A bright outlook for NZ agribusiness

by david on June 19, 2011

Here's looking at a bright future for NZ agricultural exports

The latest Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) paints an incredibly bright picture for NZ’s agriculture sector.

During the six year period, from 2010 to 2016, gross agricultural revenue is forecast to expand by some 45% from $22 billion to $32b.

As Federated Farmers’ Phillip York says: “This must be a major cause for celebration for all New Zealanders because these export dollars directly pay for health, education and social services.”

However, before anyone starts cracking the champagne it should be noted that SONZAF has used Treasury’s Budget forecasts with the Kiwi dollar projected to fall back to historic averages by 2015. This values the NZ dollar at US58 cents and UK30 pence, whereas it currently sits at 80c and 50p respectively.

Despite this, the overall picture for New Zealand’s primary sector is very good with a lack of supply and strong demand for our products driving prices. What’s more, the outlook is strong in the long-term.

“The food security debate that’s happening internationally means that being a food producing nation is an exceptionally good place to be, especially a food producing nation that’s at the top end of the market with quality and integrity,” says MAF’s deputy director general Paul Stocks. “Frankly, I can’t think of a better place for this country to be in.”

And not many would disagree with these sentiments.

Not surprisingly it’s the dairy industry that’s leading the boom, with growing milk supply and strong international prices. Meanwhile, for the first time in many years, meat and wool farmers have smiles on their faces. Lamb exports this year are expected up 9.7% to $2.7b and to reach $3.7b by 2015.

Wool prices are another piece of good news with values predicted to hold. The report suggests beef export prices in US dollars will fall slowly over the next two years, but beef export value will rise from the present $2b to $2.6b by 2015.

Forecasts:

Dairy: The strong demand driving commodity price rises is likely to remain, but additional milk supply in 2012 and beyond is expected to drive international prices down from current levels. MAF forecasts the milk price for the 2011-12 year at $6.87 a kilogram of milksolids, reflecting softening international prices as world supply starts to respond to increasing demand. Beyond 2012, the assumption of a depreciating New Zealand dollar drives most of the lift in the milk price, which is projected to be $8.64 in the 2014-15 year.

Lamb:  International prices are expected to fall over the next two years as flock numbers build in Australia and New Zealand, assuming average climate conditions. Over the remainder of the outlook period to 2015, international lamb prices are expected to increase slowly as sheep numbers continue to decline in Britain and Europe and wealth improves in the Middle East and China.

Wool: Prices are likely to remain high this year and to gradually rise on constrained supply and rising incomes over the following three years. Average sale prices are estimated to be up by 32 per cent, to 503c a kg of clean wool for the year just ending the year ending and to average 515c over the outlook period.  This compares with the five-year average to 2010 of 376c.

Beef:  Export prices are expected to fall slowly over the next two years.

Further out, growing incomes and population in Asian and other developing countries, along with increasing production, mostly in developing countries, should result in rising prices as supply lags behind demand. By 2015, beef export value is projected to be $2.6 billion.

Deer: The average stag schedule price for the year just ending is estimated at $7.25 a kg, down slightly on last year, reflecting the erosion of an appreciated Kiwi dollar against the Euro. A projected increase in schedule prices from 2012 to 2015 is underpinned by growing overseas demand for venison.

Forestry: Demand is expected to remain strong, with Chinese growth continuing and the need for reconstruction following earthquakes in New Zealand and Japan and floods in Australia. Prices are expected to rise but further growth in harvest volumes in New Zealand will be constrained.

Kiwifruit: Total kiwifruit export volumes are expected to increase to 107 million trays for the year to March 2012, while export returns are forecast to be more than $1b. Gold kiwifruit volumes are expected to increase by 33%, to 28 million trays.

Apples: Average prices for New Zealand apples this year are expected to increase by 10% on last year. An orderly entry of fruit into the main markets will be critical to offset the high value of the Kiwi dollar.

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