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Food exports on track for “record breaking” 2021 – Westpac

18th May 2021 By Bridget O'Connell | | @foodtickernz

This year is shaping up to be one for the record books for New Zealand food exporters with the scene set for continuing price rises, according to a new report from Westpac.

The bank’s May Economic Overview, Reshaping the World report said that continuing strong global demand – initially led by China – the eventual normalisation of shipping prices, and restricted supply from some competing markets mean New Zealand commodity prices “already on a tear” can still go higher.

“New Zealand commodity prices surged to fresh record highs in March and again in April. And we anticipate that
more records will tumble over the remainder of 2021,” Westpac said.

“All up, New Zealand’s commodity prices have jumped 17% so far this year, and we expect a further lift of circa 5% through to the September quarter.”

Westpac said sectors such as dairy and kiwifruit have already banked some of these gains.

For example, on the back of surging global dairy prices, the bank upgraded its 2021/22 milk price forecast to $8.00/kg in April. In addition, kiwifruit grower returns for last season are on track to be the highest (for green kiwifruit) and second highest (for gold kiwifruit) on record.

The “signs are also good” for meat commodity prices, Westpac said.

“Indeed, farmgate lamb prices have been lifting over April and May at a time when prices normally fall. This rise bodes well for the new season and we expect lamb prices may test $9.00/kg by the time prices normally peak in late spring.”

High global feed prices in the Northern Hemisphere also played into New Zealand meat producers’ hands, with tight margins keeping the supply response to higher prices in check in competing markets.

More generally, across all commodity types, Westpac forecast that the eventual normalisation of shipping costs – at present acting like an export tax – would also give prices a second wind.

“One upshot of higher commodity prices is that commodity export volumes will be higher than we previously factored,” Westpac said.

“Horticultural export volumes will…continue to expand, although we had already factored increased kiwifruit and apple plantings into our previous forecasts.

“That said, current labour shortages may mean that some of the horticultural export volume growth, particularly for apples, is deferred to 2022. Meanwhile, we anticipate a modest uptick in dairy production of 2% next season above this season’s level.”

Looking at the medium term, Westpac forecast prices would moderate as supply eventually catches up and demand growth reverts to more average levels.

“In particular, global production levels will lift as more farm workers return to work, allowing global harvests to return to more average levels. Normalisation of supply chains and costs will have a similar positive impact on global
food supply.”

But Westpac does expect this commodity price cycle to last longer than in the previous cycles, citing environmental constraints biting on global food production as one reason for this.

“Here in New Zealand, these constraints are most evident in land use change and the resulting shifts in agricultural and forestry production. The dairy sector is at the pointy end of these shifts, and we expect both less land and fewer cows next season compared to this season.

“Indeed, this shift is another reason we expect the New Zealand commodity price cycle to last longer than in the
past. Essentially, supply has less capacity to respond to the surge in prices than it did in years gone by.”

Read Westpac’s May Economic Overview, Reshaping the World here.



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