sign up log in
Want to go ad-free? Find out how, here.

Guy Trafford muses on how the lockdown will end and how that will play out differently in our trading partners. He looks to recent history for how we handled prior crises. And worries about the lack of global cooperation

Rural News
Guy Trafford muses on how the lockdown will end and how that will play out differently in our trading partners. He looks to recent history for how we handled prior crises. And worries about the lack of global cooperation

Into our third week of the Level four lock down it is looking increasingly like the tactics over covid-19 have paid off and we will “win the war”.

The question now is really when do we hoist the victory flag and have the V-day celebrations. For the elimination within New Zealand this is likely to be weeks away rather than months or even years as is likely the case for some countries.

But it will only be with the development and distribution of a successful vaccine that actually ends the battles.

However, the concern now is turning to what we do after we leave level four (and 3 and 2). The number of countries that look like they may indeed be ahead of the covid-19 can be counted on one hand. Fortunately, a number of these are relatively close by and nations we already have trading agreements with. These include Australia, Singapore, China and South Korea. (Iceland is another nation doing particularly well but can hardly be counted as a major destination of our exports.)

Much is being made of the Australian approach versus that of New Zealand as on the surface they have been more relaxed in their lock down policy than New Zealand has. However, while they may have more freedoms on paper, in reality they are closer to our policy than is immediately obvious. Federal law started the restrictions these were/are reinforced further by some of the state laws and public pressure appears to have closed the gaps with New Zealand policy right up. So, while Australians can ‘visit’ a far wider range of shops etc than here judging from comments, very few are. Even within this scenario though, some are still warning that Australian may catch a virus backlash before this is over and the gap may not end up as similar in the end.

Despite being on the receiving end of what has appeared to be some anti-New Zealand policies, New Zealand stills needs a healthy Australia, both in the medical and economic senses. Apart from being our second largest trading partner they also have had a major impact on tourist numbers. So, if they are able to eliminate the virus and keep it out then they are likely to be the first country allowed back into New Zealand. Given the other options, or lack of them for safe travel, they are likely to make the most of what New Zealand has to offer. This will have a major positive impact upon our tourist and domestic industries. The other nations mentioned have the disadvantage of having more difficult borders to keep secure and so being able to show covid-19 has been eliminated will be more difficult.

Listening to Gareth Vaughan’s interview with David Skillings I was reminded of the 70’s and 80’s which had such an impact upon agriculture within New Zealand. Driven by the 1970’s oil shocks and a global recession along with the UK joining the EEC (EU) Muldoon (despite calling it a sunset industry) set about bolstering the farming sector to try and farm our way out of recession. Supplementary Minimum Prices for meat and milk, heavy subsidies on fertilizers and incentives to carry more stock and develop more pasture land lead to the highest livestock numbers seen either before or since. (72 million ewes compared to 28 million or less now). In the meantime, the Think Big policies were implemented designed to make New Zealand more self sufficient and provide jobs. Dams were built, steel mills built, car factories, Tiwai smelter set up and so forth. Unfortunately, while some of these initiatives proved useful and have remained, many were white elephants and a heavy financial drag on the economy - not the least of these were the supports provided to agriculture which ended up distorting market signals and resulted in mutton mountains and butter being ‘swapped’ for Lada cars  and Belarus tractors, among other things.

Hopefully, one benefit of this period is that it was not so long ago (at least for some of us) that we can still learn some lessons from it. The far closer GFC also has provided plenty of ‘learnings’. One big benefit we have over the 1980’s is the keeping of a healthier bank balance with far more transparency than was the case back then. The other is the knowledge that we need to keep to projects where we have a competitive advantage. Largely this still involves agriculture, however governments now tend to not try and overly influence what and how much farmers produce, leaving farmers to respond to the market signals.

From the GFC we have also learned that the banks, while having a part to play, in themselves are not going to trigger a recovery and government assistance going straight to the people provides greater benefits. We are fortunate in having a sound financial base leading into this latest crisis and having the ability to borrow all we can hope for. It still needs to be paid back however, but we will be in the company of plenty of other nations and seeing how Japan has been able to still operate quite successfully with a debt to GDP ratio of over 200% provides some comfort. Prior to the latest borrowing the New Zealand Government debt was less than 20% and ironically some economists were concerned about the (then) budgets looking like they may exceed this self-imposed threshhold. Oh how things have changed. "Governments around the world are lifting debt to pay for increased health spending and support for their economies. Advanced economies are starting from an average net debt position above 70 per cent of GDP, with the UK around 75 per cent, the US above 80 per cent, Italy above 120 per cent and Ireland above 50 per cent of GDP." (Grant Robertson March 31st 2020).

