December 20, 2023


New Zealand's weaker export revenue of dairy, meat expected to drag down overall export revenue




New Zealand's food and fibre export revenue will likely drop 5% in the current financial year, the country's Ministry for Primary Industries (MPI) predicted.


The drop comes after the year to June 30 exceeded expectations, with an 8% increase to $57.4 billion, MPI's Situation and Outlook for Primary Industries report stated.


The predicted drop to $54.3 billion is due to weaker export revenue for New Zealand's three largest sectors: dairy (providing 45% of export revenue), meat and wool (providing 21%) and forestry (providing 11%).


"However, revenue growth for some smaller and emerging seafood and arable sectors is set to limit the overall fall in export revenues," the report said.


The 2023 result outperformed expectations, MPI said, resulting from a lift in prices for dairy, horticulture, seafood, arable and processed food, and other products, despite declines in the meat, wool and forestry sectors.


A weaker New Zealand dollar against the US dollar also contributed.


"Farmers, growers, fishers, foresters and processors have continued to produce high-quality products despite multiple headwinds and heightened volatility," the report added. "At the global level, this includes a weaker global economy, high inflation and associated costs of living, changes in central bank rates affecting lending rates and exchange rates, and increased uncertainty.


"Extreme weather events, geopolitical tensions and an increased focus on food security has led to large swings in global supply, input availability and trade dynamics."


The report said, domestically, sectors managed the effects of cyclones Gabrielle and Hale in the North Island, as well as dry weather followed by flooding in the lower South Island.


"In addition, sectors have faced constrained demand and resulting lower output prices, elevated input costs and a tight labour market," it noted.


The report said producers were likely to experience downward pressure on profitability in 2023/24 due to high and increasing input costs for all sectors and falls in prices for some outputs such as milk, meat and logs.


"Most producers and processors are well-prepared to weather this temporary economic storm, with the exception being some businesses with high debt levels," it stated. "Balance sheets are generally in good shape for most sectors due to record prices over the last couple of years, allowing for debt reduction.


"As the food and fibre sector navigates lower commodity prices and higher input costs, and as we shift to a warmer and drier El Niño weather pattern, sectors will further adjust their operations to improve business and sector outcomes."


Predictions for the year ending June 30, 2024 have been made and some of these include:


   - Dairy: Export revenue is expected to decrease 7% to $24.1 billion, due to lower global dairy prices and a likely drop in export volumes because of a decline in milk production. A probable lower farm gate milk price of $7.60 per kilogramme of milk solids, combined with high farm expenses, especially greater debt servicing expenses, are likely to reduce farm profitability;


   - Meat and wool: Export revenue is expected to decrease 5% to $11.6 billion, due to weaker purchasing power and consumer confidence in key markets. Sheep and beef farm profit before tax is forecast to fall 31% following a 32% decline in 2022/23, due to lower revenue and higher input costs;


    - Seafood: Export revenue is expected to increase 8% to reach $2.3 billion, with export prices remaining high due to robust demand and tight supply. Despite improvements in prices, high input costs remain a challenge for some fishers and seafood farming businesses.


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