Bank 'bullish' on food

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Strong growth in world demand for food will carry New Zealand through the worst of the global financial crisis, according to BNZ national managing partner Tony Arthur.

"The drivers of demand are entrenched, particularly in China. I am very very bullish," he told a Guild of Agricultural Journalists conference in Wellington on Saturday.

Growth in China's economic zones had brought a westernisation of culture and a step-change in dietary habits. Growing consumption of protein and complex carbohydrates was driving international dairy price rises and was beginning to lift beef and lamb prices.

This would only keep on increasing at an "unbelievably staggering" rate.

Forecasts had China as the likely dominant world economy globally after 2040. It would be joined by other developing countries in growing the world's newly affluent middle class projected to be 1.2 billion people by 2030, a 300 per cent increase over 2005.

The world's food stockpiles were falling. In 1945 the world had 365 days of food available in warehouses; now it had 35 days.

The United States' subsidised diversion of corn feed to biofuel had further reduced stockfood supplies and increased food prices. At the same time, Australia was reducing its sheep and cattle numbers.

The drop in the New Zealand dollar exchange rate was also helping, providing a buffer to the slight easing in dairy commodity prices and strengthening the sheep and beef gains.

All this presented New Zealand, with its unique agricultural economic strength, with huge opportunities.

BNZ expected "significant" increases in lending as dairy conversions continued and sheep and beef farming strengthened.

However, Mr Arthur said there were also challenges to be overcome. He thought New Zealand exporters had a "fixation" on Britain. "We sit on the footsteps of Asia but in Shanghai all I see is Australian lamb and Australian beef."

New Zealand's story was not being told. "I go to the largest agribusiness operator in China and he doesn't know anyone from New Zealand. He buys lamb and beef out of Australia, he's bought yoghurt out of Australia. I find it of concern."

In New Zealand, the biggest concerns were rising on-farm costs and increasing land values. The cost of borrowing would also increase.

The new emissions trading scheme was another potential problem, which the bank was factoring into risk scenarios.

- © Fairfax NZ News