Commodities boom for all except those who produce it

Federated Farmers is dampening down expectations of the private and public sector following a recent surge in the ANZ commodity price index.

“I don’t wish to be the grinch who stole Christmas, but the amount of counting chickens going on right now masks a rural sector being tripped up by public policy,” says Philip York, Federated Farmers economics and commerce spokesperson.

“There’s an automatic and downright dangerous assumption that farmers are direct beneficiaries of a bounce in soft commodities. A bounce that saw ANZ’s commodity price index 50 percent higher at this point than last year

“The meat sector’s structural issues and a high Kiwi dollar is denuding the value return back to our protein farmers. You take one step forward in terms of overseas price and almost one step back with the Kiwi.

“What’s truly encouraging is that despite the wool levy’s demise, we are now seeing a welcome, if small uplift in wool prices.

“Yet getting the Kiwi dollar to a realistic level that balances the domestic and export economy has seen Federated Farmers engaging at a high public policy level. We’ve run the first in a number of ‘Chatham house’ meetings to go through options.

“But my fear is that people will believe the price per kilogram in supermarkets goes straight into farmer’s hands. In fact, we only get a fraction of that value as the average pre-tax profit for a sheep and beef farm in New Zealand is forecast at just $39,800.

“With dairy, last week’s speculation of a record 2010/11 payout completely omitted that the 2009/10 season started from a base where most farmers were at or below break even point.

“The Ministry of Agriculture & Forestry’s (MAF) own modeling for the current season puts the break even point for the bottom ten percent of dairy farms at $6.06 kg/MS and even for the leading ten percent, it’s at least $4.26 kg/MS.

“Federated Farmers Grains Council has gone to the Commerce Commission with a well constructed complaint about unfair trading and pricing in our arables sector.

“Given there is also a weight of new compliance costs about to fall on farmers, from ACC levies, the emissions trading scheme and animal identification and tracing (NAIT), the private and public sectors have to realise farmers are no ATM.

“If there are windfalls then the priority for farmers will be to address debt before looking to productivity. The risk is that local and central Government may hike rates, fees and charges on an assumption of wealth that is illusionary.

“Farmers must make hay while the commodities sun shines because the short to medium term international horizon is anything but clear,” Mr York concluded.