10 Jun 2013

Drought saps primary sector sales forecast

9:45 pm on 10 June 2013

The worst drought in 70 years has seen a drop in primary export revenues for this financial year of $1.3 billion.

The Ministry for Primary Industries is predicting the impact of the drought will continue to be felt in the coming financial year, with a major increase in revenues over the following two years.

The forecast is set out in the latest Situation and Outlook report issued by ministry, which outlines what it expects in the farming, horticulture, forestry and seafood industries over the next five years.

The report says it was a season of two halves for the primary sector. Before Christmas, farmers benefited from good growing conditions due to a wet, warm spring, but this was followed by a severe drought which curbed milk production and forced beef and sheep farmers to send stock to meatworks early.

Along with a high New Zealand dollar, the ministry expects export revenues to decline $1.3 billion to about $23.5 billion in the year to the end of June, compared with the previous year.

Jared Mair, a sector policy director at the ministry, says the effect should be short-lived. Sales in most sectors are expected to expand in 2014, although sheep and beef farmers will struggle because they have to rebuild their herds.

Mr Mair says export revenues are expected to rise 2% to more than $24 billion in the June 2014 year and rise to $29.5 billion by 2017.

Dairy exports, which make up more than half of all primary sector exports, are picked to rise by 8% in the coming financial year. Log exports to China are also booming and predicted to reach $5 billion by 2017.

Keith Woodford, a professor of agribusiness at Lincoln University, says the effects of the drought will linger for sheep farmers into next year - particularly in the North Island.

"The dairy farmers have been able to deal with it reasonably well, but in the sheep industry a lot of the impacts won't be till next year. And lamb numbers, well we don't know yet, but they'll be down probably at least two million lambs."

However, Dr Woodford told Radio New Zealand's Checkpoint programme that strong demand for dairy in Asia is likely to continue, so dairy farmers should fare better.

Primary Industries Minister Nathan Guy says the drought highlights New Zealand's dependence on water and the Government's irrigation acceleration fund should help ease its effects.