Exports fell in the last three months of 2012 in real terms and the impact has been compounded by a decline in what we can buy, by way of imports, for a given quantity of exports.
Export volumes slid 0.5 per cent, while the terms of trade - export prices relative to import prices - fell 1.3 per cent, Statistics New Zealand reported yesterday.
The terms of trade have fallen 11 per cent from their peak in mid-2011, though that was a 37-year high, to be back where they were three years ago.
The big driver has been a 27 per cent fall in export prices for dairy products from the heady levels of mid-2011, but double-digit declines have also been recorded for meat, forest products and manufactured goods. The dairy industry generates about a quarter of export income.
In the December quarter dairy prices fell 2.8 per cent, on top of a 13 per cent drop in the September quarter. Dairy prices have been rising again since mid-December in Fonterra's GlobalDairyTrade auctions in US dollar terms, but the exchange rate has risen too.
The volumes of dairy products exported fell 13 per cent in the December quarter, but that was after a 35 per cent rise, seasonally adjusted, recorded in the September quarter.
Drought has now been declared in Northland and the rest of the North Island is also very dry. While that is hurting dairy production, it follows an excellent start to the season, Westpac economist Nathan Penny said.
"Where milk collections were running around 6 per cent higher in the season to December, Fonterra now estimates collections for the whole season will be around 1 per cent higher than last season," he said.
"It implies that over the January to May period, which accounts for around 40 per cent of production, milk collections will be around 6 per cent lower than for the same period last year."
The latest decline in the terms of trade at 1.3 per cent was smaller than those recorded in the previous four quarters and economists expect a rebound from here.
It reflected a 1.9 per cent drop in export prices, outstripping a 0.6 per cent fall in import prices.
ASB economist Jane Turner said after accounting for the New Zealand dollar's 3.3 per cent rise over the second half of last year, export prices still declined in foreign currency terms, reflecting weaker demand for New Zealand export products.
"As global demand firms over 2013, we expect some recovery in prices," she said.
The higher dollar would also have pushed import prices lower, but that was offset by a 3.6 per cent rise for oil and refined petroleum prices.
Exports of non-food manufactures in the December quarter were down 4 per cent in dollar terms from December 2011. That reflected a 5 per cent rise in volumes, offset by a 9 per cent decline in prices which was influenced by a 6 per cent rise in the exchange rate against the US dollar and a 3 per cent rise against the Australian dollar.