Strong dairy sector underpins agriculture's economic importance

5 August 2008

The Ministry of Agriculture and Forestry (MAF) is predicting the strength of the dairy sector will reinforce agriculture's cornerstone position in the New Zealand economy over the next five years.

The Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) 2008 report released today, projects continuing strong performance from the dairy industry and improving returns for the beef and lamb sectors.

Milk payouts are currently at a 43 year high - with total dairy export revenues increasing in the year ended in March by 28% to $10.4 billion.

Record international dairy prices have offset the impact of the high New Zealand dollar and drought on the sector and dairy export earnings are projected to increase to more than $12 billion next year.

While MAF is predicting dairy prices have peaked, the outlook for dairy remains strong as production recovers from the recent drought and the industry expands.

"The SONZAF report shows the meat and wool sector have struggled against the drought, high dollar and rising input costs but should expect more favourable conditions ahead," MAF Director-General Murray Sherwin says.

"The meat and wool sectors are both seeing major flow-on effects from the drought through falling stock numbers and poor animal condition. This is forcing processing and marketing changes," Mr Sherwin says.

Based on Treasury assumptions of gradual falls in exchange and interest rates, MAF expects stronger commodity prices will lead to improved farm, forest and orchard gate returns.

"We see these domestic factors accompanied by continuing global commodity demand helping to restore confidence across agricultural sectors," Mr Sherwin says.

The SONZAF report notes that while the economic outlook in Western markets looks flat, international food demand remains strong in the fast developing markets of China, India and oil producing countries.

OPEC countries, for example now account for 21% of New Zealand's total dairy export value - up from 17% the year before.

Wine exports are also growing rapidly with a bumper harvest expected to push export volumes up by 30% this year. Wine now earns more than wool in export returns.

"The international demand for sustainably produced agricultural products is strong - and New Zealand producers that stay focused on their consumers look well placed to take advantage of this," Mr Sherwin says.

ENDS

For further information contact:

Deidre Hill
MAF Communications
Tel: 04 894 0192, 029 894 0192

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