The Government forecast for primary export revenue for the year ending June has been downgraded by more than $1 billion due to a stronger Kiwi dollar and likely weaker meat, wool and dairy prices.
The Ministry for Primary Industries' latest economic outlook report said its economists had revised down their December 2019 forecast for the year ending June 2021 by nearly $1.4b.
"A stronger NZD presents a headwind to all sectors, the outlook for meat and wool prices has been revised down significantly, and dairy prices have been revised down moderately," the report said.
"In addition, the autumn 2020 drought is expected to have carry-over effects to meat and wool production in the current year."
Total primary export revenue for the June 2021 year was now forecast to fall 1 per cent to $47.5b, rising to $49.2b in 2022.
MPI said export revenue for the year ended June 2020 had exceeded its previous, pre-Covid forecast - by $131 million. A weak Kiwi dollar contributed to this.
Log export prices were expected to remain near current levels for longer than forecast pre-Covid, and the outlook for seafood returns was lower due to reduced food service demand and a squeezed hoki quota.
However the outlook for horticulture was more positive than previously forecast, with consumer demand staying strong in the pandemic.
Primary industry exports rose 3.6 per cent in the year ended June 2020 to reach $48b despite the forestry, seafood and meat and wool sectors being among the most significantly impacted by Covid lockdowns, both in New Zealand and overseas, said MPI.
A strong industry start to the year pre-Covid and a large kiwifruit and apple harvest in March/April had supported this increase, along with a weaker New Zealand dollar.
"Although export revenue trends are relatively positive, this has been a difficult year for primary industry businesses and challenges remain," said the report.
"The pandemic has created a commercial environment with unprecedented uncertainty, particularly for seasonal labour supply, logistics and the availability of production inputs.
"Businesses are facing uncertainty around reliably transporting their products to consumers in distant markets and their ability to harvest all their products."
Dairy export revenue was forecast to fall 4.6 per cent to $19.2b for the June year.
An expected strong milk production season was forecast to be offset by Covid-impacted weaker global dairy prices.
The outlook for meat and wool exports remained volatile. Revenues were forecast to fall 8.2 per cent to $9.8b for the June year.
"This outlook is being driven by export prices receding in early 2020 from near record levels in late 2019, mainly due to uncertainty and food service closure caused by Covid-19, and competition from poultry and other lower-priced proteins," said MPI.
A global protein shortage, due to swine fever outbreaks in China and a major herd rebuild in Australia, was slightly offsetting Covid's impact on international meat prices.
Forestry exports were expected to increase 8.1 per cent to $6b for the June year due to strong demand for logs from China and for sawn timber by the US.
Horticulture exports were also expected to make a strong showing, with revenue forecast to rise 9.1 per cent to $7.1b.
New Zealand's seafood sector continued to experience significant impacts from the pandemic and the global economic downturn. Prices and volumes showed volatility last year and this was expected to continue because of food service closures, challenging freight logistics and lower consumer spending.
Seafood revenue was forecast to fall 1.4 per cent to $1.8b.
Arable export returns were expected to build on significant growth in 2020 (up 23 per cent), lifting 5.3 per cent to $305m. MPI said this growth was expected to continue next year but at a more moderate rate.
Uncertainty in the ryegrass and clover seed export markets was tempering the growth forecast but the outlook for vegetable seeds remained positive. Grain production passed 1m tonnes for the 2020 harvest.
Processed foods and other products were expected to return $3.3b for the June year, up 9.2 per cent from 2020. This would build on growth of just over 5 per cent for the previous two years. Main contributors to growth were increased in live animal exports, honey, innovative processed foods, sugar and confectionery.
Honey exports were growing as beekeepers enjoyed another good production season and cleared stock from previous years, said MPI.