Horticulture and dairy are the driving forces behind a forecast 2.5 per cent increase in New Zealand primary industry export revenue for the year to June 2019.

The Ministry for Primary Industries released its latest Situation and Outlook report this week which showed revenue was forecast to reach $43.8 billion.

Horticulture was expected to be the fastest growing sector after unfavourable growing conditions led to more moderate gains in 2018.

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Improved growing conditions for the most recent harvests had led to higher yields for kiwifruit and most other horticultural products.

Kiwifruit export was forecast to rise 22.6 per cent, driven by a very strong kiwifruit harvest in March-April 2018 following a poor harvest in 2017, and rising kiwifruit prices.

Dairy export revenue was forecast to increase 2.1 per cent from last year to just over $17 billion in the year ended 2019, consolidating gains made in the previous two years.

Against the backdrop of a recent weakening in global dairy commodity prices, forecast growth in export revenues was expected to be driven by a changing product mix, towards higher value products such as cheese and infant formula.

Total dairy exports increased 13.9 per cent to $16.7 billion for the year ended June 2018. Around half of that $2 billion growth had come from butter and anhydrous milk fat (AMF), with whole milk powder (WMP) and infant formula also strong drivers.

The strong growth in export revenue in the last two years had flattened in recent months and export revenue for the June 2018 quarter was up only 1.1 per cent on the previous year.

Weakening demand out of China had been reflected in recent GlobalDairyTrade auctions, with falls in butter, AMF and WMP prices, following a period of sustained high levels.

That would constrain export growth in the short term, as exports were forecast to increase $0.2 billion to $17.2 billion for the year ending June 2020.

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Longer term, sustained global demand for WMP - New Zealand's largest dairy export product - and butter should limit the down side of any short-term price falls.

By contrast, following a period of subdued prices caused by the impact of high levels of EU intervention stocks, skim milk powder prices were now showing signs of growth which underpinned a forecast 12.9 per cent increase in exports to $1.4 billion for the year ended June 2019.

Meat and wool export revenue was forecast to contract by 1.3 per cent in 2019, as export volumes were expected to fall from the high levels seen in 2018.

Lamb and venison farm-gate prices were forecast to increase even further in the year ending June 2019 after a record year in 2018.

Despite higher prices for most products other than beef, overall exports were forecast to fall in 2019 due to an expected 2.4 per cent decline in lamb, mutton and beef production.

Strong consumer demand was pushing lamb and mutton prices higher, despite higher production indrought-stricken Australia and the UK.

It appeared the market was anticipating a gap in production over the next year as production and exports in New Zealand, Australia and the UK were likely to reduce over that time.

Lamb and mutton production was now unlikely to increase in New Zealand and Australia over the next year, and the present high prices were likely to persist at least through the year ending June 2019.

In contrast to other red meats, beef prices were showing signs of weakness in the United States, the destination for 43 per cent of New Zealand beef exports by value.

Drought conditions in the US and Australia had resulted in elevated manufacturing beef production from cull cows which, unlike US prime beef production, competed directly with the lean manufacturing beef New Zealand exported to the US.

Forestry export revenue was expected to be near 2018 levels, as log demand from China's construction sector was expected to remain steady.

Looking out to 2020 and beyond, the trajectory of primary sector production and exports would depend on industry's response to an evolving operating environment, including trade disruption, shifting consumer preferences, increasing risk of pest incursion and an emphasis on sustainability, the report said.

Growth would increasingly come from getting more value from existing assets and the development of new higher value products such as Gold3 kiwifruit.

Those changes would increase the focus towards redefining how the primary industries contributed to the New Zealand economy by increasing productivity through innovation, and by adding more value by deepening links to customers and seeking new markets.