Episode Transcript
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(00:10):
Welcome to Blue Sheet Diary, a peg writes and podcast about and
for our farmers and growers. My name is Milton Monroe, your
host and technical team manager.The war in Iran continues and
the impacts are cutting deeper and deeper.
Petrol is up, diesel is more expensive than 91 in some
places. The cost of inputs and
commodities are up to is to is the uncertainty.
(00:32):
Well, about everything about this.
I know where farmers and growersare worried.
And so to get a bit of our understanding of what is
happening to our economy, we turn to Simplicity Chief
economist Shama Bill Yoakam. He joins the conversation now.
Welcome to the show, Shama Beer.Sure.
Still early days. It's hard to believe just given
(00:53):
how much the Iranian conflict has been dominating the news,
Michael, it's still hard to believe.
It's only a few weeks old and we're still feeling the the
short sharp shock of it. Do you think that there's
there's a, is this going to settle down?
We move into a bit more of a projected projected protracted
long term conflict and we'll seea little bit of seedling or is
(01:17):
this still going to be quite a quite a rapidly developing
scenario? It's very unpredictable.
That's because it all depends ona crazy man in Washington.
So who knows what will happen. So I think for us, it means we
can't predict what will happen. So we need to focus on the kinds
of things we can control. My base case is this will be a
(01:39):
protracted conflict. Just because the Middle East is
just so volatile and so tense that even if the specific war in
Iran stops, doesn't mean the Middle East becomes safe.
You know, it's probably a reallya kind of a valid point.
We've already seen the Reserve Bags, Reserve Bank signalling
(02:00):
they're not going to respond to to short term price changes.
They're still trying to see if they can understand a little bit
of the shock and awe at the moment.
But how long do you think it's going to last before they're
going to be forced to act and look at things like inflation
and look at cash rates? I'd be extremely disappointed if
the Reserve Bank raised interestrates because there is a global
(02:21):
oil shock and we're facing down the barrel of stagflation.
It would be the stupidest policymistake we could make.
We should not be raising interest rates in the middle of
one of the biggest supply shocksin living memory.
We should only be raising interest rates if it turns out
that not only do we have the first level of price increases,
even fuel, fertiliser, plastics,those kinds of things, but also
(02:44):
that it's coming into things like wage increases until you
see that that's when inflation becomes problematic like it did
in New Zealand in the 70s and 80s.
So we should absolutely not be raising interest rates.
Are you know, we should not be planning to raise interest rates
because if it did, we would havean absolute.
Catastrophe. For the economy.
Well, let's try and do everything we can to avoid a
(03:05):
catastrophe there. One question I have got for you,
some of you is let's just say the, the, the, the main man in
Washington changes his mind, wakes up tomorrow and goes, you
know what? We're not putting boots on.
We're not putting boots on the ground in Iran.
Lucy and everything. And we'll walk away.
(03:25):
Is that the end to the pain at the pump?
I think there are two things going on.
One is just the disruption related to the Strait of Hormuz
and the war in Iran. The second is just a wider shift
that's taking place in terms of the capacity to refine fuel, the
shipping lines, the cost of insurance and all those knock on
(03:46):
effects that have taken place. So there is a lot of, I think
lingering effects that will comethrough that are sometimes
negative for us and some of it will be positive for us.
And the negative side of the Ledger I think is the
disruptions to things like fertiliser, to refining
capacity. Those are things that will
probably go on for a little while.
The consequence of that is the world is going to be short of
(04:07):
food. So we'd like to see much higher
price of food over the course ofthe coming 12 to 18 months,
which is going to be very good for our farmers.
So it is going to be very much acase of give with one hand, take
with the other. You talk about some some higher
prices and I was just reading anarticle only this morning that
some of the predictions they've got are seeing probably some of
the cost of inputs. So things like fertiliser and
(04:29):
the agrochemicals that are, thatare directly derived out of the
petroleum industry could be rising as high as 30% and it's
30% increase in cost. Do you think that will be
translated through to the, the, the actual cost of food?
