KEY POINTS:
A post-drought farming recovery will next year contribute to 2.3 per cent real growth in gross domestic product (GDP), Ministry of Agriculture and Forestry (MAF) economists predict.
This recovery in the year ending March 2010, will be followed by a bigger bounce in 2011, when "real GDP growth
is forecast to rebound to around 3 per cent per year, with exports boosted by a falling exchange rate," the economists said today in a series of annual forecasts for the rural economy.
"In coming years, agricultural sector income is forecast to improve."
This was due to dairy gross revenue remaining strong, a recovery in farmgate meat prices, a depreciating exchange rate and falling interest rates keeping a lid on interest payments.
Treasury officials have predicted that the exchange rate for the NZ dollar will fall by 20 per cent over the next four years, with the biggest falls expected in 2009 and 2010.
Part of this prediction was based on an expected fall in "soft commodity" prices, a slower economy, and interest rates in this country falling while they rise in Japan and the United States.
Record international dairy prices helped boost export earnings for agriculture and forestry by 8.4 per cent to $23 billion, in the year to March 31.
Dairy prices hit their peak in early 2008, meat prices lagged but have improved this year, and log prices have been strong since the beginning of 2007.
Rises in international commodity prices have also included oil, metals and grains - all with the common factor of strong demand from China, India and other rapidly developing economies.
"Because of the pace of change in these countries, and their sheer scale, the size of this new demand for commodities is unprecedented," the MAF Situation and Outlook report released today said.
But while prices for most forestry and agricultural exports are buoyant, farmers and foresters are up against that strong New Zealand dollar, rising costs and the effects of the recent drought.
In July 2007, the New Zealand dollar hit its highest level since it was floated in 1985, but the report said it was likely to depreciate gradually against major currencies over the next four years.
"Significant relief for orchardists, farmers and forest owners does not arrive until well into 2009."
A lower NZ dollar exchange rate was likely to reduce the nation's buffer against imported oil and fertiliser prices.
In the meantime, real GDP growth was expected to fall from 3.1 per cent in the year ended 31 March 2008 to 1.5 per cent in 2009 - driven down by the continuing effects of the drought, and a combination of high interest rates, falling house prices, and higher petrol and food prices.
Tax cuts would provide some offset by boosting increasing disposable incomes, MAF said.
Gross agricultural revenue at the farmgate was estimated to have risen by 6.4 per cent during the year (to March), because the increase in dairy revenue was greater than the drop in meat and wool revenue.
But over the same period, the amount of interest paid by the agricultural sector rose by more than 30 per cent.
- NZPA