12 Jun 2012

Exchange rate key to primary sector's future

9:27 am on 12 June 2012

The exchange rate will be instrumental in primary export returns picking up again after a forecast decline next year.

The latest Situation and Outlook Report from the Ministry for Primary Industries says falling product prices will reduce primary industry returns.

Dairy export revenue is projected to drop by 9% over the next year, but lift by more than $3 billion to $17 billion in five years.

After hitting record levels late last year, meat and wool returns are expected to ease over the next two years before rising again.

Export prices for pipfruit and kiwifruit are also forecast to strengthen over the five-year outlook period.

But a key factor in that will be the New Zealand dollar depreciating in line with Treasury projections.

The Ministry's deputy director general for policy Paul Stocks says expected increases in primary sector revenue by 2015 and 16 will not happen if the dollar stays high.

"There is a big impact from exchange rate variability, and we can't tell you where that's going to be."

He says they would hope to see no further strengthening of the dollar.

Forestry outlook

The report also points to the challenge that the forest industry will have in dealing with the "wall of wood" that will come on stream in the next decade from increased tree planting.

Mr Stocks says the timber harvest has the potential to increase by more than a third.

About 26 million cubic metres of wood a year at the moment and another 10 million cubic metres will potentially be available by 2023.

At present, half the wood harvested is exported as logs.

The forestry sector has a strategy to more than double export revenue to $12 billion by 2022 by manufacturing higher value products such as laminated timber and new products such as biochemicals and fuels.