Tighten your belts, farmers’ warning for Manawatu

Manawatu’s economy will tighten in the next six to eight months, Federated Farmers is warning but the Manawatu Chamber of Commerce predicts it will only be a notch.

“The rural sector is at a low point at the moment, and it’s more to do with the uncertainty of regulations and what is expected of them,” Feds Manawatu-Rangitikei president Murray Holdaway said.

Lower dairy prices, rising inflation and global market uncertainty were contributing also, which he said would all inevitably impact a rural based economy such as Manawatu’s.

“In terms of the next six months we’re on a downer. Dairy prices were really good until two to three months ago.”

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In the first Global Dairy Trade auction for 2023, overall prices dropped by an average of 2.8 percent from the last auction where it fell 3.8 percent.

“They’re down for a variety of reasons, particularly because of China’s Covid policy of locking people down.

“Chinese people going out for meals and having dairy has declined significantly. China is not buying as much as in the past. It has put a significant constraint on the dairy market.

“Now China has abandoned its Covid policy there’s uncertainty as to what will happen about whether China demand will return. How long it takes we don’t know.”

He said consumers around the world were spending less adding to the uncertainty and rising inflation was hitting the rural sector as hard as urban dwellers.

Infometrics has reported food price inflation recently reaching a 32-year-high, business confidence plunging and the probability of house prices dropping.

“It’s not business as usual, it will impact our local economy,” Holdaway said.

“Our costs, fertiliser, energy costs are running higher than the general inflation rate.

“People talk of inflation hitting people on wages, it affects all small businesses and farmers.”

The result would be farmers spending less which, he said, would have consequences locally.

“There will be a significant impact for our economy. With the dairy payout down farmers will say they can’t afford capital expenses.”

Manawatu Chamber of Commerce chief executive Amanda Linsley said some belt tightening would occur.

“Maybe a notch, more out of uncertainty and with the cost of living crisis a global phenomenon, businesses will be cautious when they are looking for stability.

“However, for many their biggest problem still remains the skills shortage and this is across every sector.” She expected some reduction in retail spend. But this hasn’t played out as yet in the region from the data to end Q3.

“The biggest concern is rising costs and interest rates.

“Dairy is a strong contributor to the economic performance of our region and a reduction in the price of dairy coupled with the increased costs and interest rate rises will have a knock-on effect from the rural sector to the urban, they are not mutually exclusive.”

Looking at the wider picture for the Manawatū region, she said economic performance had remained strong comparative to the national economy.

“This is partly due to the economic activity in terms of capital projects, infrastructure and construction, across the region and the high employment rate.

“ Both of these have helped and will continue to help soften the recessionary pressure for our region.

“Regionally, property prices are down 13.9% based on the December 2021 figure which isn’t unexpected given the huge hike in the previous 12 plus months, but demand is still strong, and not likely to significantly change in the next six months.

“Another good indicator is new car sales. I don’t have the current data, but last year’s data continued to track high. We will of course be watching what the banks do to see what impact there is on discretionary spend.

“Overall, I believe the region has some cushioning to help soften recessionary pressure and whilst business may have to hold fast that there could be opportunities for the region.”

Meanwhile, like dairy, Holdaway said the outlook for sheep and beef had been bright three to four months ago. That had changed.

“Lambs sold at $10 a kilogram, now they’re talking of $6. That will hit us. We are the most intensive lamb finishing region in the country.”

With most farmers having debt, some of them big debt, Holdaway said overall in the next six months farmers would be cutting spending.

He encouraged urban dwellers to support the rural community.

“We are the producers of the food in the supermarkets. We understand urban people will have tight cash flows, but please understand farmers will close their cheque books for the tough times.

“Farmers are doing it for the right reasons, to ensure businesses endure into the future.”