For farmers and growers in the Hawkes Bay and Gisborne regions, the rural real estate value expectations look set to continue their upward trajectory heading into the 2021/22 season.
Notwithstanding the headwinds of significant labour shortages for growers and a third winter, where our pastoral farmers have not seen anywhere near the desired level of recharge in soil moisture levels.
So, time for some good news. The price for food continues to soar internationally, much less so here in NZ, this has big implications for NZ export producers. The UN Food & Agriculture Organisation (FAO) cost of food index is up at its highest level since 2011 and has been on the rise for 12 straight months, up 31% on the same time last year. Food staples like cereals and sugar leading the cost pressure.
This trend is significant for our primary sector, particularly if large competitor export countries force their producers, to prioritise internal food supply, ahead of exporting, to mitigate ramping domestic food inflation.
Which in turn will shorten the supply of international tradeable commodities and compound further already constrained food ‘supply chains’ across the globe. Sustained international cost pressure on food, in theory, should translate into improved export producer returns here at home over time.
NZ is now widely considered to be at peak dairy and meat protein production and our horticulture sector is currently very constrained by both labour and available land.
This has big implications for future NZ primary sector returns (supply constrained) and the corresponding strengthening of farm gate returns. Beef and lamb is a good example right now.
It’s hard to see how these themes will not translate into increasing demand for productive and sustainably managed farmland both this season and the future generally. So, while labour and moisture can weigh heavily on earnings and producer confidence generally today, the old adage that “they are not making any more of it” continues to ring true.
For decades globalisation has driven down the cost of food, through the purchasing power of international supermarkets and vertically integrated supply chains, the tide may be changing as charity when it comes to food supply, begins at home.
