Each year Canstar research and rate the agribusiness offerings by New Zealand financial institutions and, for an impressive fourth year in a row, ANZ has taken out Canstar’s Agribusiness Bank of the Year award. We caught up with ANZ for some insights into the challenges and opportunities currently facing the New Zealand agribusiness sector.
Q: Access to finance is essential for any type of business, but agribusinesses do need a specialised approach. What are some of the most important service features that your agribusiness clients tell you are important to them?
A: The financial service needs of New Zealand agribusinesses do not change significantly from year to year, but emphasis on different services does differ from time-to-time depending on economic conditions. The eight most important service features are as follows:
- Be price competitive – this is a given in any industry of course.
- Provide a comprehensive product suite. For example, environmental and pasture renewal loans, alongside a traditional product suite of transactional banking, insurance and wealth management products.
- Ensure specialists have a strong understanding and insight of their specific sector.
- Also ensure specialists have a strong understanding of their customer’s business and the specific things that influence its performance. This includes a strong understanding of the businesses future growth aspirations.
- It’s important for customers to be able to have a strong and stable relationship with a direct bank manager.
- Good business connections with key service providers (i.e. accountants, real estate agents and others) and other industry influences to be able to provide access to key expertise when required.
- An institution must be prepared and eager to provide consistent and loyal support during both the ‘good’ and ‘bad’ times.
- Actively participate and contribute in the local community. Many rural communities are close knit for obvious reasons, and it’s a given that the financial institution needs to be a part of this.
Q: Briefly, what are some of the main challenges facing the New Zealand agri sector at the moment?
A: Challenges can be divided into international and domestic. Internationally, the challenges we are seeing across the sector as a whole include:
- Sluggish economic and real wage growth in many markets outside the US, dampening demand. The retail channel’s constant conditioning of consumers for “specials” is also proving hard to shake in many markets.
- Greater uncertainty over the economic and demand trajectory of some key emerging market economies, including China.
- The downstream implications of falls in other commodity prices such as oil, with oil exporting nations key buyers of the likes of dairy.
- Geopolitical ructions disrupting trade flows and import demand in some key import regions (mainly Europe and the Middle East). Russian sanctions and the dramatic fall in the ruble continue to reverberate through many soft commodity sectors and key markets.
- Conflicting views on what the impact of European quota removal and other policy changes will mean for global dairy supply.
- Lower feed costs for the Northern Hemisphere boosting the competitiveness of key competing exporters and products.
- Generally lower commodity prices for key inputs, such as oil and fertiliser, weighing on both the cost curve and sentiment.
- Competitors opening up market access into China and other emerging markets.
- Foreign exchange movements altering competitiveness. The rise of the USD makes imported food products more expensive in some key emerging import markets. The flipside is a weaker NZD/USD and reduced US export competitiveness. While the USD is up, the euro is down. Euro weakness boosts the exporter competitiveness for the likes of dairying, but reduces local earnings for those products such as venison, sheepmeat, pipfruit and kiwifruit that derive a large proportion of earnings from Europe.
- Non-tariff trade barriers.
On the domestic front, and in addition to the high New Zealand dollar, the broad challenges that we are seeing include:
- Environmental regulation and compliance.
- Attracting skilled labour.
- Changing health and safety regulation.
- Increasing R&D investment.
- Regional development and infrastructure.
- Stretched asset valuations.
Each of the individual sectors have their own industry specific challenges too. For example some of the specific challenges in the livestock sectors are:
- Moving more milk into ‘value-add’ segments.
- Current unsustainable farm-gate prices and generally milk price volatility.
- Environmental regulation and compliance.
- New entrants surviving downturn.
- Overcapacity and inefficiencies in the processing sector. Very slim margins have reduced reinvestment back into marketing, R&D and processing efficiency.
- Succession and skills shortfall.
- Long tail in on-farm performance (this is both a challenge and opportunity).
Q: What do you see as some of the main current opportunities for the sector overall?
A: Addressing many of the domestic challenges will create new opportunities. The largest opportunity is key companies within the main sectors successfully executing their own strategies. More specifically:
- The Horticulture sectors look fairly steady and profitable, this has many signalling a willingness for new investment and growth: Kiwifruit is on the rebound from Psa, Viticulture continues to grow and pricing for Sauvignon Blanc is much more sustainable at present, the pipfruit industry is looking to expand especially in Asia. Many other smaller horticulture sectors are growing quickly, especially fresh produce into Asian markets.
- Irrigation developments provide an opportunity to improve water efficiency on-farm.
- Manuka Honey is a smaller export sector at present, but has large growth potential.
- Improving on-farm and off-farm performance in the Red Meat sector, as well as pasture renewal and crop innovation. There is also potential in the specialised livestock sectors, including goat and sheep milking.
- Maori Agribusiness and improving under developed land.
- Forestry and environmental services. New range of products that could be produced from further processed logs.
- Moving more of New Zealand’s milk into higher margin product categories, such as elderly and infant nutrition.
These are just a few of many opportunities that exist. There is a world of opportunity for New Zealand’s high quality food products and when the international operating environment improves if the key companies are successfully executing their chosen strategies the ‘light bulb’ will turn on.