NZ primary sector forecasts encouraging

5 August 2008

NZ primary sector forecasts encouraging

The Ministry of Agriculture and Forestry (MAF) is forecasting solid growth for the primary sector over the next five years despite the tougher immediate economic outlook both internationally and locally.

The Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) 2008 report released today, forecasts that while world dairy prices have eased from recent record highs, international demand for food products looks set to keep key commodity prices buoyant for the next five years.

In its annual report card for the agriculture and forestry sectors, MAF says the strong performance of the dairy sector has contributed strongly to overall agricultural performance.

Dairy export earnings are projected to peak next year at just over $12 billion – more than 40% higher than last year’s export returns. Prices are expected to ease from recent record highs, but earnings are predicted to remain strong throughout the five year forecast period.

MAF says while traditional Western markets are slowing, this is expected to be offset by continued growth in fast-developing Asian economies such as China, India and other developing and oil exporting markets.

``Individual sectors all face their own challenges, but overall the combination of strong commodity prices, growing global food demand and new market developments – such as the China FTA signing – presents positive opportunities for the primary sector over the next five years,’’ MAF Director-General Murray Sherwin says.

Challenges at home include the 2008 drought, which continues to have a significant affect across the sectors. In the meat sector, this has resulted in wide-spread de-stocking that will lead to falling beef and lamb export volumes next year.

Export returns, most noticeably in the meat, kiwifruit and forestry sectors have also been eroded by the high New Zealand dollar. And high fuel and fertiliser costs have undermined improved commodity returns. The economic outlook in some of the key markets, such as the United States, is also constrained.

Lamb and beef prices are improving and the outlook is brighter in both sectors than it has been for sometime, Mr Sherwin says.

Beef export earnings, for example, are projected to increase by more than 40% over the forecast period.

Based on Treasury assumptions of easing exchange and interest rates, MAF also expects farm gate returns to be boosted.

In the forestry sector, Asian log prices have lifted recently and demand is growing in China and India, however export volumes and incomes remain flat.

MAF says increasing productivity, a renewed focus on market and product development, and new understandings about the place of environmental and other services in forestry, such as carbon sequestration, will be necessary to achieve a satisfactory return on current investment in forests and processing plant.

The wine industry continues to grow rapidly with export volumes expected to be up over 30% next year. Overseas earnings from wine ($764 million) are now higher than returns from the wool industry ($615 million).

``The international demand for sustainably produced agricultural products is strong – and New Zealand producers that stay focused on their consumers look well placed to take advantage of this,’’ Mr Sherwin says.

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