New Zealand is looking to be somewhere around 40% and probably climbing before the dust settles. Our previous highest was in 1992 (post “mother of all Budgets”) when it got to almost 55%.

There is still the issue of how it is going to be paid off, and this is going to constrain what other things can be dealt with going into the future.  Before covid-19 reared its ugly head there were quite a number of urgent challenges, ranging from housing to health to climate change. In the short term with the reduced number of visitors there are likely to be more houses coming onto the market and hopefully health will still be dealt with. Some things around hospital developments were already in train and should help alleviate past deficiencies. Even climate change has gained a little breathing space with the huge reduction in transport and industrial GHGs. However, the news that Western Australia experienced temperatures of over 40oc was a poignant reminder that this still needs to be dealt with and this is the elephant in the room.

One of the deficiencies of the covid-19 out break to date is that there has been no joint comprehensive global response. In fact, just the opposite has occurred. USA and China relations have not improved with their name calling and the EU is probably under more threat of coming apart than at any previous time in its history. Unfortunately, even if our part of the world can find a way to work together, and no guarantees of that yet also, without the heavyweights of the EU, USA and China finding a way to work together to pull the world economy through this, we are all going to be held back from achieving a true recovery and the best we can hope for is that the local economy functions ok and we make enough from exports, namely agriculture, to keep our head above water.

In the short term the influx of government money is going to make up for the lack of returns the economy can expect from international tourism down turn (about $12 billion) and the diminished returns from other exports. However, these government payouts are one-off (or thereabouts) inputs, whereas exports (including international tourism) is new money coming in on a repetitive basis, or at least it was. This money coming in also operates with a multiplier effect; that is, it gets spent multiple times as it flows through the economy paying taxes along the way and generating an income for the population and the government alike. The generally accepted rule is that in normal times this multiplier effect is about 5x or 6x. So $1 of income from exports equates to $5 or $6 flowing through the economy. The concern is when this $1 gets turned off then the impact reverses and everybody suffers. So, the longer the negative international impacts go on the greater the local impact will be. Without China re-establishing a viable trading relationship with the US, their ability to pay top dollar for our products will be constrained and other countries are also looking to try and withdraw companies from China to try and held invigorate their own economies which may compound this.. (Looking vaguely like our policies of the 70’s). How all of this pans out only time will tell but mankind’s history has shown that either as individuals or as nations operating in a solitary manner brings little benefit. Government money may stave off the day of reckoning for twelve months, but it will come, and it will be the international response that is going to determine how harsh that is going to be. Life will be ‘interesting’ for some time yet.

AP Stag

Select chart tabs

cents/kg
cents/kg
cents/kg

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

17 Comments

Here is the cure: ( ̄_, ̄ )

https://youtu.be/OSIrQBGfUtw

Up
0

Ameen to tha brutha...

Up
0

Trump administration to unveil $15.5 billion first phase of coronavirus farm aid: https://www.reuters.com/article/us-usa-coronavirus-usda-farmaid/trump-a…

Up
0

Thank God there has not been a global response! Imagine if everyone unilaterally made the wrong decision.

Up
0

The only 'global response' to date has been from the WHO, bought and paid for by China, which first swept all evidence of WuFlu under the nearest carpet, then stalled for weeks on announcing a Pandemic until the mounting stink of the bodies penetrated their patrician nostrils.

This is the nearest we are ever gonna get to 'a Global Response'.

Thank the Deities.....

Up
0

Watch the global response skyrocket when Bill Gates finally implements his mandatory vaccination plan. The pharmaceutical companies will be laughing their way to their private jets. Globalism is the most imminent threat to mankind. I for one, will not be lining up for the ID trackable vaccines that are coming our way. It's 1984 folks. Orwell is now a non fiction writer.

Up
0

It's equally possible, given that something like 160 separate initiatives for a vaccine are underway, that Big Pharma may simply act as the final mass=producers, packagers and distributors. Stretching a little further, to do so while agreeing not to patent. Stranger things have happened.

