UPFRONT INVESTING IN DAIRY
INSIGHT
Back to the land
The Covid-19 pandemic has helped focus investors on the possibilities of the dairy industry. Phil Edmonds reports.
“Inevitably you will get ambivalent investors, who will be looking at dairy more favourably.”
T
here’s no chance we’ll look back fondly on the events that have unfolded this year, but there’s no getting away from the fact that it’s taken the catastrophe to help light investors' eyes again to the merits of dairy. Milk prices are up against initial odds, demand for New Zealand dairy products has not slowed and after some business model resetting, farm profitability is returning. The questions now are will new investors follow the numbers? If not, why not? First, the helicopter view. The unprecedented low interest rate 14
environment created by the economic upheaval has sharpened investors' focus on yield. With returns in every sector of the economy squeezed, and some facing structural challenges that present newfound risk, attention is inevitably falling on those propositions that look more stable. At a cursory level, those with just half an ear tuned to sector fortunes will have noted global milk price resilience (contrary to many expectations) as other commodities (especially non-food related) have emerged from Covid-19 less assured. Westpac senior agri economist Nathan
Penny says while dairy returns have not been excessive, they haven’t taken a hit like others. “Inevitably you will get ambivalent investors, who will be looking at dairy more favourably.” To be clear from the outset, dairy is not all of a sudden a beacon of light, nor is it necessarily getting more attention than other food sectors. Indeed, fresh stardust has settled across all agriculture since the world turned upside down earlier in the year. During the first wave of lockdowns – in NZ and overseas – access to food was one
Dairy Exporter | www.nzfarmlife.co.nz | December 2020
