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Guy Trafford says we should use this time between pandemic waves to prepare for a tougher market environment in which to sell our premium food products, given that the economic hurt from multiple waves will grow

Guy Trafford says we should use this time between pandemic waves to prepare for a tougher market environment in which to sell our premium food products, given that the economic hurt from multiple waves will grow

The BK advertisement for a plant-based chicken burger not long ago would have raised the hackles and been a major focus of attention. Now it barely raises an eyebrow. What, not long ago, was seen as the largest threat to New Zealand’s primary industries has faded into the background.

The coronavirus epidemic at one point was seen as an interesting irritation happening overseas; after all we have seen SARs, MER, Ebola and a raft of other potential threats all come and largely gone, having been met by science, luck and our relative isolation.

The current COVID-19 outbreak however, is at a whole different level and previous conceptions of the effects, and timeframes are having to be radically reconsidered.

Some progress has been made on how best to treat infected patients and vaccines are moving towards some outcome where they will able to be distributed and hopefully provide the necessary protection the world needs to come out the other side. However, this time is still away in the future.

Not only do the vaccines still need to be developed and tested (Russia aside), they then need to be manufactured and then distributed. Remember, we are talking about billions of shots here and the discussions about how the latter proceeds still needs to take place.

While we have leaders of the most powerful and populous nations at loggerheads with each other and having populations with infected cases (with the exception of China) in the millions, getting agreement at best is going to be difficult. At worst it is liable to escalate relations to a whole new level.

It appears now that almost all countries are experiencing the second wave that the WHO warned about and while there have been some technical advances, peoples' tolerances to be locked down - again - is looking highly uncertain. On top of this, most governments who had the resources to provide the financial buffer to get their populations through the first round will now be struggling to find the resources and agreement to fight the second.

New Zealand is a shinning example - perhaps with Taiwan - with our large degrees of luck, circumstance, policy, and national strength. We are a nation that has (for now) come through the turmoil relatively intact. However, I believe our battles are only just beginning.

At the moment, the strength of our trading partners and their need for food products has provided an economic lifeline that has enabled the country to keep functioning with some degree of confidence that we have the income to support the necessary inputs the country needs. Most of these are about providing work and income and life’s necessities.

As the pandemic continues and spreads into all the corners of the world the ability of other countries to afford to pay at the current level for food products must begin to be tested. Even China is in the midst of battling multiple outbreaks and has increased border controls on expats returning as it struggles to contain community outbreaks presumably stemming from overseas returnees. Compounding the issue is extreme weather events which is making controlling the risk of virus spread even more difficult.

Australia has shown how easy it is for the virus to ‘break out’ the moment guard is dropped. It perhaps came just in time to provide a poignant reminder, if it was needed, to show how paranoid New Zealand needs to be to keep the virus out.

We can assume the constraints on world travel will last for up to another 12 months and perhaps longer. But the impact upon trade must last a lot longer. Most countries GDP’s have been hammered like never before and their ability to purchase our products must be compromised. The ability of the internal economy can keep revolving the cash around to provide income to retailers et al has been remarkably resilient to date and perhaps shows how much ‘cash’ was going off shore in the form of travel funds which is now recirculating around New Zealand. Even the real estate sector is experiencing surprising demand as the blend of low interest rates and more relaxed bank rules have lifted demand for housing.

Prices for farm products, wool aside, is still relatively firm and the meat companies have maintained prices well despite the huge uncertainty that must exist with their markets. Good dairy prices require the fundamentals to be sound. We saw in the early stages of the pandemic how oil prices crashed to the point that some companies were paying to get rid of stocks and storage filled up and then ran out. Prices recovered somewhat but is still half of what it was through 2010 to 2015.

While food is more critical to a person than oil, there are more sources of food and while preferences may be for the high quality products coming out of New Zealand there are a lot of cheaper substitutes and I’m not even thinking about plant based substitutes.

So, New Zealand is facing multiple challenges. What happens if and when our exports have a rapid depletion in value and how do we deal with that?  And how and when do we reengage with the rest of the world or do we remain an isolated oddity of healthy and well fed people into the distant future?

At some stage there will be interesting novels written about this period and perhaps examining different outcomes. In the meantime, we wait.

Dairy prices

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19 Comments

Excellent article. It"s food. Forget 'students",' tourism". They never were going to be a core engine or long lasting.

I've seen figures between $6.5 and $9 billion as the amount Kiwis spend overseas each year. I've often thought if the economic benefit of tourism was quoted in net terms we'd get a better idea of whether its good value for NZ (or not).

Yes I have seen up to $10 billion spent by kiwis on international travel. How much also do we spend on purchasing goods and services from businesses outside of NZ?

