Primary industries in good shape to respond to drought and Covid-19

The primary sector's strength, resilience and ability to respond to the effects of drought and the global impact of Covid-19 is highlighted by a new report out today.

The latest Situation Outlook for Primary Industries, from MPI, forecasts primary sector revenue will rise 0.5 per cent in the year to June 2020 to $46.5 billion.

"The sector is showing its underlying strength and resilience despite the challenging domestic drought and global conditions related to Covid-19," Agriculture Minister Damien O'Connor said.

"We saw strong performance across most of our primary industry exports in the first six months of the year, mostly as a result of growing demand and good prices in dairy, red meat and horticulture."

Fisheries Minister Stuart Nash said the impact of Covid-19 disruptions on the rock lobster industry was clear in the SOPI forecasts, which estimated a 2.2 per cent fall in seafood export revenue.

"Despite the collapse of the rock lobster market in China there is room for the wider seafood industry to be optimistic," he said.

"Aquaculture earnings continue to grow and are expected to increase by more than 10 per cent in the current financial year.

"The SOPI notes that prices remain strong for hoki, there is high demand for squid, and salmon and mussel exports are growing. Anecdotal reports from our largest fishing port in Nelson also show that seafood exporters with diverse markets have had minimal disruptions from Covid-19."

The Government was closely monitoring the situation facing the sector, and working with industry leaders to ensure New Zealand's high-quality products continue to get to market despite the global trade issues created by Covid-19, O'Connor said.

"We know that our best economic defence is a strong health response that minimises the spread of the virus.

"The Government's Business Continuity Package will support businesses feeling the effects of the global Covid-19 disruption. We're also supporting our farmers and growers to get through the current drought in the North Island, parts of the South Island and the Chathams with the comprehensive $2 million package announced today."

Included in the package are drought co-ordinators and additional co-ordinators, a feed working group, animal welfare information and expertise and professional advice for recovery, he said.

"In my recent visits to farmers and growers across the country, I've seen the effort they are taking to deal with current conditions.

"While our forecasts show export revenue will take a number of short-term hits, demand for New Zealand food and fibre products should continue to be strong in the longer term," O'Connor said.

"There are still some good prices, compared to previous years, for many of our products, including dairy. The predicted growth in this sector in the face of current challenges is a credit to everyone's hard work and shows how people are calmly working through things."

Key points from the Situation Outlook for Primary Industries report

Please note: The scenarios used in the forecasts are based on the situation as at the middle of February 2020. This means they do incorporate the impact from Covid-19 on the global economy. However, this is a fast-moving situation and forecasts should be treated with caution.

For the year ending 30 June 2020:

• Dairy export revenue is forecast to rise 6.3 per cent to $19.2b, driven by strong domestic production and favourable export prices to December. Prices for cheese and casein continue to strengthen, particularly in North Asia.

While overall dairy export revenue is forecast to grow, the forecast has reduced by $390 million due to weakened international dairy prices in the wake of Covid-19, and expected lower production due to hot and dry conditions across the country.

• Meat and wool exports are forecast to rise 0.3 per cent on the previous year to reach $10.2b, taking into account a reduction of $220m due to reduced demand from China caused by Covid-19.

The longer-term outlook for meat exports also looks bright, particularly in beef and veal which is forecast to hit $3.4b in the year ending 30 June 2020, 2.6 per cent on the previous year

• Horticulture continues to be one of the star performers, with export revenue expected to rise 2.9 per cent in the year ending 30 June 2020, hitting $6.3b.

This is driven by strong performance in kiwifruit, apples and pears.

• Seafood export revenue is expected to fall due to Covid-19, where New Zealand rock lobster exports have taken a hit.

A 2.2 per cent fall in revenue to $1.92b for our seafood exports is forecast. This is on the back of the 10 per cent growth in export revenue the previous year.

• Forestry export revenue is also forecast to fall by 17.9 per cent in revenue to $5.65b, due to over-capacity in log inventories at Chinese ports caused by Covid-19, and oversupply from markets such as Europe.

• The impacts of Covid-19, drought and other factors will become clearer in future forecasts, but overall demand for food exports is expected to remain strong in the longer term.

Exports such as infant formula, skim milk powder, kiwifruit, apples, pears and wine continue to be in demand, with further growth set to continue.