fbpx
Print this page
Tuesday, 23 October 2012 16:23

Difficult balancing act protecting farmer incomes

Written by 

DROUGHT IN the US and New Zealand economics are coming together in a delicate dance that could affect returns to Kiwi farmers. 

Extreme weather patterns are a big worry. The US Midwest’s worst drought in 50 years is pressuring already volatile farm commodity prices. 

The region is a key world grain producer, with good soil, favourable climate, up-to-the minute technology and an educated workforce. The drought-diminished output of corn, wheat and soybeans will begin to affect the world food chain. 

Europe isn’t faring much better. A heat wave in Russia (the region’s largest grain producer) and the UK’s dry spring and wettest summer since records began in 1912 have also hit grain crops hard. 

The agricultural food chain is interlinked: if one area is impacted so will others be. An example is pork, the supply of which in the US is at its lowest since 1975 due to rising feed costs. Pigs eat mostly corn and the cost of feeding a pig to slaughter weight is now greater than the price a farmer gets for pig meat, hence a rush to slaughter and a tightening supply.

But the recent bumper grain crop in Canterbury could benefit our grain producers with higher prices overseas. New Zealand’s agriculture exports are rising but offshore commodity prices remain volatile making our returns hard to forecast. 

Also, farm expenses in every category are on the rise, therefore help is needed and the time is right for the Reserve Bank to start slowly start bringing down our base interest rates; the calls are growing louder for a cut following a 25 basis point cut early this month by the Australian reserve bank.

The Australians cut their base rate from 3.5% to 3.25%, causing the Aussie dollar to drop rapidly against the US dollar and, to a lesser extent, our currency to drop against the US dollar, because the global market sees the Aussie and Kiwi dollars as interlinked. As our base interest rate sits at 2.5% there is room for a 25-point basis point cut soon, likely to help bring our currency down over the long term short-term to bring interim relief for Kiwi exporters. 

The Reserve Bank wants to keep interest rates up for fear of inflation. But our inflation is at a record low. And lower interest rates mean consumers will get less return on their savings at a time they’ve been told to save more – hardly a great incentive when interest rates are at record lows. 

Lower mortgage rates will help many but may also put upward pressure on house prices – something the Government is trying to avoid because of inflation problems and housing affordability.  

Again this is a difficult balancing act. It is not as simple as saying reduce the interest rates or print more money because these things affect the whole economy and can be catastrophic. The kiwi dollar is strong because the fundamentals of our economy are stronger than those of the US and Europe.

More like this

Is dilution part of the solution?

OPINION: Despite what DairyNZ says, increasing production per cow or hectare can help to dilute costs and increase profitability.

Featured

Australia develops first local mRNA FMD vaccine

Foot and Mouth Disease outbreaks could have a detrimental impact on any country's rural sector, as seen in the United Kingdom's 2000 outbreak that saw the compulsory slaughter of over six million animals.

NZ household food waste falls again

Kiwis are wasting less of their food than they were two years ago, and this has been enough to push New Zealand’s total household food waste bill lower, the 2025 Rabobank KiwiHarvest Food Waste survey has found.

Editorial: No joking matter

OPINION: Sir Lockwood Smith has clearly and succinctly defined what academic freedom is all about, the boundaries around it and the responsibility that goes with this privilege.

National

Machinery & Products

Tech might take time

Agritech Unleashed – a one-day event held recently at Mystery Creek, near Hamilton – focused on technology as an ‘enabler’…

John Deere acquires GUSS Automation

John Deere has announced the full acquisition of GUSS Automation, LLC, a globally recognised leader in supervised high-value crop autonomy,…

Fencing excellence celebrated

The Fencing Contractors Association of New Zealand (FCANZ) celebrated the best of the best at the 2025 Fencing Industry Awards,…