Meat & Livestock News

Challenges Ahead: Navigating the Current Rural Sector Downturn

Pita Alexander, a seasoned accountant and agribusiness advisor with nearly six decades of experience, has observed a unique challenge facing the rural sector today. Unlike the eleven financial downturns since 1948, the current situation is unprecedented due to simultaneous increases in costs and decreases in prices, particularly affecting the sheep farming industry with notably low lamb prices.

Alexander describes this situation as a “scissors movement” that has tightly gripped the agricultural sector, with no immediate signs of recovery for the sheep industry. In contrast, the dairy sector shows signs of improvement, with milk solids prices on the rise. However, Alexander points out that dairy farmers require a farmgate milk price of $9/kgMS to truly stabilise.

The resilience of farmers is tested particularly in the second year of a downturn. Alexander highlights the strain on those with significant debt, noting that enduring one bad year is feasible, but extending into a second can prove much more challenging.

A significant concern for New Zealand’s agricultural sector is its heavy reliance on China, which accounts for 32% of NZ’s exports. Recent economic difficulties in China have exacerbated the situation, leading to calls for diversification. While some critique the dependency on the Chinese market, Alexander defends the strategy, citing China’s role in offering competitive prices for NZ’s agricultural products over the past 15 years. He remains optimistic about China’s potential to rebound and re-enter the market.

Looking ahead, Alexander suggests focusing on South Asia as a promising market, home to 40 million potential consumers of high-quality, healthy food. However, he notes that trade with India may be limited due to its low meat consumption and significant dairy cow population.

This challenging period in the rural sector underscores the need for strategic market diversification and resilience among farmers as they navigate through these unprecedented economic pressures.