Falling dollar no panacea for primary sector

The Ministry of Agriculture and Forestry (MAF) is predicting only modest growth from the primary sector over coming months, despite a surge in confidence due to the falling New Zealand dollar.

MAF today released its latest forecasts for the dairy, meat and wool, forestry, kiwifruit, apples and wine industries for 2006 to 2010.

The Ministry's Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report shows that the sector's confidence has turned around since the beginning of 2006 and there are greater expectations of profitability. The confidence boost has been driven largely by the depreciating New Zealand dollar.

The MAF report supports this confidence by forecasting that export revenues in the sector will grow from $15.7 billion in the year ending March 2006 to $17.9 billion in the year ending March 2007. By 2010, exports are forecast to reach $20.5 billion, up $4.8 billion on 2006.

However, MAF Manager of Monitoring and Evaluation Peter Gardiner warned that increasing costs would affect profitability, and that income growth in the sector was only expected to be "modest" between April 2006 and March 2007.

He said energy costs, which account for around 20 per cent of farm production costs, were likely to remain high.

"The weakening New Zealand dollar will raise the cost of oil, fuelling rising costs of fertiliser, transport and a range of other business expenses. Costs of imported goods will also increase, affecting primary producers and their associated downstream industries," he said.

In addition, the report shows that international prices for meat and dairy products are in retreat and are expected to reach a low point in 2007. The price of horticultural and forestry products is improving, and is expected to continue to do so, but these industries are having difficulty attracting workers and labour costs are rising.

Peter Gardiner said international venison and wool prices were expected to recover from the relatively low levels in 2005. But rising costs would continue to affect profitability.

The dairy, meat and wool, forestry, kiwifruit, apples and wine industries make up about half of New Zealand's total merchandise trade. Total agricultural, horticultural and forestry exports represent more than 60 per cent of total merchandise trade.