Boom Going Bust?Friday, Dec 15, 2000
The rise and subsequent decline of farm commodity prices has been a part of rural business for centuries.
In earlier times it was primarily influenced by good or bad seasons causing over or under supply
- some times over a number of years.
In recent years commodity price cycles seem to have been shorter at their peak with longer troughs and
seem to be less to do with real prices and more to do with the artificiality of exchange rate relationships
or international state purchasing arrangements such as used by China, Korea or Iran that
intermittently absorb large volumes of commodity production.
The warnings are out that the current price cycle has peaked. Wool has declined; spot dairy prices are
flat to declining, with meat prices mixed. But the analysts are in agreement that the mini rural
income boom has been price rather than volume driven. Price - based on a low exchange rate - not
a real improvement in market return.
NZ farmers are left to shrug and say 'that’s the way it is' and manage the limited income they
receive to best advantage.
It seems that farming is committed to a dismal future of mini boom and bust unless steps are taken to
obtain a better and more direct and stable relationship with the retail consumer of our products.
Individual organisations have had varying degrees of success in getting closer to their markets but
inevitably suffer from limited market power in the highly competitive but high return retail markets.
The dairy industry has created the most likely structure to match the large and further consolidating
retail organisations that manage the flow of products to the consumer. But even that structure is
wavering as industry politics struggle to sort out priorities of purpose. Capital return or farm
Niche marketing has had its advocates and some visible recent success such as the merino wools production
of sophisticated quality retail products under its promotional umbrella.
But in most instances niche marketing is too small in scale, relying on individual entrepreneurial skills
and hard work that is not sustainable and soon turns into disillusionment.
It seems that our primary industries are aware that we have to move on from the structures of the past
but a consensus on what the future structure and purpose of industry organisations should be is
still beyond our grasp.
And so we commit to more mini boom and bust.