Dairy rebound tips growth for 2017, MPI says

A herd of dairy cows grazing in a paddock at Longburn, near Palmerston North. Photo / Mark Mitchell

A jump in the value of dairy exports is enough to restore growth to New Zealand's 2017 primary sector exports for the June 2017 year, according to the March edition of the Situation and Outlook for Primary Industries.

Dairy exports are forecast to rise 8.7 per cent to $14.5 billion in the 12 months ending June 30, the Ministry for Primary Industries latest SOPI says. That's an improvement from the projection in December when growth of 3 per cent was forecast, reflecting rising prices but declining production. The improvement means total primary sector exports are now expected to rise 1.4 per cent to $37.5b in the year, compared with December's prediction for a 0.8 per cent decline.

A pickup in the value of dairy, forestry and horticulture more than offsets a slightly weaker projection for meat and wool in the ministry's latest forecasts.

"We expect dairy prices to continue to remain relatively stable (at higher levels than in the previous year) over the remainder of the season, buoyed by lower production coming out of the Southern Hemisphere," the ministry says. "In addition, record forestry harvest volumes are expected to drive an increase in log exports, particularly for use in the Chinese housing market."

The ministry echoed concerns cited this year by the Reserve Bank about the rise of trade protectionism as a threat to the New Zealand economy. "Protectionist sentiment is on the rise in Europe and the US, which will have direct effects on New Zealand as these are major trading partners," it said. "There also could be indirect effects through the impact these policies can have on China and the rest of Asia."

Meat and wool exports are forecast to fall 11.2 per cent to $8.2b in the year ending June 30, reflecting lower production volumes, especially for beef, the ministry says. With record harvest levels, forestry exports are seen rising 5.8 per cent to $5.4b, driven by strong demand from China for logs and lower shipping costs.

Horticulture exports are projected to rise 3.8 per cent to $5.2b, driven by apples and wine, spurred by a record apple harvest and strong demand for New Zealand wines, it said. Lower production of green kiwifruit meant overall kiwifruit exports would be little changed.

Seafood exports are forecast to rise 0.8 per cent to $1.78b as strong global demand combines with declining stocks of major wild fish species to drive up prices. Volume growth would be driven by aquaculture, mainly mussels and salmon, it said. Exports of arable products are forecast to drop 12 per cent to $180m, reflecting low demand for herbage seed and the impact of a strong New Zealand dollar, it said.

Exports of other primary sector products, which include innovative processed foods, confectionery, honey, cereal products, live animals, soups and condiments, are forecast to fall 4.5 per cent to $2.27b, reflecting a weather-related drop in honey production, the ministry said.

For 2018, total primary sector exports are forecast to rise 9.7 per cent to about $41.1b, just below the projection in December of $41.2b, with the forecast for dairy revised down to $16.8b from $17b while forestry exports are revised up to $5.9b from $5.6b.