“Lower interest rates and debt repayment have improved interest coverage ratios, bringing agriculture NPLs close to a 16-year low, particularly in the dairy industry.”
However, the bank said the sector remained exposed to global and domestic risks.
“Rising geopolitical tensions could increase volatility in input costs and commodity prices, while dry weather in parts of the North Island has weighed on production for some farms,” it said.
In addition, the meat-processing sector continued to struggle with excess capacity and low profitability.
A key risk to the outlook for agriculture remained the impact of tariffs on global demand.
The Reserve Bank noted the US tariff rate on imports from New Zealand had increased.
“However, the impact of US tariffs on our exporters is expected to be manageable, particularly for standardised commodities such as meat,” it said.
“The impact of tariffs on incomes in our key trading partners and therefore demand for New Zealand exports remains a key risk.”
Geopolitical risks to financial stability have increased over the past decade, reflecting escalating international tensions and trade disputes, the bank said.
New Zealand’s export sector remained highly dependent on demand from the Asia-Pacific region, creating concentration risks.
Further deterioration of global trade frameworks and a broadening of regional conflicts, including in the Middle East, would increase risks to energy prices and global growth, it said.
“This would have an adverse impact on New Zealand as a small, open economy reliant on international trade.”
The Reserve Bank noted that dairy prices remained high, with Fonterra maintaining an elevated midpoint forecast of $10 per kilogram of milk solids for the 2025/26 season.
Dairy farmers will also benefit from a one-off payment from Fonterra’s sale of its global consumer business to France’s Lactalis for $4.2 billion.
Analysts estimate the average Fonterra supplier will receive about $400,000 in the first half of next year from the sale.
The meat sector is benefiting from high beef prices and a recovery in sheepmeat prices.
Elevated commodity prices are generally driven by tight global supply, including declining US cattle stocks and lower dairy output in China.
Falling interest rates, prior deleveraging in the dairy sector and lower farm cost inflation were also improving farm cashflows.
The direct impact of US tariffs on our exports is expected to vary across products.
The US imports about 30% of New Zealand’s beef and sheepmeat exports.
“These are relatively standardised commodities that can be diverted to alternative markets fairly easily and currently have high global prices,” the bank said.
A 50% tariff on US goods imports from Brazil, one of the largest beef producers, may enhance the competitiveness of New Zealand beef in the US.
“In contrast, the wine sector, which also sends around a third of its exports to the US, is more exposed.
“This reflects the more differentiated nature of the product and its dependence on brand recognition, which make diversion to alternative markets more challenging in the short term.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
- Listen and subscribe to the Today in Business podcast – the top headlines from the NZ Herald business team summarised and delivered by an artificial intelligence (AI) voice as an easily digestible recap.
