Boom tipped for farmers as China grows

China dramatically increased its purchase of New Zealand forestry and agricultural products last year. Photo / Alan Gibson

China's growth at a time of global contraction has been a major feature of the primary sector's recovery, says Ministry of Agriculture and Forestry Director-General Murray Sherwin.

The ministry yesterday released its annual Situation and Outlook for New Zealand Agriculture and Forestry which projects higher prices during the next four years for beef, lamb, wool, wine, kiwifruit and the forestry industry.

China had dramatically increased its purchase of New Zealand agricultural and forestry products last year, with primary product exports up 49 per cent to $2.19 billion, Sherwin said.

"Most of our other trading partners have returned to growth as well, while the demand associated with growing incomes in key developing economies is ensuring conditions for food exporters have been buoyant," he said.

"As usual, however, considerable uncertainties hang over the outlook."

Prices for dairy products in particular had become volatile during the previous few years, he added.

Dairy export earnings were estimated to be down 16 per cent for the year ended June at $9.94 billion, largely because of drop in export prices, but were projected to reach $15.7 billion by the year ending June 30, 2014, as export prices and volumes increased, the report said.

Dairy production was likely to jump 14 per cent for the year ending May 2011, with an increased dairy herd and an assumption of average climatic conditions.

BNZ economist Doug Steel said the forecasted jump in dairy production looked a little high.

"I think a lot of things have to go right to get 14 per cent growth on a year," Steel said.

The report's milk price forecast of $5.60 a kg of milksolids for the year ending May 2011 looked low, he said.

Dairy company Fonterra processes about 92 per cent of New Zealand's milk and is forecasting a milk price of $6.60 a kg of milksolids for the 2010/11 season.

The report said exchange rate assumptions were favourable beyond 2011 and with slowly rising export prices in US dollars the milk price was projected to be $7.21 a kg by the year ending May 2014.

The report used exchange rate assumptions from the Treasury, including a rate of US51c in 2014.

"[That exchange rate] does flow through to the forecasts of export values picking up, especially in 2013 and 14," Steel said. "[But] it is difficult to know what's going to happen next."

If the world was prepared to pay high prices for New Zealand's products then that was good for the economy and on the back of that the currency would tend to rise, Steel said.

Meat & Wool New Zealand's Sheep & Beef Mid Season Update in February forecast farm profit before tax for 2009/10 would be $39,800, using an exchange rate of US71c, compared with a provisional $58,800 for 2008/09.

Meat & Wool New Zealand economic service executive director Rob Davison said: "Last year we were getting pretty good prices and we're still getting good in-market prices despite the recession in the Northern Hemisphere ... it's just the exchange rate."

The MAF report forecast lamb schedule prices would fall to $4.13 a kg in the year ending June 2011, compared with an estimated $4.44 this year but would then rise over subsequent years to $5.70 in 2014.

"I think the lamb supply is going to remain tight globally and I think in-market prices are going to be reasonably good so you're only coming back to the exchange rate," Davison said.