Buoyant agriculture set to benefit NZ economy – FMG chairman
New Zealand is set to benefit from a buoyant agriculture as high commodity prices throughout the industry begin flowing through to the rest of the economy, predicts Greg Gent, chairman of FMG insurance company.
The agricultural sector has never had higher commodity prices, Mr Gent said at a media briefing on FMG’s annual results at the Mystery Creek Fieldays in Waikato this morning (Wednesday 15 June).
Typically it took 18 months for the benefits of a buoyant agriculture to flow through to the rest of the economy, he said.
“We’ve been through a fascinating period. We’ve got a global recession but mixed with that, we’ve probably never had higher commodity prices. Certainly in my time in agriculture, I’ve never seen all sectors buoyant at the same time.”
Mr Gent said farmers were using this year to consolidate debt under pressure from the banks so the benefits hadn’t yet filtered through to the rest of the economy. He saw this year as a bellwether for the future, particularly as it looked like commodity prices in the next year would also be high.
“The difference will be a bit of freeing up from the banks, farmers having got their balance sheets in better order.
“What typically happens is when agriculture does well, there’s normally an 18-month lag before we start to see the rest of New Zealand improve. I’d like to think, Christchurch aside, that we’ll begin to see that this year.”
The driver for the buoyant prices could be seen around the developing world – in particular, China, India and Indonesia which contain nearly half the world’s population.
“China’s obviously large for us and our government’s working very hard on getting a free trade agreement with India. If we can pull that off, that will give us a nice balance.
“That is what is underpinning our future. Those developing nations are getting wealthier quickly and they need feeding. As long as that story continues, I think we’ve got a lot to look forward to.”
FMG Contact:
Andy Earnshaw Glenn Croasdale
04 460 4015 04 460 4075
andy.earnshaw@fmg.co.nz glen.croasdale@fmg.co.nz
TRANSCRIPT OF FMG CHAIRMAN GREG GENTS’ SPEECH:
This will be a year everyone in New Zealand will remember. But my greatest memory will be the huge pride I’ve had as FMG chairman in our staff. We’ve asked a lot of our staff this year. They’ve had to deal with their own personal issues but also with fronting up on behalf of the company to deal with the issues that our customers are having. And they’ve done that superbly. There are a couple of executives not here today because they’ve been called back to Canterbury. I’ve got a massive pride in what our people have done. Our customer satisfaction levels couldn’t be higher - and in probably the most testing time we’ve been through for a very long time.
If you look at the wider New Zealand economy, our success relies on the success of rural New Zealand. We’ve been through a fascinating period. We’ve got a global recession but mixed with that we’ve probably never had higher commodity prices. Certainly in my time in agriculture, I’ve never seen all sectors buoyant at the same time. And we’ve actually achieved that this year.
We haven’t seen that come through to wider New Zealand yet and I think that is because the banks have kept the pressure on farmers. Lending to many farmers was at the top end so most farmers have used this year to consolidate. Overdrafts, I understand, from some of the leading banks are largely gone. As one of the press releases we put out earlier today says, this year could be a great bellwether for what the next year is looking like.
If you look at next year, commodity prices again look like they’ll be high. But I think the difference will be a bit of freeing up from the banks, farmers having got their balance sheets in better order over the last year. I’d like to think we’ll see some of that come through to the wider New Zealand economy.
What typically happens is when agriculture does well, there’s normally an 18-month lag before we start to see the rest of New Zealand improve. I’d like to think - Christchurch aside - that we’ll begin to see that this year.
The driver for that is fascinating. It’s all around the developing world. If we look at China, India, Indonesia, a little under half the world’s population lives in those three countries. China’s obviously large for us. Our government’s also working very hard on getting a free trade agreement with India. If we can pull that off, that will give us a nice balance around exports to wider Asia. New Zealand currently has a very heavy reliance on China, so we would achieve a nice balance of just over a billion people in each of those geographies.
That is what is underpinning our future - those developing nations that are getting wealthier quickly and that need feeding. As long as that story continues, I think we’ve got a lot to look forward to and New Zealand will have a good year coming up, which we certainly need to see floating through to the rest of the economy.