The covid-19 crisis and drought conditions have highlighted New Zealand agriculture’s reliance on a handful of countries for feed to supplement its grass-fed system, the Ministry for Primary Industries said.
The warning, included in MPI’s Economic Update for the Primary Industries, comes as the sector remains on track for a 4.5 per cent increase in export receipts for the year ended June on the back of NZ dollar weakness and improved dairy exports.
The latter were up $512 million year-on-year over the past quarter.
But farmers’ reliance on imported supplement feed for animals, particularly during drought conditions, with limited supply options, makes the country dependent on external supply dynamics.
NZ imports an average of 2.9 million tonnes of animal feed a year, with a value of about $734 million.
More than 81 per cent of that is sourced from only three countries, Indonesia, Malaysia and Australia, with another 10 per cent coming from Argentina and 6 per cent from the United States.
PKE price jump
In its latest update, MPI’s economic unit said demand for palm kernel expeller, used primarily as high-protein feed for dairy cows, had pushed spot prices jump up almost a third to $380 a tonne during March, reflecting not only high demand from NZ but also the stoppage in plantation and mill activity in Indonesia and Malaysia.
MPI said while the PKE pricing had since returned to normal, NZ’s “susceptibility to the PKE spot price jump highlights the potential impact of single market dependency, especially for inputs the agricultural industry relies on and have limited affordable substitutes for.”
PKE is NZ’s largest animal feed import, at about 68 percent of total animal feed imports by volume.
NZ agriculture is also highly dependent on Argentina, which supplies 98 percent of NZ’s soy derivatives, the country’s second biggest animal feed category, and Australia, from which NZ buys about 98 percent of its wheat and 76 percent of its molasses.
The MPI report said that based on “single, or limited, market dependency for a number of other key agricultural imports, our susceptibility to shortages and price volatility is likely to impact the agricultural sector when future crises happen.”
Subsidies
It suggests however, that the recovery for dairy may be affected by the impact of increased subsidies in the US and the European Union.
In red meat, despite the slowdown in processing resulting from social distancing measures at plants, the industry impacts were muted, while slowdowns in exports into China resulting from covid-19, were offset by exports to the US, which also had processing constraints as a result of the pandemic.
The outlook is “complex” for red meat, however, as strong import demand from China and reduced global supply due to herd rebuilding in Australia may combine to maintain higher prices. “However, this may be offset by drought in NZ and an uncertain demand for food service-oriented cuts.”
The forestry outlook is far from certain, however, as European spruce represents a competitive option for Asia and the extent of Chinese construction activity remains uncertain.
The MPI outlook remains fundamentally positive for fresh fruit, with strong harvests boosting volumes and consumer demand holding up even through trade disruptions related to the covid-19 response.
Source: NZME
