KEY POINTS:
The pastoral sector can expect a bumpy ride because of rising costs and economic uncertainty, but the medium-term picture remains bright, says the Ministry of Agriculture and Forestry.
MAF deputy director-general policy Paul Stocks said the Pastoral Monitoring Report 2008 released yesterday showed 2007/08 had been a tough
season for sheep, beef, dairy and deer farmers.
"One of the biggest challenges for farmers in the coming year will be recovering from drought as well as managing the potential increased expenditure associated with rising prices for core products and services."
MAF was analysing the cost to the dairy industry of last summer's drought, with early estimates of $1.4 billion, including a production loss of $900 million over two seasons and $437 million in extra feed costs.
"Due to the economic downturn, price expectations for New Zealand's agricultural commodities in export markets are generally lower than initially anticipated," Stocks said.
However, the falling exchange rate in October and November might offset some of the weakening in international market prices, he added.
The report showed that profitability varied across the sector, MAF said.
"Dairy revenues are expected to be down as payouts recede from the previous year's record high, while sheep and beef farmers are in a finely balanced situation after the previous year's drought," Stocks said.
"There is less stock on hand and supplementary feed supplies are low."
The models in the report were prepared between June and August based on farmer and industry expectations.
The world economic crisis has become more significant since the feedback was gathered for the report.
"You're always a brave person making forecasts; you'd be exceptionally brave to make them now," Stocks said.
"What isn't clear is what real commodity demand is going to be like, say, over the next 12 months, where the exchange rate will go. Input costs have been dropping, and I suppose the other issue which is not economically related is the weather."
However, the medium-term prospects for New Zealand were very strong.
"We are a producer of high- quality, safe, sustainable product. That's really important in the food area. The kind of proteins that we produce will, I think, stay in demand and we are at an end of the market that will still retain good prices. So the medium-term outlook for New Zealand producers is very good, the short-term outlook is for a bumpy ride."
The sheep and beef sectors had a tough season in 2007/08, with the combined effect of land-use change and drought leading to a 4.3 million reduction in the number of sheep.
"For the 2008/09 season, farmers were cautiously positive. They expected lamb, wool and beef prices to improve and the exchange rate to drop. However, continued increases in on-farm costs and less stock on hand are expected to offset some of these gains."
Deer-farm profitability for venison improved in 2007/08 despite falling velvet prices, and farmers expected venison prices and revenue would continue to improve in the year ahead.