Primary sectors well positioned to take advantage of demand

Primary sectors well positioned to take advantage of strong international demand

14 June 2011

Broad-based, steady and sustainable demand for many agricultural commodities is expected to underpin New Zealand's export income for the medium term, a Ministry of Agriculture and Forestry report shows.

The annual /Situation and Outlook for New Zealand Agriculture and Forestry /(SONZAF) shows New Zealand exporters are receiving historically high prices in foreign currency terms for beef, dairy, lamb, logs, timber and wool products, with the returns expected to continue into the medium-term.

MAF Director-General Wayne McNee says the steady pick-up in fortunes for the primary sectors is notable for its breadth and consistency.

"Adverse climatic events in New Zealand and other producing areas have had an effect in driving up some prices.

"But the majority of our primary sectors should be able to look forward to a period of sustained growth, which will enable recovery of balance sheets, reinvestment and some breathing space after a tough few years.

"As with all forecasts SONZAF is subject to unforeseeable factors such as extreme weather events and unexpected currency movements, but what it shows is that many of the sectors have their fundamentals in order and are well positioned to take advantage of strong international demand for our products."

The relatively strong New Zealand dollar reduces the gains passed through to New Zealand farmers, growers and foresters. On the other hand, it also reduces the effective cost of imported rural inputs such as fertiliser.

SONZAF 2011 includes three special reports:

a profile of the rural property database FarmsOnLine, launched in April; a recap of the Red Meat Sector Strategy, launched in May; and a report on how the joint Australia New Zealand Food Standards Code has facilitated trade since it was established in 1995.

SONZAF 2011 highlights:

Beef – New Zealand beef production is down about 9 percent this season as a result of reduced cattle numbers and lower carcase weights due to adverse weather.

Prices for New Zealand manufacturing beef in the key United States market reached historical highs during the 2010/11 season, due to reduced supply and strong demand.

In the medium term international beef supply is expected to increase, but still remain slightly behind growth in demand, underpinning higher average prices.

Dairy – Dairy production in the 2010/11 season started below expectations due to widespread spring drought and slowed rate of dairy conversions. However favourable autumn weather lifted milk solids production – continuing after SONZAF went to print – resulting in an estimated 4 percent increase. A further 4 percent increase in production is now expected in the 2011/12 season.

International dairy prices in the 2010/11 season were up due to strong demand. In the medium term increased supply is expected to moderate this.

Kiwifruit – Kiwifruit export volumes are expected to increase to 107 million trays in the year to 31 March 2012, after remaining steady at 100 million trays for the previous three years.

The industry expects that over time it will be able to mitigate the effects of the vine disease Psa, which was detected in Te Puke in early November 2010.

The increasing proportion of Gold kiwifruit coming on-stream, with returns nearly twice Green kiwifruit, is expected to open new markets and drive export returns.

Wine – Growth in wine export volume continued in the year to 30 June 2011, but an increasing quantity is being sold as lower priced bulk wine. Volume increases are expected to slow in the medium term.

Investment in new markets during the past five years has led to growth in sales in non-traditional areas, particularly China, Hong Kong and Canada.

Lamb – Export prices for lamb and returns to producers have been at record high levels during the year to 30 June 2011, as a result of reduced supply internationally.

A massive snow storm during the 2010/11 season impacted on supply from New Zealand.

Wool – International wool prices underwent a significant correction in late 2010, with prices forecast to remain over 500 cents per kilogram of clean wool, compared to a five-year average to 2010 of 376 cents.

This is due to constrained supply of wool and a general increase in fibre prices. MAF expects New Zealand wool export volumes to decline from 133,000 tonnes in 2011 to 125,000 in 2015.

Forestry – Strong demand from China has increased the proportion of the 24.8 million cubic metre tree harvest exported as logs to 44 percent in 2010, up from 43 percent in 2009 and 34 percent in 2008. Continued demand from China, growth in the Indian market and rebuilding after disasters in Christchurch, Queensland and Japan is expected to underpin medium-term demand for wood products.

For more information, visit http://www.maf.govt.nz and click on the link in the 'Publications' box.

ENDS

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