New Zealand's primary sector exports are set to reach a record high over the coming year, Agriculture Minister Damien O'Connor says.

The Ministry for Primary Industries' latest Situation and Outlook report forecast a 3.8 per cent increase for export earnings for the year ending June 2019 to $44.3billion.

However, it did also caution the potential for volatility on the horizon, with both Brexit and the trade dispute between the United States and China highlighting the uncertainty under which global markets were currently operating.

While the medium-term implications for that volatility were yet to become apparent, the risks to primary industry exports had increased.

Advertisement

Read more rural business here.

In addition to market volatility, other potential challenges included the weather — an El Nino weather pattern was developing — labour supply, Mycoplasma bovis, climate change and shifting consumer preferences.

In a statement, Mr O'Connor said there was ''a lot to be positive about'' when strong consumer demand for high-value produce and good growing conditions had, in just the past three months, nudged up forecasts by an extra half a billion dollars.

Primary sector export growth was due to a range of positive pointers that also reflected the importance of moving away from volatile raw commodity markets and into markets offering sustainable, premium returns.

Agriculture Minister Damien O'Connor. Photo / Stephen Jaquiery
Agriculture Minister Damien O'Connor. Photo / Stephen Jaquiery

For dairy farmers, good weather meant plenty of grass and greater milk production at a time of growth in value-added products, he said.

It was set to be the fourth straight year dairy export returns had risen following the dairy downturn of 2015.

Dairy export revenue was forecast to rise 3.3 per cent to $17.2billion for the year ending June 2019, and a forecast rise of 3 per cent in milk production was expected to boost export volumes.

While international price declines were forecast for some key commodities, that would be partially offset by a predicted weakening of the New Zealand dollar and continued strong prices for higher value dairy exports.

However, forecast price weakness in key reference commodity products such as whole milk powder, butter and skim milk powder was still expected to affect New Zealand farmers, with farm-gate milk price payouts likely to fall for the 2018-19 season.

A forecast rise of 3 per cent in milk production is expected to boost export volumes. Photo / Stephen Jaquiery
A forecast rise of 3 per cent in milk production is expected to boost export volumes. Photo / Stephen Jaquiery

The outlook for meat and wool remained positive with strong red meat export and farm-gate prices offsetting lower volumes forecast for 2019.

Export revenue was forecast to reach $9.6billion, up 0.8 per cent from the previous year.

Edible offal, processed meat, poultry and co-products continued to add to the sector's performance, offset by a weaker outlook for wool, carpets, hides and skins.

The forecast for forestry export revenue had been revised upward by $280million to $6.7billion, supported by a strong first quarter for log and sawn timber exports.

Lower log inventories in China and signs of increasing log volumes to other markets were expected to offset the recent flattening in log export prices and support the remainder of the year.

Horticulture export revenue was forecast to rise 12 per cent to $6billion. Kiwifruit revenue was forecast to rise 21 per cent over the period, driven by a large kiwifruit harvest in 2018 and rising kiwifruit prices.

As at September 2018, kiwifruit export was about 25 per cent higher than at the corresponding point in the previous two years.

Export prices were at record levels despite a nearly 25 per cent increase in production this year, and export revenue was forecast to rise to $2.2billion for the year ended March 2019.

Cherry export revenue was forecast to increase 25 per cent to $100million over the next four years.

Plans for an additional 465ha of orchards in Central Otago over the next four to five years reflected strong optimism for the profitability of the sector.

That would be a significant increase in New Zealand's total cherry orchard area of 726ha as at 2017.