Tougher times forecast for primary sectors

After mixed fortunes during the last 12 months, New Zealand’s primary sectors should brace themselves for a tougher year ahead, according to Ministry of Agriculture and Forestry (MAF) forecasts.

Prospects, however, are looking less bleak for 2007, with improvement expected in revenue and profitability across all sectors as production and demand in key export markets improve.

The Ministry has just released its annual Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report.

MAF Policy’s Manager of Monitoring and Evaluation, Peter Gardiner says the last year has been good for dairy and meat farmers and wine growers, who have benefited from stronger international prices and premium product positioning in key export markets.

Other sectors, especially foresters, apple growers and deer farmers, have struggled with declining international prices, higher costs, a stronger New Zealand dollar and other difficult market conditions.

Peter Gardiner says the supply and demand conditions that favoured much of the pastoral sector are expected to decline over the next year. Future profitability, he says, will also be affected by higher costs and greater exposure to the high New Zealand dollar.

The report forecasts an upturn in 2007 as production and demand in key exports improve, the New Zealand dollar weakens and international oil prices ease, reducing on-farm and transport costs.

Highlights in brief:

• Agricultural sector income is expected to fall to $3.7 billion in the March 2006 year from $3.8 billion in 2005. In 2009, agricultural sector income is expected to reach $4.5 billion.

• Dairy revenue will continue to expand in the March 2006 year, largely reflecting a rise in milk solids production from 1.21 million litres in the previous season to 1.25 in the current season.

• Lamb numbers are expected to reach 33.5 million head again this season, while lamb slaughtering should rise to around 25.4 million and 25.6 million head in the 2005 and 2006 seasons.

• Farm gate returns are expected to be around $4.00 per kilogram of milk solids in the June 2006 year, down from $4.55 this year.

• The outlook for horticultural crops, with the exception of wine and to a lesser extent, kiwifruit, remains subdued.

• Forestry harvesting is set to rise from a current 19 million cubic metres to potentially 26 million cubic metres over the next four years. However a lack of co-ordination within parts of the industry, and this, along with international markets and limited wood manufacturing capacity, may hinder the ability of the industry to add value to this growing volume of wood.

• Total agriculture, horticulture and forestry exports represent over 60 percent of New Zealand’s total merchandise trade.

• Dairy, beef, lamb, venison, wool, forestry products, apples, kiwifruit and wine exports are expected to decline to $15.5 billion in the March 2006 year, from $15.8 billion in the previous 12 months.

• By March 2009, export receipts for the major commodity groups are expected to expand $2.8 billion to $18.7 billion. Forestry and dairy exports are expected to lift by $1.0 billion and $900 million respectively over the period, while horticulture (largely wine exports) and meat are expected to rise in value by $550 million and $400 million.

• The average economic growth rate of New Zealand’s trading partners is expected to pick up slightly from current rates to around 3.5 percent by the middle of next year.

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