New Zealand Two-Speed Growth Gets Boost From Farms as Cities Lag

Christopher Luxon, New Zealand's prime minister, greets an attendee at the National Fieldays on June 10. Photo by Becki Moss /Photographer: Becki Moss/Bloombe

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(Bloomberg) — In 30 years working in New Zealand’s agriculture sector, Mark Leslie can’t recall a sweeter spot of strong commodity prices and cooperative weather.

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“It is a good time to be a farmer,” says the chief executive of Pamu Landcorp Farming Ltd., New Zealand’s state-owned farming company that manages more than 100 farms across the country. “It’s not often you get good prices for products, and products right across the board, but at the same time, climatically, most of the country’s had a pretty good year.”

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Leslie has spent the last few days at the National Fieldays, an agricultural exhibition held in the dairy rich North Island province of Waikato. The mood is buoyant: Incomes are up thanks to high prices for commodities ranging from milk to meat, while balance sheets in the dairy sector have been strengthened by a capital return from milk processing giant Fonterra Cooperative Group.

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But the windfall is largely confined to regional towns. While food makes up nearly two-thirds of all exports, its overall contribution to gross domestic product is less than 15%. That’s created a two-speed economy with the majority of the population based in urban areas battered by high living costs, a weak labor market and falling housing prices.

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“If you go into rural towns, they’re pretty buoyant at the moment,” said Leslie. “It’s probably different when you think about the center of Auckland or the center of Wellington.”

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Among the thousands of farmers and those servicing the sector who came to Fieldays is Dave Knowles, sales manager at CNH Industrial, which sells Case and New Holland tractors. He’s been coming to the expo for over 20 years and said this year the vibe is good: “People are shopping, there’s a lot of conversations, there’s a lot of genuine interest.” 

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Prime Minister Christopher Luxon needs some of that rural confidence to spread into the big cities and stoke growth ahead of the Nov. 7 election. His National Party, which has governed since 2023 in a coalition with two junior partners, is neck-and-neck in recent polls with the main opposition Labour Party.

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National traditionally relies on rural voter support and under Luxon the government has taken a number of key steps to lock that in. Last year, his government lowered the nation’s methane emissions target and opted not to tax farm emissions — walking back a previous plan to apply a levy by 2030.

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Luxon on Wednesday announced a fresh government program, co-funded with industry players, aimed at encouraging greater and more flexible land use, with the ultimate target of increasing output.

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“The food and fiber sector is not just another part of New Zealand and its economy, it is without doubt the engine room of the economy,” Luxon said at a Fieldays presentation. 

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Inflation Pressure

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The Reserve Bank last month projected the economy will expand 1.8% this year even as the global energy crisis is expected to almost stall growth in the six months through September. Policy makers have signaled hikes at coming meetings as the fuel shock stemming from the war in Iran and disruption of supplies through the Strait of Hormuz add pressure on inflation.