Covid 19 and The Fed’s continued money printing is doing a mighty fine job of wiping out the middle class. 50 million Americans are now unemployed. Covid is starting it’s second wave across Europe and the UK and Australia. In China , there is major flooding with many cities underwater, 400 million people could be affected by further devastating flooding If the Three Gorges Dam continues to deteriorate and break. All these Events are having a negative effect on our major trading partners. As these countries get through the next few months and years the peoples ability to be able to pay for luxury NZ products will diminish. There will also be a move towards less globalism. Governments and people will Be encouraged to “buy local” why pay to ship goods half way around the world. Dupport local businesses. I am not seeing many conversations regarding this. NZ seems to think if it has made in NZ stamped on it, it will sell as people will pay a premium. In reality, I fear that job losses, inflation in everyday food, power and Other basic living Costs will severely impact our ability to sell our products overseas.

I think the target market for NZ specialty food products has not gone away, there will always be some form of demand there from one place or another. We do not produce that huge a volume of food that it cannot be too hard to find it a home.

Great article, but
"a poignant reminder, if it was needed, to show how paranoid New Zealand needs to be to keep the virus out."
We need the MOH to be far more more paranoid on testing.
Last Friday 5 of the 9 Covid testing stations in Auckland were closed, and the remaining 4 are closed on weekends.
Leaving North Shore, West Auckland, Grafton and Wiri as the sole drop in centres.
Good one Ashley!

my daughter flew in from LA turns out someone on the flight was infected, need to test before they leave.

The key sentence for me is "What happens if and when our exports have a rapid depletion in value and how do we deal with that?"

One answer, not for the faint-hearted or purista, is a devaluation of the currency versus main export destinations, to maintain $NZD nominal returns.....

has that ever worked in the past, other than a short term shot in the arm?

Where's that laughter emoji when it's needed? Most countries on the planet have been trashing their currencies the last few years. Good luck trying to get the Pacific Peso, ahead of that horse race!

"While food is more critical to a person than oil" Food is oil. Every calorie eaten, has 10 calories of fossil energy embedded!

"Every calorie eaten, has 10 calories of fossil energy embedded!" Gosh - even that roadkill hare I ate some decades ago? Those bush goats I shot a few years back? Those mullet caught 8m off Pakawau on a piece of string and some bacon?

Exaggeration much, in other words?

#1The roadkill was most likely hit by a fossil fuel vehicle.
#2 how did you travel to the bush and how much energy to create the fire power?
#3 nylon string by chance? Plus travel and the bacon didn't cure it's self.
Exaggeration? No I doubt it.

"the food supply chain requires 10–15 kJ of fossil fuel to produce 1 kJ of food." https://search.proquest.com/openview/7ef53dfd784439a19eca618c7036413e/1?...

The 'cost' of goods needs to be rebalanced.

We know that many goods purchased from overseas are heavily subsidized by their Govts, even to the point Govt. subsided freight costs from China, or are manufactured by 'too lower cost' labour.

YET in NZ, we pay up to twice what we need to for our housing, and the cost of many NZ foods we purchase can be bought cheaper overseas.

If we paid the real valued-added only price in NZ (no non valued added costs) which would mean substantial fewer costs and the same for the imported goods which would mean in many cases paying a bit more, then net we would be far better off, and would naturally look to buy NZ goods as a first option.

Few recall that 'economic hurt' was accelerating globally prior to the pandemic panic.

While we extol our good fortune so far, it's oil that is the economy, the bedrock of all finance.
Oil's price collapsed from $65 in December to negative $30 by mid April.
Financially speaking, this was a Richter 10.

Yet reports of this mass destruction event are all but absent from the public domain.
Instead we have wall to wall Covid-19 infecting our minds.
Coincidentally, or not, Sars-CoV-2 arrived on the scene late December, just as oil's implosion began to decimate the global financial system.

I understand this is how conjurers make elephants disappear.

Good article Guy. As a farmer I have grave concerns for our markets. Lets face it, virtually all of our agricultural, fisheries and hort exports are top end products. The 1st to go from consumers shopping lists in a severe recession/depression. We may still be able to sell all our output but at a price that will bankrupt NZ. And like it or not our primary industries are still the fountain of wealth for NZ. Shame our stupid politicians can't get their brains around this!
I think our exporters are doing a great job of moving product at a good price at the moment. I really hope it lasts!!!

While we primary sector producers worry the real story will be the tech industry which is just as big as meat now and in 10 years I suspect will be our biggest earner. If it’s wealth growth we want that’s where it going to come as all the wealthiest countries in the world have proven. I’m a primary producer so I’m not dumping on the sector we just need to be realistic of where our future wealth and growth will come from.

Days to the General Election: 19
See Party Policies here. Party Lists here.