12 Dec 2012

Global conditions likely to hurt farmers' returns: MPI

7:12 pm on 12 December 2012

The outlook for New Zealand's primary industries heading into 2013 is somewhat gloomy, with deteriorating global economic conditions likely to erode returns.

That is the conclusion of the Ministry for Primary Industries (MPI) latest outlook report, which predicts a 5% fall in the sector's total earnings in the year to June 2013 - to $27.5 billion.

MPI manager of economic information and analysis Chris Jones says there are a range of factors, both international and domestic, that are going to make life tougher for many of the country's primary industries.

He says the International Monetary Fund recently downgraded 2013 growth forecasts for around 80% of New Zealand's trading partners.

Mr Jones says the New Zealand dollar has strengthened further since June and it appears more likely that it will remain strong over the next one to two years.

He says the kiwifruit vine killing disease PSA has spread further than it had in June and at the end of November it had been identified in 68% of all orchards.

Mr Jones says the economic downturn in Europe will likely hurt lamb farmers' returns, while the forestry sector may remain squeezed for the next few years due to a lack of international demand.

However, he says the economic growth of some key trading partners remains strong and the prospects for some of New Zealand's key traded commodities are brighter.

Mr Jones says despite the slowdown in global economic growth, China and the emerging markets are still growing in absolute terms.

He says while the IMF has downgraded Chinese growth, it is still forecasting 7 - 8% growth in that country in 2012 - 2013.

Mr Jones says while many commodity prices have taken a hit since June when the forecasts were done, particularly in New Zealand dollar terms dairy prices have risen quite strongly since May and June.

He says horticultural prices have held up quite well and meat and dairy volumes have been high.