Uncertainty on the world trade front is taking the gloss off what is looking like being the third good year in a row for New Zealand agriculture, says Rabobank NZ chief executive Todd Charteris.
The Dutch-owned bank believes favourable production conditions and strong commodity pricing are likely to continue throughout 2019 and, with an anticipated weakening of the kiwi dollar, will set up a further profitable year for farmers across the major agricultural sectors.
“Commodities markets are really, really positive, which is fantastic,” Charteris told the Herald in an interview. “But there are these uncertainties on the horizon.”
Among them were the fallout from rising trade tension between China and the United States and likely changes to our trade relationships with Britain and the European Union once the UK exited the trade bloc. There were also big challenges on the domestic environmental regulatory front and changes afoot for DIRA — the legislation governing the dairy industry.
“Farmers have been dealing with a lot of these aspects for quite some time now, and our role is to help support them through that,” said Charteris, appointed CEO a year ago.
In its latest financial stability report, the Reserve Bank said indebtedness remained high in the agriculture sector, particularly for dairy farms. And according to Reserve Bank data, Rabobank NZ has the highest proportion of non-performing loans among the banks at 2.5 per cent.
But Charteris said he was happy with the bank’s loan book: “We don’t expect to see any significant changes to the performance of our loan book — we have a well-performing book.” Actual losses and the level of provisions remained very low.
The rural lending specialist’s customers were taking advantage of higher product prices to consolidate and repay debt. Farmers’ property acquisitions had also slowed.
Charteris supports the Agricultural Debt Mediation bill, due to go before Parliament this year. The proposed legislation will put in place a mandatory mediation process before a receiver is appointed in respect of agricultural debt.
Another aspect of the changing regulation will be in the form of the Reserve Bank’s plan to improve banks’ capital adequacy levels, likely to be phased in over five years. Rabobank NZ, which retained its earnings instead of paying a dividend to the parent, was already well capitalised, he said.
“One of our advantages is that ever since we have been in New Zealand, all our profits have been retained here so we have never paid a dividend.”
Over the year, Charteris said he expected the level of uncertainty faced by farmers to reduce.
Rabobank NZ, country’s sixth biggest bank, said in its latest agriculture outlook that milk production this season was likely to be a record, but that it would be hard to replicate in 2019/20 due to land use competition and environmental constraints.
Economists are also looking at revising up this season’s farmgate milk price forecasts into the low $6.00s per kg of milksolids.
The bank expects beef prices to hold above their long-term average levels, farmgate prices for lamb and mutton to remain elevated and that horticulture exports will grow.
This article provided by NewsEdge.