to target carefully where we direct and devote those resources. An obvious example of an existing FTA which hasn’t yet delivered to its full potential is the China agreement where meat plant accreditation for frozen meat products is not as comprehensive as it should be, while chilled meat exports, announced with much fanfare during John Key’s visit earlier this year, have yet to begin, pending finalising customs protocols and plant accreditation. Dairy in general and infant formula in particular are areas which will also benefit from targeted effort.
Variations to existing quota arrangements with the EU and UK may need to be negotiated, although Special Trade Envoy Mike Petersen expressed some doubt about whether this would even remotely be a priority for them, amid all the other priorities. A greater threat may be posed by the UK negotiating a free trade deal with Australia which new PM Theresa May has said is a priority. As part of such an agreement, Australia would gain much greater access for beef and sheep meat than it currently has and this would directly affect the amount of New Zealand lamb imported regardless of quota. New Zealand must continue efforts to negotiate its own FTA with the UK, while also trying to keep its EU FTA’s place in the queue.
It is ironic New Zealand should have to demonstrate the benefits of free trade to ordinary New Zealanders because of its critical importance to the country’s prosperity, but at least a segment of the population seems to agree with counterparts in the USA and Europe that globalisation has led to inequity.
The government must not only push on with trade negotiations, but it must also sell the benefits to all New Zealanders.
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*Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at firstname.lastname@example.org or read his blog here ». This article was first published in Farmers Weekly. It is here with permission.
Content supplied by Rabobank
Global milk production has fallen faster than expected in recent months, with the resulting rally in global dairy markets expected to be sustained into 2017, according to Rabobank’s latest Dairy Quarterly report.
The report, released this week, says dairy export surpluses are expected to reduce by 3.4 million tonnes year-on-year, more than at any time since the global financial crisis.
This comes at a time when dairy demand in domestic markets has been remaining firm and when dairy farmers will struggle to grow production – resulting in farmgate prices rising in most export markets.
Rabobank dairy analyst Emma Higgins said while this week’s Global Dairy Trade Event had seen the index retreat by three per cent, it was still up 21 per cent for the year to date.
Difficult conditions and low/negative farm margins have led to a decline in milk production around the globe in Q3 2016, the report says.
“At the same time, demand for dairy products, particularly butter and cheese, has remained strong in the US and has strengthened in Europe,” Ms Higgins said. “Combined, the effect has been an even more dramatic reduction in surpluses available for export on to global dairy markets than had been expected just a quarter ago.”
Ms Higgins said these recent market developments had renewed hopes of a sustained recovery in global dairy prices, however, headwinds still existed for further price increases.
“The world’s dairy farmers, including those in New Zealand, will struggle to lift production in response to rising prices and this is expected to lead to a sustained price recovery into 2017,” she said. “But the price recovery is being driven by falling supply rather than by demand factors, so price increases will be limited by still weak global demand, a significant stock overhang and the strength of the US dollar.”
Ms Higgins said while there were a number of extenuating factors in this week’s GDT event, including less participating bidders with a national holiday in China, the result did reinforce the point that “the road to recovery may well be wobbly”.
The Rabobank Dairy Quarterly says the greater-than-expected fall in milk export surpluses had primarily been driven by key exporting regions registering production drops in comparison to the same quarter in 2015.
“Poor weather, a low milk price and reduced cow numbers have contributed to lower production in key exporting regions including the EU, New Zealand, Australia, China, Argentina and Brazil,” Ms Higgins said.
In New Zealand, milk production for the season to date is lower by around three per cent, the report says.
“We expect a drop in milk flows of around one per cent for the full New Zealand 2016/17 season, with further downside in milk volumes to come should adverse weather over the milking peak impact further in key dairying regions,” Ms Higgins said.
The report says of the major dairy export regions, only US farmers have maintained steady growth in production with good weather and low feed costs allowing producers to continue to increase output.
On the demand side, Ms Higgins said, emerging markets in general remain challenging, but the picture was not all negative.
Five key factors
The report identifies five key factors that will shape the course of the global dairy recovery moving into 2017 – government intervention, inventories, Chinese buying, supply development in New Zealand and global economics.
Ms Higgins said government intervention was the most significant among these, with recent policy developments in the EU having the potential to exacerbate the slowdown in milk production in this region.
“In response to farmer complaints, the European Commissioner for Agriculture and Rural Development recently announced a EUR 150million scheme to reward farmers for voluntarily reducing supply between November 2016 and March 2017,” she said. “And we’ll be keeping a close eye on the level of uptake amongst these schemes and how effective they are in further reducing European supply.”
More good follow up rain will have added to grass growth prospects, as feed conditions are now above average and most cows will be fully fed on pasture alone.
Although in some areas such has been the rapid growth of the grass some are complaining it is too soft and are adding straw and pke to the diet so it can be fully utilised by the animals.
The Opuha dam in South Canterbury is full to overflowing and other water storage schemes in Canterbury are near to securing adequate irrigation supplies for the dry months ahead.
The big rise in soil temperatures has lifted supply above animal demand, and paddock rotations are being sped up with some are now being shut for silage.
In the North Island most of the management issues centre around too much rain, with the Waikato region recieving 24 rain days in the last 26 and some farmers are reporting milk flows are back on last year.
Wet conditions have held up silage making and any summer crop preparation, and muddy pastures have seen managers resorting to faster rotations with higher than optimal residuals, to ensure animals only eat quality feed.
Soft lanes have caused some feet issues and toppers will be needed soon to tidy up unutilsed pasture as a result of the wet conditions.
Southland has reported a bumper spring and while they are further from mating, they are still near to shutting up silage to keep pastures under control
Well fed cows have stimulated cycling, and with body condition scores better than the norm, managers are hoping for a successful mating.
Rabobank has reported that global milk supplies have fallen faster than expected in the face of firm demand for dairy products, and this is the driver for the recent upturn in pricing.
However last week’s global dairy trade event saw prices ease by 3% with the powders leading the fall, as the market looked to settle after the big rises in the last two months.
Palm kernel biosecurity became an issue as a ship with poor documentation was prevented from discharging its cargo as MPI officials stood firm to prevent a breech.
Shortages of quality calf milk powders has disappointed rearers, after it appears more young calves have been kept to satisfy the beef demand, and fill predicted shortages of female replacements as dairy’s prospects improve.