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MAF looks to exchange rate drop to lift farm earnings

Tuesday 14th June 2011

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Timber, wool, lamb, beef and dairy products are proving the backbone of the economy as they fetch high prices in global commodities, says senior agriculture official Paul Stocks.

"The agricultural, forestry and associated processing sectors ... have played a critical role in recent years in assisting New Zealand's recovery from the impact of the 2008 global economic crisis," said Mr Stocks, deputy director-general of the Ministry of Agriculture and Forestry (MAF).

Mr Stocks said relative strength of the New Zealand dollar had seen only a portion of these foreign currency price gains actually reach farmers and foresters, but the high exchange rate had also reduced the impact of price rises in imported fuel and fertiliser.

An assumed depreciation in the New Zealand dollar meant MAF was projecting steady production growth beyond 2012 in dairy, forestry, wine and kiwifruit, with strong growth forecast for export revenues.

The dollar had risen 3.2% against a trade-weighted basket of currencies in the year to April 2011, and a full 10% against the US dollar.

MAF was using Treasury forecasts for the dollar to remain at historically high levels until the middle of 2012 and then to drop to historic averages - boosting the farmgate returns.

Over 2012, additional global milk production was expected to drive down record US dollar prices for dairy products, with a 5.7% increase in New Zealand milksolids production expected in the 2011/12 season, and high dairy prices encouraging conversions from sheep, beef and crop farms in the South Island.

Strong demand for logs and processed timber led to a record harvest of 24.8 million cubic metres in 2010, up by 19% on 2009. Continuing Chinese demand, quake reconstruction in Canterbury and Japan, and flood repairs in Australia were expected to push up prices, without much further growth in log production.

International prices of beef, lamb and wool rose sharply in the past year because of falling global production and increasing demand, but local meat and wool production was affected by bad weather in the year to June 30.

Production was expected to recover in the next season but beyond 2012 production would be constrained by farms being converted to dairying.

Kiwifruit and apple returns this season were expected to be fairly stable, but wine export prices had slumped.



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