A senior rural economist believes the New Zealand dairy industry and wider food sector is in a stronger position than most to weather the fallout from the coronavirus outbreak.
Global dairy prices have fallen on the back of the coronavirus outbreak, but the lower NZD/USD means that the outlook for farmgate milk prices remained healthy, said ASB senior rural economist, Nathan Penny.
"At our current forecast levels for the milk price, the majority of farmers are likely to remain profitable," said Penny.
"In addition, Fonterra is reporting early signs of turning its performance around, maintaining its earnings guidance in its half-year results. While still early days for the co-op, the results announced today are an encouraging start."
Fonterra reported a normalised net profit after tax of $293 million for the six months ending January 31 - up from $72 million for the same period the year before.
Penny said New Zealand's food export sector was expected to prove relatively resilient to cope with the impact of the coronavirus outbreak.
"Indeed, we anticipate that global food demand is likely to remain firm (outside of premium foods) as food consumption is prioritised in household budgets.
"A good example of this is in China where food imports are being fast-tracked for entry via the putting in place of 'green lanes' at Chinese ports. Nonetheless, these are unprecedented times."
Fonterra CEO, Miles Hurrell said there were positive signs that the Chinese market was getting back to normal.
"It's really pleasing to see some signs of life, out of the food service business with reports of the likes of Starbucks and McDonalds, up to 90 percent of their stores open across China which gives us some confidence," said Hurrell.
He said the co-op had been working closely with logistic providers and supply chains to ensure there was seamless delivery into markets.
The number of Fonterra production sites and products meant it also had flexibility to adapt to changing markets.
"We are certainly not seeing any slow down of dairy consumption, we are seeing the China market starting to get back to some normality, and dairy is at the forefront of the consumption trend that we see at this point."
Despite the strong earnings performance so far this year, Fonterra board Chairman John Monaghan said no interim dividend would be announced.
"After considering the current uncertainty of the impact COVID-19 could have on earnings in the second half of the year, the board has elected to not pay an interim dividend.
"At the end of the financial year the Board will reassess the co-op's financial position and review the decision to pay a dividend," said Monaghan.
