Positive outlook for primary sector - MAF report

The New Zealand primary sector will enjoy a ride on the backs of developing economies but a watchful eye needs to be kept on price volatility, according to a flagship Ministry of Agriculture and Forestry report.

MAF Director-General Murray Sherwin, speaking today at the Wellington launch of the annual Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF), expressed relief at this year’s less turbulent economic outlook.

“Last year we were still coming to grips with out collapsing world economy and wondering just what on earth was sitting out in front of us,” he said.

Under the current more robust economic outlook, MAF predicts higher prices for lamb, wool, wine, kiwifruit and forestry products over the next four or five years.

Much of this optimism relates to an emerging middle class taste for meat and dairy in developing economies, particularly in China.

“It’s just striking when you see how influential China has been on our markets,” Mr Sherwood said.

In 2009, China was the largest market by revenue for NZ dairy products, knocking traditional destination Europe back to fifth place, behind the US, Japan and Australia.

Mr Sherwin stressed that strong performance had occurred across all primary sectors, with overall export earnings to China rising 49% to $2.19b last year.

“So much of what we talk about in NZ becomes a dairy story and we need to make sure that we talk about other stories as well.”

Forestry was a significant success story last year, with a dramatic 79% increase in the volume of timber exports to China and strong demand for log exports expected to continue.

The upcoming period of growth carries certain risks, Mr Sherwin warned.

“Dairy product prices, in particular, have become very volatile over the past few years. Rapid price shifts, either up or down, cannot be ruled out.”

He attributed increased price volatility to the globalisation of primary produce markets, the withdrawal of fiscal stimulus in China, and growing sovereign debt accumulations in several developed economics. 

"All in all, our exporters can afford to be optimistic about the medium-term picture, but short term fluctuations in conditions are inevitable," he concluded.

SOFNZAF 2010 highlights

Dairy
- Overall, outlook is positive with production expected to rebound in 2011.
- NZ milk solids production is forecast to increase by 14% in the year to 31 May 2011.
- Spot market prices for dairy products peaked in December 2009.

Forestry
- Last year saw a 79% increase in the volume of timber exports to China.
- Chinese demand is driving an increase in log export volumes.
- Forestry export volumes are expected in increase by 18% in the year to June 2010, offset by a 12% decrease in average value per unit.

Lamb
- NZ flocks are at lowest level since 1946 and lamb production is down.
- International lamb prices are strong but weak pound has hit NZ hard.
- Significant increase in lamb meat sold to Asian countries.

Wool
- International prices for fine wool have risen steadily since spring 2009.
- Strong wool prices are expected to remain weak in the short term.

Beef
- Demand for prime beef is down due to increased consumer preference for cheaper cuts.
- NZ will face strong competition from Australia, the US and Brazil in the recovering Asian markets.
- Cattle slaughter levels will return to normal after heavy drought-driven slaughtering in 2008.

Wine
- Prices have dropped in response to record vintage volumes in both 2008 and 2009.

Kiwifruit
- Export prices rose by 11% to March 2010, driven by strong market demand for gold kiwifruit.
- Similar results are expected for the next two seasons.