It got harder for New Zealand to pay its way as a trading nation over the past three months of last year as the terms of trade declined for the second consecutive quarter.
The terms of trade is a measure of relative prices for the kinds of things the country exports as against the kinds of things it imports.
It fell 1.4 per cent in the December quarter as a 1.7 per cent rise in export prices was outstripped by a 3.2 per cent rise in import prices.
But while it is now 2 per cent off its peak in June last year, that was a 37-year high.
And apart from a spike in the mid-1970s around the time of the first oil shock, we have to go back to the 1960s for terms of trade as favourable as they have been over the past two years.
The past 10 years have seen a strong upward trend as large numbers of people, especially in Asia, moved into income brackets where they can demand the foods of affluence.
But although the level of the terms of trade remains historically high, boosting national income, economists believe the decline over the second half of last year is a sign of things to come.
Bank of New Zealand head of research Stephen Toplis noted that in New Zealand dollar terms ANZ's export commodity price index has already fallen 14 per cent from its peak in March last year.
And there was a risk of a spike in oil prices which would not only push up imports prices but reduce demand in New Zealand's export markets, he said.
BNZ economists are forecasting a further 5 per cent drop in the terms of trade this year, with the risk that it could be much sharper.
"Falling terms of trade will act as a headwind to growth and reinforce our view that the current account balance will deteriorate sharply over 2012 and into 2013," Toplis said.
Westpac economist Anne Boniface also believes the terms of trade will slip further in coming months as slower growth in Asia in particular weighs on commodity prices.
"Yet even at their trough the terms of trade will be at historically elevated levels," she said.
"We continue to be firmly optimistic about prospects for New Zealand export prices over a longer horizon, with food prices to be underpinned by the important global trends of urbanisation, income growth and population growth."
The biggest contributor to the rise in export prices over the quarter was meat, which rose 3.4 per cent, making 11 per cent for the year on top of a 14 per cent rise in 2010. Dairy prices, by contrast, were down 1.1 per cent in the quarter, but still up 3.9 per cent for the year, though that was a modest increase compared with rises of 37 per cent in 2010 and 43 per cent in 2009.
In volume term dairy exports rose 6.3 per cent in the December quarter, reflecting good growing conditions, and drove a 2.9 per cent rise in export volumes overall.
Meat volumes fell 6.9 per cent. ASB economist Jane Turner said strong pasture growth might have been encouraging farmers to hold back stock in order to increase final weights.
"We expect to see some recovery in meat export volumes over the coming months."