Tuesday, 12 January 2021 03:55

Mixed outlook for primary sector

Written by  Peter Burke
Damien O'Connor Damien O'Connor

After five years of growth, New Zealand's primary exports are heading for a drop in 2021 - but with a bounce back predicted in 2022.

 

Agriculture and Trade and Export Minister Damien O'Connor is putting on a brave face about the situation saying the prospects for the future of the sector are bright and NZ has done well in the Covid environment. But O'Connor warns that the country is facing a tough time internationally with many countries, notably the USA, UK and Europe, facing major problems with fresh outbreaks of Covid.

He says one of the biggest challenges is the logistics of getting our products to market due to Covid and also Brexit. O'Connor says getting containers has been an issue, as has getting the right ships in the right place at the right time.

"Many of our big exporters have moved early to avoid the rush and while it still remains tough for them, there is no indication of crisis," he told Rural News.

In its latest report on the Situation and Outlook for the Primary Industries (SOPI), the Ministry for Primary Industries says export revenue from the sector will drop 1% to $47.5 billion in the coming year. However, MPI optimistically predicts that in a year's time, things will change and the value of our primary exports will be $49.2 billion - up 3.6%.

The SOPI report says the outlook for meat and wool exports remains volatile with export revenues expected to drop from last year's $10.7 billion to $9.8 billion. It puts this drop down to problems in the food service sector, which has been badly hit by Covid.

The report notes that products sold through large formal grocery stores have performed much better. In the coming year, SOPI is predicting wool exports to fall again and virtually remain static at just over $550 million the following year.

The situation for meat is slightly better with beef and lamb exports expected to fall in 2021 and pick up again slightly the following year.

The saving grace for the sector appears to be China, where demand has strengthened while decline in Australian sheep and beef exports caused by a drought in that country has seen less Australian meat in global markets.

Dairy export revenus is forecast to decrease 4.6% to $19.2 billion for the year to June 2021, driven by weaker global dairy prices, as markets continue to deal with the impacts from Covid-19.

The only sector bucking the downward trend is horticulture with export revenue forecast to hit nearly $7.1 billion, an increase of 8.9% on the previous year. This is driven by successful harvests in early 2020 and continued strong demand for our fresh fruit and wine.

Kiwifruit exports are edging closer to the $3 billion mark and wine in 2021 should make it to $2 billion.

However, while the long-term predictions look promising and hopeful, there are potential storms gathering. Global trade, notes the SOPI report, is "subdued" due to Covid. There is the threat of Brexit and how the UK and EU will manage the 'deal' they agreed to just before Christmas.

NZ will be watching closely how the Chinese economy performs, given that it is one of our key export markets. And lurking in the background is performance of the NZ dollar. Ironically, NZ's handling of Covid has seen the NZ dollar appreciateand if this continues, it could put downward pressure on the value of our export earnings over the coming months.

O'Connor's Focus

Despite all the uncertainty, Damien O'Connor remains upbeat about the future.

He says NZ produces a lot of goods and services that are highly desirable around the world - be it meat or dairy. O'Connor reckons NZ is a nation of innovators and has been quick to adapt to the new environment.

"We have high quality goods that are still demanded by many consumers, the issue is getting them to the right consumers at the right time, ensuring the logistics chain is not interrupted and marketing products in a way that maximises their value," he told Rural News.

O'Connor claims the message from our customers around the world is that they are looking for quality goods that are produced based on ethical values and produced with a low carbon footprint. He says if they are buying animal protein they want very high standards of animal welfare and to be certain that staff on farms and processing plants are well looked after.

"We have had good leadership from Beef+Lamb NZ and DairyNZ bringing those key messages back from the market to their levy papers," he explains. "They understand why the investments are required in these areas.

"There is also a new generation of farmers coming into leadership roles and they absolutely get the need for us to have integrity to all the stories we tell offshore.

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