The decision, in late September 2011, by rating agencies Fitch and Standard & Poor’s to downgrade New Zealand credit risk from AA+ to AA took many market commentators by surprise. Their prognosis of the prospects for the New Zealand economy, based on our dependence on agricultural commodities, is shallow. It is more indicative of entrenched structural problems in the US and European financial systems than our long term economic prospects.
Any farmer who thinks the current world economic crisis means the golden days may be over need look no further than the most recent global population forecasts from the United Nations.
The planet’s population will exceed 7 billion this October and is forecast to increase +40% to +10 billion by 2100. The most dramatic changes are expected to be at a national level and New Zealand exporters of agricultural and other products need to be mindful of the likely shifting market dynamics.
China’s huge population is actually forecast to fall from 1.35 billion to circa 950 million between now and 2100. The population of Sub-Saharan Africa, at circa 856 million, is currently roughly the same size as Europe and about 20% that of Asia. The UN estimates it could be three times the size of Europe by 2050 and 75% the size of Asia by 2100. The population forecasts for Africa would make it the fastest growing region by far. The biggest mover in absolute numbers is predicted to be India – where the population is expected to reach 1.7 billion by about 2050 before leveling out at about 1.55 billion by 2100.
The numbers are truly mind-boggling and whilst the margin for error in the predictions is big, they serve to focus attention on the likely intense global demand for agri-sector originated products and where that demand will come from.
At almost exactly the same time Fitch and Standard & Poor’s made their downgrade announcements, leading agricultural financier Rabobank released predictions that the world’s food supply will need to increase substantially over coming decades to meet population driven demands. Rabobank said that “In the next 40 to 50 years, the food and agricultural sector will need to double food supply with access to only about half the current land, water and mineral resources.” This view is also shared by Westpac Bank which sees some short term price volatility due to global financial turmoil but good long-term prospects for New Zealand dairy and meat exports based on the continued strength of Asian economies.
Most people won’t notice a lot of difference from the credit downgrades, apart from a possible increase in the cost of borrowing and decrease in the value of the NZ dollar, and they will be of little concern to those taking a long-term view of the economy. New Zealand should be more concerned about the changing global market dynamics – as countries scramble to secure food supplies or control the value chain. Rabobank says that “The next decade will be dominated by a battle for raw materials, with a small group of upstream and downstream oligopolies controlling the pool of agri-commodities.” This highlights the need for New Zealand farmers to actively participate in the value chain beyond the farm gate if they wish to maximise prices and maintain a fair share of the supply chain value generated.
Against a backdrop of difficult monetary conditions, commodity price volatility, global financial sector turmoil and widespread unemployment in developed countries, New Zealand agricultural, forestry and fisheries exports performed strongly. For the period ending 31 March 2011 total agri-sector export receipts were up 16% on the 2010 year – comprising 71% of total merchandised exports. The biggest growth in export receipts has been dairy products (butter, cream, whole-milk powder, skim-milk, butter-milk, casein and related products) which have collectively increased 26% in the year to 31 March 2011. Coming in second and third, in terms of export growth, was forestry products (panels, logs and wood chips, pulp, paper, sawn timber and other related products) and wool products – which respectively grew 22% and 20% over the same period.
The high performing segments in agri-product export growth for the year ending 31 March 2011 are; (1) whole-milk powder at 53%, (2) butter/cream/anhydrous milk fat at 38%, (3) logs/wood chips at 38%, (4) hides/leather/dressed skins at 31% and (5) raw wool at 25%.
The statistics in the table below show the overall bullish growth in agri-export values for the full year ending 31 March 2011 year has continued for the 12 months ending June 2011.
| Primary sector exports ($millions) |
2011 |
Y/Y% |
| Dairy products |
$13,193 |
25% |
| Meat products |
$5,627 |
7% |
| Forestry products |
$4,527 |
17% |
| Horticultural products |
$3,374 |
3% |
| Miscl. agricultural & food products |
$2,121 |
14% |
| Fisheries |
$1,561 |
11% |
| Wool products |
$908 |
23% |
| Live animals |
$218 |
14% |
| Totals |
$31,529 |
16% |
