Wednesday, 16 February 2022 15:55

Put the champagne on ice!

Written by  Content supplied by Rabobank
The profitable run for most NZ agri sectors looks likely to extend into 2022. The profitable run for most NZ agri sectors looks likely to extend into 2022.

The profitable run for most NZ agri sectors looks likely to extend into 2022.

But New Zealand's year of reckoning with Covid-19 is upon us - so it's too early to break out the champagne just yet. Labour shortages in New Zealand are a very real and critical challenge for the agri sector.

The strain on businesses is taking the shine off excellent returns. Horticulture, meat processors, agriculture contractors and dairy farmers will be the most impacted in the upcoming months by increased absenteeism with the spread of Covid-19.

While many sectors are tipped for record commodity prices once more in 2022, rocketing input costs and crimped production in some regions will not translate into new benchmark profits.


Farmgate milk prices for New Zealand farmers in the 2021/22 season have reached new records (in nominal terms), with Fonterra's midpoint of their forecast range sitting at NZ$9.20/kgMS.

In real terms (i.e. adjusting for inflation), the farmgate milk price would need to hit around NZ$ 9.50/kgMS to match the last record milk price of NZD $8.40/kgMS experienced in 2013/14.

Despite record forecast prices, a portion of farmers are unlikely to experience record profitability. Cost structures are higher than those experienced in the 2013/14 season, due to inflationary pressure on input costs and structural changes such as higher wages.

The effect of rising interest rates is still to be fully felt. Despite this, elevated milk price forecasts should still provide farmers with a profitable 2021/22 season.


New Zealand exporters and farmers can look forward to another year of strong returns in 2022, off the back of reduced global beef supplies and steady consumer demand. Global beef supply is expected to remain constrained in 2022 as key export countries rebalance production. Consumer demand and willingness to pay for beef is likely to remain elevated through 2022 as countries recover from the Covid pandemic. In particular, the high level of demand for New Zealand beef from China seen through 2021 is expected to continue, as the pork industry recovers from the effects of African swine fever.

Demand from the US for New Zealand lean trimmings is expected to remain elevate, as Australian supply remains low. Rabobank expects NZ farmgate beef prices to remain above the five-year average in 2022.

Key risks to pricing include processing and supply chain challenges, consumer willingness to pay easing due to high beef prices and weaker economic conditions, and the potential strengthening of the NZ$ against the US$.


Global availability of sheepmeat is expected to lift in 2022 due to increasing Australian production, while New Zealand sheep numbers are expected to continue to decline. Despite record prices through 2021, the New Zealand sheep flock is likely to continue to face downward pressure in 2022 due to land use competition for forestry.

New Zealand's total sheepmeat exports lifted fractionally in the 2021 season; however, the end destination changed considerably, providing significant opportunity for the 2022 season.

Rabobank anticipated that farmgate milk pricing will remain elevated in 2022 above the five-year average.

Strong demand from our key markets is likely to support firm pricing, despite an increase in Australian production and the threat of Covid.


The outlook for the New Zealand kiwifruit industry is positive for 2022, with strong demand and orchard-gate returns (OGR) anticipated, despite significant changes being made to the licence areas and tender process for the Gold variety.

Zespri's forecast OGR for the 2021/22 season signal another profitable season for kiwifruit growers - albeing below the extremely strong returns experienced in 2021. Forecast OGR for Gold stand at NZ$ 11.05/tray (as of November 2021), while Green OGR are forecast at NZ$ 6.34/tray for the 2022 season.

Due to the onshore fruit loss and related lost volumes into Japan, as well as some further deterioration of fruit quality in the market, it is likely that this pricing will be revised NZc 10 to NZc 15 lower in February 2022.

Exchange Rate

We expect the New Zealand dollar to maintain the strength it gained in 2021, supported by healthy global demand for commodity products and the expectation that the Reserve Bank of New Zealand's increases rates, and to gain further strength in the backend of the year.

New Zealand was highly successful in managing the Covid vaccine roll-out and curbing outbreaks through 2021, and this translated to strong economic growth. Strong consumer demand and constrained commodity availability globally are expected to maintain elevated commodity pricing in 2022 and, with it, demand for the New Zealand dollar.

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