You know, you've already mentioned there, this could be a
(04:49):
potential upswing for our growers, but it'll probably
almost be a, almost a wee bit ofa net zero if their cost of
production is going up. There will be just if the price
of food goes up, it will be there to match the cost of
inputs, wouldn't it? Sadly, a big increase in oil
prices almost inevitably linked with the reduction in food
production globally because so many poor parts of the world
(05:10):
simply cannot grow food. So the sad reality is we are
probably going to see increasinghunger around the world and
price of food will go up a lot more than the cost of imports.
So it's not necessarily a silverlining from a humanity
perspective. That's certainly from a farming
perspective. I think we are going to see
prices rise a lot more than the costs.
Interesting because I mean we did see the New Zealand primary
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sector was on a bit of an upswing, certainly in the rural
side, chic beef deary confidenceand profits were on the rise.
Are we going to see a bit of short term stagnation and then
maybe that swing continue or? It had been very positive.
I was done in Balclutha and the mirror of the Clutha district
took me out to a shearing competition.
(05:54):
The sheep farmers were smiling. I don't know the last time I saw
that happen, you know, good price of for wall, good price
for meat, it was looking really good.
And it had been very much an economic recovery led by the
provincial rural economy over the course of the last 12
months. So this really does come at a
bad time. Just as we were coming out of
the difficulty year kind of a seasoned couple of seasons ago,
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things were pretty tough. And so this was really kind of
bringing things back together. There's a real challenge here in
terms of this sudden increase incosts means that they don't have
room to move, but also there's awhole lot of uncertainty about
what happens with the people whobuy our stuff because they are
just as affected by the increasein fuel prices and things as
well. So there is this kind of this
weird dynamic at the moment, anda lot of it I think is going to
(06:39):
be around uncertainty and risk and how farmers respond.
My advice would be like any crisis, take a pause, take a
breathe, breath and think about what are the kinds of things you
can focus on. What can you do in terms of
production, what can you do about your people, what can you
do about your costs, because notevery cost is fixed.
(07:00):
Things like fertiliser, we know fertiliser application can
change in terms of timing, we know that we can think about
doing things in a much more precise way.
We were chatting about this verybriefly before Milton.
Through every crisis we come outstronger because people are
forced to find better ways of doing things.
So this can also be a catalyst for those investments and
(07:22):
changes that many businesses canmake.
You're quite right. You know, we've we've been
through and within a number of storms over the years from the
2008 global financial collapse to to the times after COVID.
It is an opportunity to to to find those things that are
controllable, find those levers of production that you do have
(07:43):
some influence over, and look totry and make them as efficient
as you possibly can. I would highlight the people
aspect. I think quite often in farming
we focus a lot on the farm and forget that our HR practises are
actually quite a big part of ourcosts and a big part of our
risks. So particularly in the current
environment, think about the fact that it's not just you
facing the increase in costs, it's also your work.
(08:05):
Is that your suppliers? Everyone inside their supply
chain is all in it together. The cost of living affects us
all equally. That rising tide lifts all
boats, so to speak. One question I do have for you,
some of you is around some of our global supply chains.
You know, we, we're talking to some of the, the multinational
(08:27):
companies at the moment trying to get an idea and, and they all
seem to be reasonably confident at the moment that supply chains
haven't been grossly affected inthe short to medium term.
They're confident of supply leading into the spring.
Is that liable to change? I mean, I guess we're the
impacts that are happening within the, you know, the flow
(08:49):
of oil through the Strait of Hormuz, yet spoil that's
probably bound into, you know, bound for refinement and
enterprise sticks and into agrochemicals and things
probably 6 months to a year fromnow.
Are we going to see a, a bit of a longer term impact on supply
chains? We might not feel it this
(09:10):
spring, but maybe next spring wecould be in for an interesting
period. Look, the lesson from COVID was
when production is curtailed, you can still get it, but you
have to pay a lot of money and you may not get it exactly when
you want it. It's a little bit like 19,
eighty, 70s and 80s New Zealand.You can have any car as long as
this one, and I think there's anelement of there that we have to
(09:33):
be prepared for. You might not get exactly what
you want, but there will be substitutes available.
The lucky thing for New Zealand is that we are a relatively rich
country. When these kinds of shocks
happen, we can still buy it and outbid other people.
