Primary industries revenue forecast to drop 8pc

Beef export prices have peaked in 2015 and are forecast to be broadly maintained over the next 12 to 18 months, before softening in response to global supply growth. Photo: Paul Taylor.

The Ministry for Primary Industries expects total revenue from primary industries to drop by just 8 per cent to $35.2 billion in the year to June, despite big declines in the dairy and forestry sectors, and for the next four years to show steady export growth.

The ministry, in its latest "situation and outlook" report, said the primary sector had shown resilience over the year and that it expected a modest bounce back in 2015/16.

"There's no denying that it's hard going right now for some of New Zealand's primary industries but we are forecasting better times to come," the ministry's director of sector policy, Jarred Mair, said in a statement.

Longer-term the outlook is for steady growth across all sectors.

Total export revenues by June 2019 are expected to be $41.3 billion - a 17 per cent increase on this year, the report said.

Growth would be underpinned by income and population growth in China and Southeast Asia.

Steady growth in other key markets would further bolster growth, it said.

Expectations of a sustained recovery in the US housing market boded well for higher-value forestry exports, the ministry said.

"The last 12 months have been an example of the benefits of having a diversified production base and highly adaptable export companies," Mair said.

"It was a tough year, with volatility in overseas markets for some of our key export commodities, and challenges to production from climatic events such as drought, storms and floods," he said.

China remained the most important market for New Zealand's primary industry exports.

Demand drove dairy prices high heading into 2014, and China's construction boom helped lift forestry export earnings.

However, excessive inventories and slowing construction have reversed these price gains for the 2015 year.

Volatility in dairy markets has been further exacerbated by abundant milk supply from other exporting countries and from geopolitical factors such as the Russian trade sanctions.

Total dairy export revenue is expected to be $14.2 billion for the year ended June 2015, 22 per cent down from the 2014 peak, but 5 per cent above dairy export revenue earned in 2013.

Dairy export revenue is forecast to grow from June 2015 out to June 2019 at a compound annual growth rate of 6.8 per cent.

The pace of growth is expected to rise from 2016 and will primarily be driven by increases in prices rather than volumes.

The ministry said meat and wool export revenues are expected to be 8 per cent higher in the 2014/15 year, driven mainly by very high prices for beef and veal and strong New Zealand production.

This had offset weaker returns for sheep meat, venison and some co-products.

Beef export prices have peaked in 2015 and are forecast to be broadly maintained over the next 12 to 18 months, before softening in response to global supply growth, it said.

Sheep meat earnings are currently being suppressed by softer international prices and drought in parts of New Zealand. Growth is expected to resume in 2017.

The slowing Chinese economy and real estate market, coupled with high log inventories and the potential for more Russian imports, mean that the remainder of 2015 could be tough for log and timber exports into China.

Seafood export earnings are expected to be up 6 per cent for the 2015 year.

Prices were likely to remain high due to growing demand from the main seafood export destinations of China, the EU and the United States.

Total horticulture export revenue is estimated at $3.97 billion for the year ending June 2015, up 4.8 per cent on the previous year.

This is driven by kiwifruit and wine exports, largely due to higher export volumes.

Apple and pear export revenue is expected to be down 10 per cent to $493 million for the year to June 2015, due to lower prices and volumes.

See the full report here: