The Ministry for Primary Industries says, in the space of a week, it’s had over 120 applications for assistance from the special drought recovery fund.
All according to the Ministry for Primary Industries’ December Situation and Outlook report.
But it warns that potential volatility is on the horizon: international markets, weather and labour could present challenges.
Primary industry exports are forecast to increase by 3.8% for the year ending June 2019 to $44.3 billion, the report says.
“Overall, the forecast has been increased $505 million from the previous forecast round, boosted by higher prices in New Zealand dollar (NZD) terms and a positive production outlook so far this season.
“This would be the fourth straight year of rising export revenue following the dairy downturn in 2015.
“Export revenue increased 11.7% last year, with higher export revenue in all primary industry sectors.
“Horticulture is expected to be the fastest-growing export sector in 2019, driven by both strong consumer demand and good growing conditions for most horticultural crops in the most recent harvests.
“Dairy export revenue is now forecast to reach $17.2b in the year ended June 2019 -- a rise of 3.3% on the previous year. This rise has been driven by an increase in milk production following a very strong start to the dairy season.”
While prices are weakening for some key dairy commodities, the impact is offset by growth in higher value products such as infant formula and a more favourable exchange rate.
Looking beyond 2019, primary industry exports are forecast to fall slightly to $44.0b for the year ended June 2020.
“Dairy production and export volumes are forecast to dip slightly, and red meat prices are expected to decline since prices are currently well above long run averages.”
Most macroeconomic indicators are positive for the primary industries. The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) has been ratified, and income growth in NZ’s main trading partners remains robust.
However, international markets have begun to experience an increase in volatility. This is particularly the case with the NZ dollar, but also with a recent fall in dairy commodity prices and in equity markets around the world.
“The underlying causes of this volatility are complex, but Brexit and the trade dispute between the US and China both highlight the uncertainty under which global markets are currently operating,” the report says.
“While the medium term implications for this volatility are yet to become apparent, the risks to primary industry exports have increased.”
Other potential challenges identified include a developing El Nino weather pattern; while the impacts of each El Nino are different, they generally lead to drier conditions in the north and east of NZ.
Labour supply also presents a challenge.
“With unemployment rates currently at low levels and employment demand projected to increase, labour constraints are present not just in the primary industries, but across the NZ economy.
“The challenges created by this issue are often amplified by the seasonal nature of labour demand in the primary sectors. Part of this pressure has been addressed with the recent 15.8% increase in the Recognised Seasonal Employer Scheme cap on immigrant workers to 12,850.”
Dairy: A forecast rise of 3% in milk production is expected to boost export volumes. While international price declines are forecast for key commodities such as whole milk powder (WMP), butter, and skim milk powder (SMP), this will be partially offset by a forecast weakening of the NZ dollar and continued strong prices for higher value dairy exports.
Meat and Wool: A positive outlook with strong red meat export and farm gate prices offsetting lower volumes forecast for 2019. Export revenue for the year ending June 2019 is forecast to reach $9.6b, up 0.8% on the previous year. Edible offal, processed meat, poultry, and co-products continue to add to the sector’s export performance, offset by a weaker outlook for wool, carpets, hides, and skins.
Horticulture: Export revenue is forecast to rise 12% for the year ending June 2019 to $6b. Kiwifruit revenue is forecast to rise 21% over this period, driven by a large kiwifruit harvest in 2018 and rising kiwifruit prices. Apple and pear production and exports are at record levels.