Meat & Livestock News

Bracing for Impact: Navigating Unforeseen Economic Shocks in New Zealand’s Dairy Sector

TL;DR: New Zealand’s dairy industry faces significant challenges from unpredictable global events, including geopolitical tensions and natural disasters. Economist Shamubeel Eaqub highlights the critical need for the sector to prepare for sudden disruptions, such as spikes in shipping costs and supply shortages, emphasising the impact of such events on essential resources like diesel. With the backdrop of changing commodity prices and the unpredictability of insurance costs, the industry is urged to develop robust strategies for managing these risks.

In an ever-evolving global landscape, New Zealand’s dairy industry is learning the hard lesson that it must be ready for anything. Economist Shamubeel Eaqub recently shed light on the importance of preparedness for unforeseen disruptions, drawing from stark examples like the dramatic rise in shipping costs during the pandemic and the looming threat of geopolitical tensions affecting essential resources like diesel.

Eaqub’s insights, shared at the DairyNZ People Expo in Invercargill, emphasised the direct and indirect ways in which global events can ripple through the dairy sector. A particular point of concern is New Zealand’s vulnerability to changes in fuel availability, given its geographical position and the current logistics of diesel storage.

This example underscores the broader message: New Zealand is intricately connected to global geopolitics, and these connections bear significant implications for the dairy industry’s operational stability.

Despite benefiting from high commodity prices during events like the pandemic and the invasion of Ukraine, the industry now faces a reversal of fortune.

With commodity prices softening while fuel, fertiliser, and labour costs remain high, the need for strategic foresight has never been clearer. The cessation of what was once viewed as “insatiable demand” from China further complicates the picture, signalling a potential ceiling to growth that many hadn’t anticipated.

The conversation around risk management is evolving, with traditional mechanisms like insurance becoming increasingly unpredictable and less reliable. Eaqub pointed out the significant shift in the insurance landscape, driven by the growing frequency and severity of natural disasters.

This shift is likely to lead to higher insurance premiums, challenging the sector to find alternative ways to mitigate risks.

Eaqub’s commentary also touched on the societal and governmental response to disasters, highlighting a finite tolerance for bailouts in the face of mounting public debt. This observation serves as a sobering reminder of the limits of external support and the importance of internal resilience and adaptability.

In facing these myriad challenges, the New Zealand dairy industry is at a crossroads. The key to navigating this uncertain future lies in a comprehensive understanding of global dynamics, a reassessment of risk management strategies, and a commitment to innovative, self-reliant solutions. As the sector looks ahead, the ability to adapt and thrive in the face of unpredictability will be its greatest asset.