NZ goal of doubling primary sector exports to $64B by 2025 remains a stretch target, MPI says

Thursday 16th June 2016

The Ministry for Primary Industries says its goal of doubling New Zealand's primary sector exports by 2025 will require the annual growth in the value of exports to almost triple starting this year.

MPI set the target of reaching $64 billion in annual exports back in 2012. In its latest Situation and Outlook for Primary Industries report, released today, the ministry forecasts primary sector export revenue to rise to $36.7 billion in the year ending June 30 and to reach $44 billion in the June 2020 year, "which leaves us more to do" to reach $64 billion by 2025.

The nominal value of exports rose an average 3.3 percent a year between 2012 and 2016, MPI said.

"In order to reach our real export target by 2025, primary sector exports would now need to grow by an average of 9.5 percent per year from 2016 onwards," the ministry said. "Horticulture and other primary sector exports and foods have shown strong growth since 2012, but we will need contributions from the larger sectors such as dairy, and meat and wool in order to reach that target."

For the June 2017 year, MPI forecasts primary sector exports will grow 3 percent, the second straight year with that rate of growth, before accelerating in the following year.

"Next year’s price outlook reflects expectations that global agricultural markets are expected to turn a corner in 2017 and prices for key commodities should start to recover," it said. "The boost to New Zealand export growth is expected to be strongest in the dairy, forestry, and horticulture sectors. These sectors are expected to lead a 10 percent increase in export value from June 2017 to June 2018."

Horticulture is the star in 2016 with exports forecast to surge 20 percent to $5.1 billion, the first time the sector has exceeded $5 billion. Growth is projected to moderate to 6 percent in 2017, with total exports reaching $5.7 billion in 2020

"The sector is expected to continue its run of impressive growth over the medium term," MPI said. "Kiwifruit exports hit record levels for the year to March 2016, and exports of wine, apples, and pears are increasing due to new plantings reaching maturity. Horticulture prices have also increased as New Zealand has maintained its position as a supplier of premium products."

Dairy, though, faces its second weak year, with exports projected to fall 6 percent to $13.2 billion, following last year's 21 percent slump. MPI's projections are for the value of dairy exports to resume growth in 2017, at 4 percent, before jumping 20 percent in 2018 and reaching $17.7 billion in 2020.

"Dairy prices still face headwinds from increased milk production in the EU, and this is expected to keep prices low for the remainder of 2016," it said. "EU production is stabilising at higher levels but we expect any global price increases to be met with increased EU production and run down of inventories. As a result, we do not expect global export supply to fall quickly. This means a significant export recovery is not forecast until the 2017/18 season."

After growing 10 percent in 2015, meat and wool export growth is forecast to slow to a 1 percent rate in the June 2016 year to about $9.1 billion, before falling 8 percent in 2017 and remaining below this year's levels through 2020, when it is projected to be $8.8 billion.

"Herd size decreases, as well as lower cow slaughter rates as dairy herds stabilise, will contribute to declining production in the coming years," MPI said. "Beef prices continue to come down from 2015 highs due to recovering herds in Australia and the US, combined with increasing competition from Brazil."

The value of forestry exports likely grew 8 percent to about $5.1 billion in the year ending June 30, still below its 2014 high, after a 10 percent drop in 2015, and is projected to continue growing through the forecast horizon to reach $6.3 billion in 2020.

Export growth is being underpinned by log prices and increasing demand for sawn timber exports, MPI said. "New Zealand wood is expected to gain market share in China, where despite reduced overall demand, supply from USA and Canada is expected to reduce due to strong domestic demand in those markets. New Zealand is well placed to supply the growing pulp market in China, and we expect some volume increases out to 2019/20."

Demand in the US and China is expected to drive 15 percent growth in the value of seafood exports to $1.79 billion this year and the sector is also benefitting from a weaker New Zealand dollar. Exports are forecast to reach $2.1 billion in 2020.

The value of other primary sector exports and foods, which includes honey, some processed foods, vegetable-based dyes and spices, is forecast to grow 14 percent this year to $2.37 billion and to continue rising through the next four years to reach $2.9 billion in 2020.

"Honey prices continue to increase, driving a 20 percent increase in hive numbers in the past year," MPI said. "Overall though, honey production is expected to be down 5-10 percent this year due to unfavourable weather conditions over spring and summer."

Exports of arable farm products are expected to grow 14 percent to $202 million this year and to have climbed to $243 million in 2020.

"The outlook for vegetable seeds is good, with increased demand for global food production and New Zealand’s good supply reputation contributing to higher prices," MPI said. "The 2015/16 season produced average crop yields and prices for domestic feed grains have been poor due to the downturn in the dairy sector and abundant international supply."

BusinessDesk.co.nz

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