KEY POINTS:
New Zealand's agricultural industries will be hit hard by the financial crisis and some farms with existing debt could go under, according to a ministerial briefing paper to the in-coming Government.
The paper from the Ministry of Agriculture and Forestry points to falling dairy prices and demand for
lamb as consumers look to cheaper products.
The paper warns that with debt increasing and commodity prices falling, the agricultural sector could find it hard to refinance debt and that could result in businesses going under or being bought-out.
The new Minister for Agriculture, David Carter, said the Government can do nothing to increase the demand of New Zealand products overseas.
"But what we can do is continue to argue for free trade opportunities and John Key made a significant statement at Apec last week and calling for Doha to recommit," Carter said.
He acknowledged that the commitment to free trade by Apec was nothing new but there is a renewed commitment.
"We've got to continue to reduce the amount of impediments around doing business," Carter said.
He said that includes looking at the Resource Management Act and the Emissions Trading Scheme.
"The other thing that we are working on is a stimulatory package to the whole economy which will be significant and part of that will be the tax cut package," Carter said.
The MAF paper said that demand for agricultural products will fall from oil producing countries and emerging Asian economies, where 40 per cent of New Zealand's dairy exports go.
Horticulture, particularly kiwifruit, will also see a drop in demand.
"Conversely, demand for beef is expected to remain strong as consumers switch to lower cost ground beef," the MAF paper reports.
The paper said that the reduction in demand has been off-set by a drop in the New Zealand dollar against the US - from 82 cents in February to 58 cents by the end of October.
MAF also warns that farmers have taken on more debt over recent years and are vulnerable to increasing financial costs and falling commodity prices on the world market.
"Therefore any recession is of concern. It is likely there will be fluctuations in income levels and less ability for farming businesses to obtain and service debt financing," the paper said.
MAF said that about 564,000 people, 14 per cent of the population, live in rural areas and while the rural population has grown, it has not grown at the same rate as urban centres.
