Will there be a boom without a bust?

In an opinion piece in The Business Day Terry Hall asks the question many in agriculture will be musing ,"Will this boom be followed by a bust."

This boom bust cycle has plagued agriculture for decades, and needs to be broken if we are to grow the agriculture business in a sustainable way.

Fonterra has led the way with it's diversity of products that insulate the milk price from some of the market volatility, and wool and meat strive to achieve similar goals, with quaity brands and market positioning.

However, there is nothing like a shortage, and a growing Asian market to move prices, and analysts predict supply issues will keep prices strong for NZ products for a while yet.

OPINION: Soaring global prices for "soft" commodities - things NZ is a world leader in producing, such as meat, wool and dairy products - are raising hopes that we could be about to return to the ranks of wealthy global exporters. This would reverse the long period from 1970 when, apart from the odd blip, our primary exports struggled due to protectionism, competition from subsidised European and American farmers, and political upheavals in once- important markets such as the former Soviet Union. In addition, spells of high export returns often frustratingly coincided with a strong NZ  dollar, eroding many of the gains farmers might have enjoyed.

Some influential Australian economists now believe those 40-odd years were an anomaly. They believe Australian agriculture will soon return to its former importance, giving their country a second export boom industry to rival mining. Others, presumably including many farmers in both NZ and Australia, are much more cautious. Judging from the recent falls in land prices in both countries, they seem to feel record prices being seen for many commodities are simply a temporary rally driven by speculators. The drop in farm values seems extraordinary, when dairy farmers are expecting high pay- outs and have been told the outlook remains positive, and interest rates remain reasonably low.

Just as remarkable is that the high returns for dairy, wool and many other commodities are despite the soaring value of the kiwi against the United States dollar and sterling, which was always bad news for exporters. So why the optimism? And the widespread belief, mentioned previously in this column, that this country could be headed for at least a decade of good export farm prices? Why are merino wool prices at record levels and coarser wools at 20-year highs? Are high dairy and meat prices sustainable?

 For some of the answers, we look to the booming Asian economies, whose citizens are steadily getting wealthier and demanding the sort of food, smart woollen suits, carpets and so on that many of us take for granted. Reserve Bank of Australia governor Glenn Stevens said recently that the soft commodity markets had undergone a fundamental change as newly affluent Asians demanded more food and fibre.

There are other pressures. Booming demand for food comes from industrialisation and urbanisation in China as farm land is turned into factories and homes. A string of natural catastrophes, including drought and abnormally hot weather, and freezing winter temperatures in Europe, have devastated crops, cutting output and increasing pressure on global supply chains at the very time demand is rising.

If New Zealanders don't believe the boom will materialise, overseas interests do. These include the foreign interest in the Crafar dairy farms and other overseas purchases of farm land, US investors buying forests, and China's Agria securing a 50.52 per cent stake in PGG Wrightson. Across the Tasman, overseas interests are also gobbling up soft commodity companies. Canadian fertiliser group Agrium recently bought the AWB (former wheat board) for A$1.2 billion (NZ$1.59b), and another Canadian company, Viterra, bought grains handler ABB for A$1.6b. Singapore's Wilmar bought CSR's sugar division, while rice grower SunRise is a takeover prospect by the world's biggest rice company, Ebro.