The invasion of Ukraine pushing up prices

Te Whanganui-a-Tara - How will the New Zealand agriculture sector be impacted by the Russian invasion of Ukraine?

Russia and Ukraine are minor trading partners for New Zealand. However, Kiwi commodity food exports are likely to experience upward  price pressure as global supply tightens, according to the latest ANZ Research report.

The invasion of Ukraine is also pushing up fuel and fertiliser input costs and it is adding to global inflation and means the Reserve Bank of NZ has yet more work to do.

The economic impact of the conflict will be most acutely felt in neighbouring European regions

that have a strong trading relationship with Russian and/or Ukraine.

The impact on New Zealand and its agriculture sector will mainly be indirect, as the trading  relationship between New Zealand and Russia has diminished over the past twenty years.

Russia now accounts for just 0.4 percent of New Zealand’s good exports. That puts Russia down at number 27 in terms of their importance as a trade partner. New Zealand’s trading relationship with Ukraine is even smaller.

The Ukraine situation is a human tragedy that has the potential to get considerably worse yet. It’s an immensely complex and uncertain situation in terms of geopolitical and economic ramifications.

Putting the narrow lens of the New Zealand agriculture sector’s fortunes over the situation, it’s a matter of counting the blessings.

While higher energy and fertiliser prices will drive input costs up further, and global supply chains both in and out could become yet more tangled, as a nation we do have a natural hedge, insofar as we are a large net food producer.

However, while higher import and export prices might offset each other from a national net income point of view, it’s a very inflationary mix, particularly when you take into account all the indirect impacts of higher energy prices on goods production.

And the risk aversion that’s putting downward pressure on the NZD just adds to imported inflation. All else equal, that means more work for the Reserve Bank to rein in roaring inflation and that job was looking pretty daunting already.

It means more pressure on everyone from lower-income households who face still-higher petrol and food prices, to those who have to service debt, the report says. And while New Zealand’s commodity exports will benefit from higher prices, the conflict will spell tougher times for New Zealand’s other exporters, if global growth takes a hit.

Dairy products, particularly butter and anhydrous milkfat, account for much of the goods New Zealand sends to Russia. New Zealand has supplied butter to Russia for decades.

New Zealand also exports some apples, wine and kiwifruit to Russia, but the volumes are not particularly significant.