Despite a globally volatile trade environment and continuing supply line disruptions, New Zealand’s primary sector is forecast to continue on its strong growth trajectory – but cost pressures are also surging.
The latest Situation and Outlook for Primary Industries (SOPI) report, released at Fieldays at Mystery Creek near Hamilton, forecasts 4% year-on-year growth in the sector’s exports to achieve a record $55 billion by year end June.
The forecast comes in almost $3b ahead of expectations, with relatively strong growth across almost all key primary sectors.
But dairy continues to do the bulk of the heavy lifting for the growth figures, with estimates of a 6% lift in export revenues to a new high of $23.3b.
Horticultural gains are estimated at 5% to $7.1b, arable up 5% to $265 million, and meat and wool is expected to experience a more muted 1% lift to $12.4b.
Forestry is expected to gain less than 1%, to $6.6b of earnings.
The continuing gains amount to an increase of $12b in earnings over the past five years for the primary sector, or an average per annum growth rate of 5.5%.
In announcing the report, MPI director-general Ray Smith said the sector has displayed a remarkable level of resilience over the past year given continuing challenges to global inventory levels and supply chain issues.
He also acknowledged some of the headwinds facing the sector, particularly around cost rises.
Farm expenses across all costs lifted 15%, with fuel surging 53%, fertiliser 37% and interest rates 34%. He also noted that while world food prices are coming back from their peak, they are not back to where they were prior to their surge.
He also pointed to a global economic slowdown to about 2.2% in 2023, while climatic conditions are starting to manifest in seasonal farming operations across New Zealand.
Heavy rainfall, unseasonal frost conditions and exceptionally warm summers are all playing a role, with this winter’s high rainfall specifically cited by the report’s authors for its impact on pasture growth and crop production.
The biggest winner from shifting climatic conditions was wine, with a warmer-than-average summer delivering a record vintage and exports soaring 27% to $2.5b in value in the horticultural sector.
China’s predominance in NZ’s trade patterns is not expected to fade in coming months, continuing to dominate, dairy, meat and forestry.
But Smith said interesting developments in trade patterns included the United States eclipsing Australia to account for 10% of NZ’s export markets to June 2022, nudging ahead of Australia’s 8%.
He cited the recently inked United Kingdom free trade agreement as an opportunity more exporters need to recognise, often having dismissed the UK on grounds it is a market that is simply too hard and too distant to deal with.
“Maybe we need to think about it as more of a foreign market than we do. A good target would be to get the UK to 10% in coming years to even up the trade ledger a bit.”
At present the UK separate to the European Union accounts for only 2% of export trade.
“This is a really good report but not a straightforward one. When you get under the numbers, there are a lot of cost increases in there too,” said Smith.