So if global production falls, it's not going to be us that
necessarily misses out, it's probably going to be people who
can't afford it. So there is a little bit of
(09:53):
comfort in there that we can getit, but we just need to think
about it. The reason we can get it is
because we're able to pay pricesthat other people can't.
Further down, a question here, but do you think we are
potentially heading for another global financial crisis?
But we have a cheery lot today. And we?
It does seem a little bit like that.
I'm gonna, I'm racking my brain to try and think of a really
positive question to to finish this out on some of them.
(10:16):
Look, we need to be mindful of the risks when we get shocks
like this, when we see, you know, financial markets that are
really quite uncertain about what's going on.
It could go any in any direction.
I think we can't see the feature.
So you don't want to become trapped in this negative
thinking of going, everything isgoing to be terrible.
(10:36):
And, you know, yes, there are lots of risks to the global
economy, but we still don't knowhow it will unfold because it is
a very rapidly developing thing and it could change very quickly
at any point in time. The more important thing to
think about is, given what's going on outside, make sure you
have a plan A Plan B and a plan C.
What if things are terrible? What if things are okay?
(10:58):
And what if things are amazing and having those plans means
that you are able to move and pivot to whatever works out?
So I know it's some, it seems like a lot of mental energy to
spend on something like this. But in this day and age, we have
access to so much good, so many good tools in artificial
intelligence, a really great partner to think about these
(11:19):
strategies and how to develop different kinds of plans in the
current environment. So it doesn't have to be a big
plan, but I think it has to be aplan of what you do if things
are good, if things are okay, and if things are terrible.
I think that's a yeah. It's a really powerful piece of
information there, and it's onlybeen one of my mantra when I've
worked with farmers over the years is to have a plan.
(11:41):
A plan can give you a little bitof control when things are
uncertain. You know you've at least got
options we can get If this happens, we go in this
direction. If that happens, we go in this
direction. But without a plan, you do tend
to be a little bit rudderless sometimes and the risk is you
find yourself moving in circles.Absolutely.
(12:02):
And Milton asked to do this roadtrip with Dairy Women's Network
and Dairy New Zealand around thecountry.
And what I found even during thetoughest economic times is that
there were some businesses that were absolutely killing it.
You want to be that business and.
Certainly do. It's in the same industry, but
somehow some people make it workand we are so lucky in New
Zealand that most of our farmingcommunity has such a strong peer
(12:24):
network and people are so generous with sharing their
knowledge and ideas. And I think that's one of the
things that we can do in the current environment when things
feel a bit uncertain and it's scary talking to your peers,
your neighbors, your friends. That's a really powerful network
that we have in New Zealand thatI think not doesn't exist
everywhere else. You're quite right.
It's certainly something something we've already talked
(12:45):
about today and a couple of other interviews, that sense of
community we have as a primary industry.
We do have the ability to rally around each other.
And I guess in these uncertain times, we can lean into that
community to support ourselves. Where can growers and farmers go
to to get a little bit of helping hand in in building some
(13:05):
of these plans? Are there there's some options
out there in the market? Ohh, absolutely.
I mean, you know, most of the industry bodies will have tools
for you to be able to do that. But like I said, also just
artificial intelligence is so good right now that for these
kinds of tasks, developing a small plan that suited just for
(13:25):
your business, it's really easy to do.
If you haven't tried it yet, give it a go.
It's not perfect, but it will get you started.
Gives you a good starter for 12,it gives you a nice 80%
something that you can add in a little bit more of your own
personal flavour to to try and round it out.
But it certainly is an advocate for AI inside our business.
(13:45):
I highly recommend it as a, as afantastic starting place to
evaluate some of those concepts and ideas and strategies you
might have rattling around inside the brain.
Well, look, thank you very much for your time today, Somerville.
It's been, it's been insightful to to get a little bit of
context around the certainly theinstability we find ourselves at
(14:09):
the moment. And I think there's some really
good take home messages to our growers and farmers to get out
there. Lean on your support networks,
start building your plan. You have a I crack and try and
see if you can be one of the ones who are can weather through
this storm and come out slightlybetter off.
Thank you very much for your time, Summerville.
Much lovely to meet you both. Thank you for having me.
(14:31):
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