New Zealand Agribusiness Report Q4 2011

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New Zealand Agribusiness Report Q4 2011 Published on August 2011

Report Summary BMI View: The New Zealand dairy sector looks set to continue its strong growth pattern of recent years, though we believe that Fonterra's dominance in the sector will draw increasing scrutiny from local officials. This is evidenced by the recent inquiry launched by the New Zealand Commerce Commission to decide if price controls on the retail prices of milk were required. We foresee export opportunities for the livestock industry particularly in South Korea and Indonesia. Key Trends * Whole milk powder production growth to 2014/15: 27.5% to 1.2mn tonnes. Long-term expansion will mainly come from export opportunities, particularly to Asia and the Middle East, which are forecast to see significant dairy consumption growth out to 2015. * Wheat production growth to 2014/15: 11.0% to 493,800 tonnes. Production will be driven by increasing demand especially from the livestock sector. * Beef production growth to 2014/15: -3.6% to 619,700 tonnes. The total herd size will likely decrease over the forecast period, as dairy expansion curbs slaughtering. The main growth driver will be export opportunities, particularly to regional consumers such as South Korea and Indonesia. The US will diminish in significance as an export destination as a result. * 2011 Real GDP Growth: 1.0% (down from 1.7% in 2010; predicted to average 2.0% from 2010 until 2015). * Central Bank Policy Rate: 2.5% for 2011 (down from 3.0% in 2010). Industry Developments New Zealand's main export destinations for its meat products are Indonesia (41% in 2010) and US (42% in 2010). We note that it is also ramping up efforts in negotiating Free Trade Agreements (FTAs) among Asian countries. While FTAs do not necessarily drive business decisions, in many cases, issues of trade tariffs as well as market access are resolved during trade negotiations. An example is in the 2008 New Zealand-China FTA. Tariffs placed on New Zealand meat products which range from 12% to 25% will be eliminated by 2016. According to data from the US Department of Agriculture, New Zealand beef exports to China have increased 51% from 5,300 tonnes in 2008 to 8,022 tonnes in 2010. On the back of complaints over higher domestic milk prices earlier in 2011, the New Zealand Commerce Commission decided to launch an investigation into whether it would hold a price control inquiry into the retail prices of milk. Complaints included the rising cost of retail milk despite low wholesale milk prices, as well as allegations that Fonterra had suppressed its share price and kept farm gate prices high so as to prevent farmers from leaving the cooperation. However, the findings of the commission have been mixed. For example, the commission ruled that on the wholesale level, there is a sufficient level of competition for fresh milk between Fonterra and Goodman Fielder, and that on the retail level, there is competition between 'two major supermarket chains, dairies, service stations and other retailers'. Thus, the report did not warrant a formal price control inquiry into milk prices.

Table of Content Executive Summary 5 SWOT Analysis 7 New Zealand Agricultural SWOT . 7

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>> Get this Report Now by email! New Zealand Political SWOT ....... 7 New Zealand Economic SWOT ..... 8 New Zealand Business Environment SWOT .. 8 Industry Forecast Scenario ..... 9 New Zealand Livestock Outlook . 9 Table: New Zealand Poultry Production, Consumption & Trade 10 Table: New Zealand Pork Production, Consumption & Trade .... 10 Table: New Zealand Beef & Veal Production, Consumption & Trade . 10 Table: New Zealand Poultry Production, Consumption & Trade 13 Table: New Zealand Pork Production, Consumption & Trade .... 13 Table: New Zealand Beef & Veal Production, Consumption & Trade . 13 New Zealand Grains Outlook... 15 Table: New Zealand Wheat Production, Consumption & Trade .. 15 Table: New Zealand Corn Production, Consumption & Trade .... 16 Table: New Zealand Barley Production, Consumption & Trade . 16 Table: New Zealand Wheat Production, Consumption & Trade .. 17 Table: New Zealand Corn Production, Consumption & Trade .... 17 Table: New Zealand Barley Production, Consumption & Trade . 17 New Zealand Dairy Outlook ....... 19 Table: New Zealand Milk Production & Consumption ....... 20 Table: New Zealand Butter Production, Consumption & Trade .. 20 Table: New Zealand Cheese Production, Consumption & Trade. 20 Table: New Zealand Whole Milk Powder Production, Consumption & Trade .... 21 Table: New Zealand Milk Production & Consumption ....... 22 Table: New Zealand Butter Production, Consumption & Trade .. 22 Table: New Zealand Cheese Production, Consumption & Trade. 23 Table: New Zealand Whole Milk Powder Production, Consumption & Trade .... 23 Commodity Price Analysis .... 25 Monthly Grain Update ..... 25 Corn .... 25 Rice ..... 26 Soybean ...... 27 Wheat .. 28 Monthly Softs Update ....... 29 Cocoa.. 29 Coffee.. 30 Palm Oil ..... 31 Sugar .. 32 Downstream Supply Chain Analysis .... 33 Industry Forecast Scenario ...... 33 Macroeconomic Forecast ... 33 Table: New Zealand - Economic Activity, 2008-2015 . 34 Fonterra Has a Growing Appetite for Emerging Market Exposure ..... 35 BMI Forecast Modelling 41 How We Generate Our Industry Forecasts ...... 41

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