It's more the case that the certifiers like FDA need to either get out of the way or speed up. Plenty of human stock to aid this effort. Now That would be a real Global Initiative....

Up
0

CCP has mounted a campaign to change the title of Chinese take away/restaurant to .. Far East take away/restaurant, Chinese herbal medicine.. anything with word 'Chinese' on it.. will be ban as it's a Xenophobes, they also petition to UN to re-write that history wording in the past... such as Spanish Flu, this is clearly racist by today's standard..Espana? hispania? - US will stop paying salary to WHO staff? - fine, CCP shall come to the rescue, soon they all will be paid in Renminbi.

Up
0

I'm a little dry, I don't think I will get decent covers now, snow on the hills and frosts in the air.

In the USA meat plants are closed, here they are running at reduced capacity and dropping schedules every week. I just got told, six week wait to kill lambs. I nearly bought some Heifers before Christmas, I would be looking at a loss now, that's if I could get them killed.
I was talking to a neighbour up the road and he told me a few years back he got a 70k wool cheque this year it was 20k.
Sold his steers three years ago for $1200, just sold this years for $800.

There is nothing we can do without demand. Brazil and Argentina are full of Protein. The loss of jobs will hit demand. I would love to sugar coat it but finding that a challenge, the only bright spot is China internal Ag looks to be a mess, but they can play us all off against each other.
Chinas dependence on exports is troubling
https://www.foreignaffairs.com/articles/china/2020-04-08/dont-count-chi…

Up
0

Hi Aj, I shall read your links shortly. In the meantime an update. Despite 40 mm of rain, the river is as low as it has ever been in my time here. I hear both the beef and lamb schedules have headed down again.
I had a chat with my bank. Scary talk. Cash is king. Whatever equity you have does not matter, you must have cash flow. Drought is the biggest problem right now. Dairy farmers need to buy and pay for feed. PK knocking on $400 if you can get it.
Cull cows need to go. But getting space is problematic. Buying feed for them while the price is dropping. And yes it has got a bit cold here too.
Yet we are in a better spot than most. I have Thrones on in the background, sky boxsets. Suddenly winter is coming sounds very ominous for us all.

Up
0

Belle , I have 120 lambs on 250 acres and there is no grass. Absolutely nothing, my italian ryegrass I mixed in with oats is showing up as green stripes through the paddocks. We had our third frost of the season yesterday. I am not going to buy anything when the works are basically shutdown, with a falling schedule, no one wins that game.
A friend went hunting up the back below the Ruahines on a mates farm, didn't see a thing. He said, 'no feed for deer up there and winter is just beginning.' He said it was all brown, he was shocked. That is cold country that won't be getting much growth till late September.

Talk is that schedules will keep falling also I am wondering if they will only extend lock down for two more weeks, there looks like a second wave in China and other parts of Asia.

I don't know that there is much anyone can do, unless someone can bring feed in but it's probably too late to expect much growth even if we shut farms up. My italian rye has been in the ground for 6 weeks and it's like fine hairs in the drill grove, it's been sitting like that for nearly a month. The rain we have got, just hasn't been enough to make a difference. No rain in forecast of any substance, I need to gao away and come back in August but I cannot even do that with the lockdown.

Up
0

Jeez you are a sobering bugger Aj. I was getting a little positive enough to entertain buying some weaners or r2s. But you arent the only one warning prices have yet to fall further.

Up
0

This from China.....
"In food, the price of livestock meat rose by 78.0%"
http://www.stats.gov.cn/tjsj/zxfb/202004/t20200410_1737879.html

But just who believes what the Chinese official line is? (apart from the WHO)

Up
0

The lesson from this is that cash is always king in the end. Having run my business for over 30 years Ive seen a fair few ups and downs. I learnt very early the risk of debt in an economy that relies on hoping people want to eat what we will grow no matter what or see our landscapes - they have choices. Modern finance theory says you have to leverage up and things will always grow and be good. News flash - bad things come in the night from the least expected places and ruin all the nice budgets and theories - its called reality. Anyone running a business with little or no debt and cash reserves to survive 12 months of disaster is a dinosaur and is laughed out of the room - I know. Funny that when the proverbial hits the fan the room is very empty as those people are running around on the street blaming everyone and everything for their problems. The boring old dinosaurs just cruise around deciding what they might add to their business at a sensible, rational price.

Up
0