Ministry tips rebound in farm sector

Cyclical lows for the dairy and forestry sectors are being partly offset by strength in other areas. Photo / Brett Phibbs

Revenue to fall 8% to $35.2 billion but export growth steady in next four years

Cyclical lows for the dairy and forestry sectors are being partly offset by strength in the beef and horticulture sectors, but there's no doubt difficult times lie ahead for many in the primary sector, says Ministry for Primary Industries director of sector policy Jarred Mair.

The ministry, in its latest situation and outlook report, said it expected total revenue from primary industries to drop by just 8 per cent to $35.2 billion in the year to June, despite big declines in the dairy and forestry sectors, and for the next four years to show steady export growth.

It said the primary sector had shown resilience over the year and that it expected a modest bounce back in 2015/16.

"There's no denying that it's hard going right now for some of New Zealand's primary industries but we are forecasting better times to come," Mair said.

"It is very much a cyclical trend at the moment, particularly with the dairy and forestry sectors being at the lower end of their cycles, but beef and horticulture are coming up in terms of reaching the tops of their cycles, so there are some good offsets going at the moment," Mair said.

Despite the current slump in dairy prices, Mair said there was confidence among dairy farmers.

"I think that they are starting to look through the cycle in terms of what they can do, both on the farm but also in terms of productivity increases and further investments," he said.

The dairy sector had shown an ability to respond to the decline in demand from its biggest customer - China - to find other markets at reasonable prices. He expected the rate of consumption growth to slow over the next two years in China.

"But overall, the fundamentals in China will continue in that we will see growth there over the medium to long term."

The ministry expects the Chinese dairy inventory would take 12 to 18 months to work its way back into "some form of equilibrium".

"Within that time frame, we will continue to see some recovery in prices, so we will see that start to occur as they work the inventory out of the system," Mair said.

Looking ahead, Mair singled out the kiwifruit sector as the one to watch, with "massive growth" expected over the next three to five years. The wine sector was also in the middle of a strong growth cycle.

In its report, MPI said agricultural GDP fell by 25 per cent in the year to March 2015 as improved revenues from beef cattle, fruit and wool were not sufficient to offset the effect of sharply lower dairy prices. Agriculture sector income fell by 52 per cent to $2.91 billion.

It said agricultural gross domestic product is projected to recover to 2014 levels by 2018, but sector income is expected to take longer to return to 2014 levels.

In the long term, income and population growth combined with rising levels of urbanisation were expected to increase per capita protein consumption in China and Southeast Asia.