The Ministry for Primary Industries is predicting export revenue to fall for this financial year, driven by declines in the export value of dairy and forestry products.
But, in its latest situation and outlook report released today, it is expecting better times to come in the next four years.
Photo: RNZ / Alexander Robertson
The ministry is forecasting primary industries' total export revenue in the year to June to be $35.2 billion - an 8 percent drop on the same period a year earlier.
However, it is expecting a 1.5 percent increase in export earnings for the next financial year, to $35.7 billion.
It also forecasts steady longer term growth across all sectors, including dairy, forestry, fruit and vegetables and arables, and is predicting the overall export value will be $41.3 billion by June 2019.
It said this would be underpinned by income and population growth in China and South East Asia.
Fundamentals for dairy still strong - MPI
Dairy accounts for more than 40 percent of the country's overall export revenue.
MPI director of sector policy Jarred Mair said dairy had been the driver behind this year's fall.
"That's predominantly being led by a softness in both price and that's being led predominantly from the decline in the Chinese market," he said.
"So what we're seeing there is a bit of a weakness in terms of their demand for whole milk powders - but conversely we are seeing some good growth and strength from other markets ... The volumes that are now going through South Asian countries has actually extended and [is] growing quite significantly."
But he said the fundamentals for dairy were still strong.
"We've got good strong growth in terms of our export markets in terms of the wealth of their consumers, and also the growing populations in those countries...
"We see the global dairy market return to equilibrium, in terms of the supply-demand dynamic [and] good strong growth, and we are predicting that to return to roughly around 2 percent a year, as we've seen over the last decade."
Growth expected for meat and wool
High prices for beef and veal and strong production have driven export revenue for the meat and wool sector, which is expected to be 8 percent higher this year.
Mr Mair said severe droughts in Australia and America have driven the beef price because those countries have had to reduce their capital stock.
"What we have now is an opportunity for New Zealand to increase its beef production and feed that into the American market in particular.
"What we will see though over the next two years is a rebuilding of that capital stock into the Australian and the US market, and we'll see those prices return to more traditional growth."
Photo: RNZ / Alexander Robertson
He said this offset weaker returns from sheep meat.
"That's predominantly again led by the Chinese market, just in terms of a dampening in demand there, but again, long-term demand for protein is pretty strong.
"We're also seeing some quite good strong demands for the wool clip as well, so the sheep sector, although having a bit of a bump at the moment, has got a good future over the next couple of years as well."
Tough year for forestry
A slowing Chinese economy and real estate market were also factors in the tough year for forestry.
This was compounded by high log inventories in China and the potential for more Russian exports, which Mr Mair said could mean the remainder of the year would be tough for the sector.
"The story there is predominantly based on the demand for construction out of China. While we will see that probably stay relatively low over the next couple of months, we are predicting a bit of an increase over the next three to four years.
"So we will see revenues returned to - we're roughly about $4.5 billion now, they will return to about $5.3 billion over the forecast period, so good strong growth over that period."
Higher volumes of kiwifruit and wine exports were behind an expected 4.8 percent increase in total horticulture export revenue, estimated to be nearly $4 billion for the year.
Mr Mair said horticulture was a great story at the moment.
"We've got kiwifruit growing strongly as the recovery from PSA comes through, we've got wine coming through, again very strongly and good investment back into that sector.
"And pip fruit, although it's taken a bit of a bump this year has been growing tremendously well, and we'll predict and continue to grow over the coming seasons."
Seafood earnings were also expected to be higher as a result of growing demand from New Zealand's top export destinations, China, the EU and the US.
The value of arable seed exports was expected to have declined largely due to drought conditions in much of the South Island, which has meant lower crop yields for some farms.
A growth in live animal exports, particularly dairy cow exports to China, has bolstered other primary exports.
