Ngā Piki, Ngā Heke - Key Opportunities and Challenges

The Āti Hau Group has again looked at material issues that are a risk or opportunity, and that could impact our business performance over the medium or long term. These risks and opportunities continue to inform our strategic priorities, and this report is structured around those priorities.

Climate Change

The impact of climate change on local weather patterns is forecast to lead to an all-year-round increase in temperature, heavier rainfall events (causing erosion) and longer summer dry periods (reducing stock access to water).

Climate action, or a lack of it, is likely to become a barrier to international trade in the future. New Zealand’s current requirement to reduce farm emissions – once technology becomes available to support this – increases the likelihood of this requirement being imposed on us in the future.

Beef and Lamb

We anticipate a slight recovery in pricing across beef, milk and lamb over the 2024/2025 year with beef and milk recovering faster than lamb. Beef prices are being supported by greater demand from US markets, while lamb sales are impacted by the Chinese market where demand has been slower to pick up and the market is exposed to increased supply from Australia.

Looking to the future, product prices are likely to remain below historic peaks due to an increase in world supply (both from other export nations and those countries who desire increased food security and therefore produce more domestically), an increase in protectionist policies internationally (including restrictions that are climate driven) and greater competition from substitutes (i.e. cheaper products or those that have a lower carbon intensity). We will need to adapt to this new normal, with lower cost structures and greater innovation.

Honey

Honey prices are likely to remain depressed due to the historic production exceeding demand across New Zealand, resulting in the significant buildup in national honey inventory.

Hive numbers in New Zealand continue to decline, reducing national honey production and inventory levels. This will eventually lead to an improvement in price, but it is difficult to predict when this will occur given an unknown volume of national honey levels.

Carbon

Carbon credits have increased the possible returns from forestry (both rotational timber and permanent stands). However, the NZ emissions trading scheme (ETS) remains volatile and is subject to legislative change. Currently, central Government has promised to bring more certainty into the market but that has yet to be seen, with a large credit stockpile creating supply pressure. A possible reduction in Government ETS Auction Volumes may reverse this.

Interest Rates

Interest rates are likely to remain elevated over the medium term, putting pressure on cashflows and requiring a reduction in our borrowings to achieve growth and distribution objectives.

Production

Applying high standards of care toward the whenua and kararehe (animals) and improving our farming systems and practices will have the biggest positive impact on our future production. This means lifting ahuwhenua performance – both farming and apiary – and considering ways to generate additional value within those businesses.

A warming climate brings both productive benefits, including increased winter pasture growth and more time to build up hives prior to placements, while key risks include new pests and diseases, or the same pests and diseases in greater numbers having survived a milder winter.

Diversification / Investments

While the Āti Hau Group has diversified across the primary sector on the whenua, these operations generally provide capital growth but lower cash returns than other asset classes, and profitability is subject to favourable climatic conditions. In addition, increased operating costs continue to make farming economically challenging. This means that optimal land uses need to be regularly explored in the future.

As our shareholder numbers continue to increase, so too does the challenge of connecting our shareholders to the whenua. Providing a meaningful, dependable and sustainable level of distribution to our shareholders, as well as value through non-dividend channels, will require higher cash returns and adequate levels of reinvestment from a broader range of assets. It is necessary to consider a longterm investment strategy that is intergenerational, driven by our values and māturanga Māori.