Allan Barber says we will look back on 2025 as a 'stellar year' for agriculture and one that will be hard to repeat

2025 will go down in the record books as the best for the agricultural industry for many years. Record milk payout, highest ever beef and sheepmeat prices, farm profitability the best for some time, free trade agreements signed with UAE or in prospect with India, the relaxation of methane targets, and at last some tightening of the forestry conversion rules.

To that list can be added the sale of 65% of Alliance to Dawn Meats and of Fonterra’s consumer brand business to Lactalis, both transactions being approved by 88% of the respective shareholders.   

Although the outlook remains good for a continuation of favourable trading conditions next year             , there are already signs of dairy prices weakening because of higher production and lower global demand. Fonterra has already lowered the midpoint for next year’s payout, despite which management remains optimistic, and shareholders will enjoy the benefit of the proceeds from the Mainland sale.

There are signs of market resistance to the elevated lamb price, although the reduced volume of product for sale will likely prevent too large a drop in the short term. Relatively weak economic conditions in the main markets pose a threat to continued demand at these unprecedented levels, while the USA’s 15% tariff has already had some adverse impact. However demand at high prices is well spread across the EU countries, UK, North America and Middle East, while China takes substantial tonnage of the lower value cuts.

Beef appears likely to enjoy consistently strong demand at the higher price levels because of the competitive tension between the USA and China. The cyclical decline in the American beef herd has resulted in a product shortage which will persist for several years and has already caused a reversal of the tariff imposed earlier in the year. Even Trump has realised he cannot fight the American love affair with hamburgers.

The upshot of this chain of events is to avoid any prospect of a reduction in demand or price, until the American beef herd starts to recover.

The situation in the USA with sheep production and demand for lamb is totally different and more complicated. American sheep farmers are in a minority and have been struggling for survival for a number of years, because of a lack of consumer demand and, according to the farmers, competition from Australia and New Zealand. Our representative bodies argue New Zealand product is both complementary to domestic lamb and necessary to preserve the presence of lamb in the market.

They are lobbying the US government to impose larger tariffs on imported product in the belief this will allow them to sell more domestically produced lamb. There is some doubt whether this is correct, although it means New Zealand is highly unlikely to get the additional tariff removed.

The trade development which would be most favourable for sheepmeat would be the conclusion of a free trade agreement with India. The noise around the negotiations suggests both sides want the FTA, but fishhooks include the treatment of dairy, politically problematic for India, and concessions on migrant or student visas for Indian citizens, impossible to get past NZ First.

In case these potential problems indicate we are badly served by our political system and politicians, have some sympathy for UK farmers where the current Labour government, elected with a landslide majority, appears to be intent on systematically destroying the farming sector.

From April next year the Family Farm Tax will come into effect, imposing an inheritance tax of 20% (compared with the standard rate of 40%) on the family farm and business assets above Pounds Sterling 1 million. The only way to avoid this is for the farm to be left to an heir seven years before the death of the owner which, as one angry farmer said, will mean his 86-year-old father must live till he is 93. Otherwise the heir to the fourth-generation family farm will incur a Pounds 1.25 million tax bill, requiring the sale of land which would make the farm unviable.

Although in time it may be possible to set up a tax-efficient structure to avoid this unfortunate situation, the tight timeline makes it impossible to implement before April. No wonder farmers marched in protest on Downing Street, only to be further incensed by a last-minute decision for tractors to be banned from the demonstration.

Even if Labour can achieve a messy coalition majority to form the next government in New Zealand, the proposed capital gains tax will almost certainly exclude the family farm. But the opinion polls suggest a Labour coalition will have a good chance of making the present coalition a one term government. This would entail a less sympathetic set of policies on issues such as greenhouse gas emissions, freshwater management, and animal welfare.

2025 may turn out to be a stellar year which will be hard to repeat for a variety of reasons.