Dairy, forestry and horticulture to drive gain in primary sector

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Growth in exports of dairy products, forestry and horticulture are projected to drive a 2.4 per cent increase in New Zealand's primary sector exports in the June 2017 year, up from the 1.4 per cent growth seen three months ago, according to the latest edition of the Situation and Outlook for Primary Industries.

Dairy exports are forecast to rise 10.2 per cent to $14.6 billion in the 12 months ending June 30, the Ministry for Primary Industries' SOPI says. That's followed by a projected 6.4 per cent gain in forestry exports to $5.5b and a 5.9 per cent gain in horticulture exports to $5.3b, which will drive total primary sector exports in the current year to $38.1b from $37.2b a year earlier.

Forecast growth in dairy exports was upgraded for 2017 and 2018, compared to the March SOPI, with next year's estimate lifted to $17.3b from the $16.8b forecast three months. The report was released about the same time as gross domestic product data for the first quarter, which showed agriculture, forestry and fishing expanded 2.8 per cent, the fastest pace of any sector, driven by increased milk production.

The rebound in dairy "represents a recovery of global dairy prices as supply and demand rebalanced over the year," MPI said. "Export revenue is forecast to continue to rise through to 2021, provided butter prices remain strong and overall global supply and demand remain balanced for most dairy products."

Growth in dairy is being driven by prices for whole milk powder (WMP), the biggest dairy export, with exports forecast to rise about 13 per cent this year to $5.2b and to $6.1b in the June 30, 2018, year. Growth is also seen in butter, anhydrous milk fat and cream ($2.9b this year, $4b in 2018) and to a lesser extend skim milk powder and butter milk powder ($1.4b in 2017 and 2018) while exports of casein and protein products is expected to weaken to $1.75b this year before rebounding to $2b in 2018.

Infant formula exports are expected to rise 12 per cent to $770 million this year and reach $1b in 2018.

"China's demand for imported dairy products remains strong due to a combination of lower domestic production and rising consumption," MPI said. "Increasing demand for WMP from other markets, like Brazil, Indonesia, Algeria, and Russia, will help support global prices during the year ending June 2018."

Meat and wool exports are forecast to fall 9.8 per cent this year to $8.2b, before edging up to $8.5b in 2018, MPI said.

"A fall in beef and sheep meat volumes compared with last year are driving a fall in meat and wool export revenue for the year to June 2017," it said." Prices for lamb, beef and venison are finishing the year much higher than previously expected, which has helped to offset some of the lost volume."

Forestry exports are expected to be driven by increase harvesting and global prices. "Record harvest volume of 30.7 million cubic metres for the year ended 31 December, 2016, was driven by relatively stable and record high log prices and a large supply of harvestable wood," the report said. "Export revenue is forecast to reach $6.3b by 2021, underpinned by strong global demand."

Growth in horticultural exports would be led by apples and wine and a pickup in kiwifruit as the result of increased planting of new gold varieties, it said.

Seafood exports are projected to be little changed, edging up 0.1 per cent to $1.77b in the year ending June 30 and rising to $1.8b next year. However, by 2021, exports are expected to reach $2.1b "driven by rising prices in the markets of China, Australia and the US."

Arable exports are projected to weaken 9.7 per cent to $184m this year and pickup to $195m in 2018, MPI said. "The vegetable seed export market remains steady while high international stocks have reduced demand for herbage seed exports," it said. "The domestic market for arable products has improved alongside rising dairy prices.

Exports of other primary sector products, which include innovative processed foods, confectionery, honey, cereal products, live animals, soups and condiments, are forecast to fall 6.3 per cent to $2.5b in 2017 after surging 37 per cent over the previous two years.

"Lower volumes are being shipped to Australia, China and Hong Kong, and poor weather is limiting honey production and exports," MPI said.