Export earnings from agriculture set to rise

Wednesday, 17 July 2024

The June 2024 edition of the Situation and Outlook for Primary Industries (SOPI), is forecasting an increase in revenue for the agriculture industry.

New Zealand’s food and fibre sector continues to make a significant contribution to the New Zealand economy. The sector accounted for more than 80% of the country’s goods exports in the year to March 31 2024. Over the last 10 years, food and fibre exports have grown on average by 3.6 % per year whereas other merchandise exports have grown by 1.6%. The Government has an ambitious plan to double exports in 10 years.

“We have set the aspirational goal of doubling exports by value in 10 years. At the heart of this is New Zealand’s world-best food and fibre sector. As Minister of Agriculture, Forestry and Trade, along with my colleagues, we have made a commitment to conduct a record number of trade missions to grow our relationships, deepen our business connections, and open doors for Kiwi exporters.” the Minister of Agriculture, Hon Todd McClay said.

“This includes increased investment in our relationships with the Gulf Cooperation Council, India, the Pacific Alliance, and partners across South East Asia. We will renew investment in our enduring trade relationships to foster conditions that spur further achievement and facilitate high-quality free trade agreements.”

In the report, the Minister said doubling the value of New Zealand’s exports required strengthening the foundations for growth and increased investment in innovation.

“We have also recently kicked off negotiations with the United Arab Emirates (UAE) on a Comprehensive Economic Partnership Agreement to unlock further commercial opportunities for our exporters.”

Food and fibre export revenue is expected to reach $54.6 billion in the year to June 30 2024 down 5% from the $57.4 billion in 2022/23 due to higher prices for the dairy, horticulture, seafood, and arable sectors. Revenue will increase to a record $66.6 billion in the year to June 30 2028.

The export revenue reached In 2023/24 was a correction in prices for key commodities including dairy, beef, sheepmeat, forestry, and wine products which reflected a slowdown in global growth and depressed import demand in key export markets such as China.

The slowdown over the past two years is due to a surge in inflation, tightening of monetary policy, and rising geopolitical tensions. Higher global production and export volumes for food commodities are dampening export prices. A weaker NZD against the USD has supported export revenue in year to June 30 2024.

Our 10 largest markets are China at $17,536m, followed by the US $6,307m, Australia $4,516m, the EU, excluding the UK, $3,246m, Japan $2,650m, South Korea on $1,493m, Taiwan $1,432m, Indonesia $1,398m, Malaysia$1,187m and Thailand $1,115m, rounds out the group.

Dairy had the highest percentage of exports on 44% which equated to $23,698m with China our biggest dairy market. Meat and wool on 21% was $11,394m with China once again being the largest market. These were followed by horticulture at 12%, forestry 11%, seafood 4%, processed food on 6% and arable 1%.

Dairy

Dairy export revenue is expected to decrease 7% to $24.2 billion in the year to June 30 2024 due to lower global dairy prices driven by weaker global demand and an increase in supply, specifically improved milk production in China. Milk production is forecast to increase 0.7% driven by better-than-expected weather conditions. The drop in export prices is expected to lead to a lower farmgate milk price of $7.90 per kilogram of milksolids for the current season. The lower farmgate price combined with high farm expenses, especially greater debt servicing expenses, is likely to reduce farm profitability.

Meat and wool

Meat and wool export revenue is expected to decrease 6% to $11.4 billion in the year to 30 June 2024. Key meat export prices are expected to fall due to higher global red meat production and weaker global economic conditions. Lower export prices for beef, lamb, mutton, and wool are forecast to be partially offset by higher prices for petfood and venison. Higher lamb and beef export volumes are also expected to help partially offset export price falls. Sheep and beef farm profit before tax is forecast to fall 54% in 2023/24, following a 29% decline in 2022/23, due to lower revenue and higher input costs.

Forestry

A drop of 7% to $5.9 billion in the year to June 30 2024 in revenue is expected. Supply-side shocks decreasing export volumes and weak global demand for processed wood products are expected to be partially offset by an increase in log export volume and revenue. Large log export volumes mostly offset by weaker prices are expected to tip log export revenue into a slight year–on–year increase of 1%. Export revenue declines are expected in all processed wood product categories. In 2024/25 and 2025/26, processed wood production is forecast to recover, lifting export revenue.

Horticulture

Horticulture export revenue is expected to increase again by 1% to $7.1 billion. Climatic conditions were favourable for most crops recovering from the impacts of the previous wet summers and cyclone damage. Kiwifruit, apples, cherries, and vegetables all saw increases in production. This was countered by weak demand for wine due to high global inventories and a poor season for avocados. Harvests have been assisted by a good supply of seasonal labour with both Recognised Seasonal Employer scheme workers and backpackers available. While fertiliser and fuel costs have declined over the past year, overall input costs are rising.

Seafood

Revenue is expected to increase 5% to reach $2.2 billion.

Export revenue from aquaculture is set to increase 12% driven by higher prices while wild capture revenue is set to increase 3% driven by higher volumes. Export prices of key export species are expected to remain high due to demand and tight global supply. Export volumes are expected to rebound from a particularly bad year for seafood production helped by several factors including improved technology, and increased workforce availability. Despite improvements in prices, high input costs remain a challenge for fishers.

Arable

Arable is expected to increase 12% to $310 million in the year with increased returns in all export categories led by vegetable seeds. Seasonable conditions were mostly favourable through 2023/24, finishing with a good harvest. Total tonnage for cereal crops was up 3% on last year due to a 4% increase in overall yields from a similar number of hectares as last year. Domestic grain prices have fallen over the last year, and demand for grain has been subdued.

Processed food and other products

Revenue for the processed food and other products sector is expected to decrease 1% to $3.5 billion which stems largely from the ban on live animal exports by sea. However, the National Government has recently announced it is moving forward with its commitment to reinstate the sector.

There is strong growth in the other products sector, which is forecast to reach $1 billion in export revenue for the first time, primarily driven by upward trends in the exports of vegetable oil. The honey sector is also showing signs of recovery with export revenue expected to grow by 11%.

Across the food and fibre sector, 359,000 people were employed in the year to March 31 2022, representing 12.8 % of the total workforce. Primary production employment is distributed across the country, but processing and commercialisation activities are concentrated in Auckland and other major population centres.

“This Government recognises the important role it plays in driving our economic success whether this is through the jobs it provides, the rural communities it supports, or the millions of people around the world it sustainably feeds,” the Minister said.

“The Government is committed to backing our leading exporting sector’s continued success, profitability, and sustainability.”