Tough going for primary products

The Ministry for Primary Industries has released a half-year update to the annual Situation and Outlook for Primary Industries report, which it published in June.

The deteriorating global economic conditions are having a significant impact on returns for New Zealand's primary products, MPI says.

The update shows there has been strong pastoral production so far in the 2012/13 season. "This is partly due to favourable climatic conditions during the previous season which left breeding stock in good condition, and also ongoing expansion of the dairy herd," says Chris Jones, the manager of Economic Information and Analysis for MPI Sector Policy.

However, MPI reports the continuing economic slowdown, particularly in the traditional markets of the European Union, is causing weaker demand for some New Zealand products such as lamb.

And the strengthening of the New Zealand dollar against most major trading currencies in recent months is having a dampening effect on farm-gate returns for primary produce.

Key points for the main sectors:

• International dairy prices are expected to recover over the remainder of the 2012/13 dairy season and beyond.
• Lower lamb prices are expected, resulting from weaker demand in key European markets.
• Beef prices are expected to remain firm over the next two years, following a major drought in North America affecting production there.
• The forestry sector will remain squeezed over the next few years, due to subdued demand from major export markets – export volumes are expected to hold up, but some product prices will not.
• Horticultural exports are on track to reach $3.5 billion in export earnings in the year to March 2013, with higher in-market prices expected to offset lower volumes of kiwifruit and wine.
• The bacterial vine-killing disease Psa-V has spread to nearly all kiwifruit growing regions, and will adversely impact gold kiwifruit exports in the year to March 2014.