NZ farmers set to ride Asian growth - bank

Big changes in New Zealand's export markets for agricultural produce have given the nation new resilience to economic shocks from its traditional markets in Europe and North America, bank economists say.

New Zealand's commodity prices are hitting multi-decade highs, a "remarkable achievement" just 18 months past the worst of the global financial crisis and despite worries over sovereign debt, Westpac said in its Agribiz newsletter.

Compared to 50 years ago when 87% of physical exports went to Britain, Europe, North America, and Japan, those markets now take less than a third of the exports, and the proportion of exports going to Australia and other regions of Asia has jumped from 5% to 55%.

Ministry of Agriculture and Forestry economic forecasts for agricultural sectors for the next five years will be released today, but the bank analysts said being tied to Asia was giving New Zealand farmers and foresters higher average commodity prices and economic growth.

"The downside of our newfound Asia focus is that when there is a crisis in this part of the world, we will be badly impacted," the bank economists said.

"We can't envisage that happening for years yet," they added. "In the meantime, we'll continue to enjoy the ride."

A rising proportion of exports was also going to the oil-producing economies.

A decade ago, the share of dairy exports going to China and the oil-producing economies was 20% but that has since doubled to 40%.

The rising importance of Asia as a destination -- particularly for dairy, wood and wool -- was expected to be boosted by the free trade agreement with China.

Europe and North America still take two-thirds of New Zealand's total meat exports, which has barely changed over the past two decades, but a lack of supply is currently helping offset lower consumer demand.

The economists said the traditional decline in terms of trade for agriculture had been flipped on its head over the past decade, partly by the rise of resource-hungry economies such as China.

"China and other developing economies are still only at the early stages of their economic transformation," they said. "Another 260 million rural Chinese are expected to move into the cities by 2030. We expect the next 20 years to be characterised by relatively elevated commodity prices."

One response to the developing sovereign debt crisis will be for the developed economies to keep their interest rates at extraordinarily low levels for longer.

A prolonged period of negative real interest rates in the Asian economies risked causing asset price bubbles, with negative consequences a number of years down the track if the bubbles grew too large and burst.

"For now, the debt crisis is likely to result in continued low interest rates and high growth in the developing economies," Westpac's analysts said.