Agri-boom predicted from weakening kiwi

By Hugh Stringleman

Friday 11th June 2004

The countryside is betting on a gradual depreciation of the Kiwi dollar to boost export earnings from pastoral agriculture, horticulture and forestry by 20% over the next three years.

The latest official projections from the Ministry of Agriculture and Forestry (Maf) are for $20 billion in exports from the sector in the 2006/07 financial year.

In the year to March 31, 2004, land-based primary sector export earnings were $16.8 billion, with 35% coming from dairying.

The flow-on effect of such a lift in exports would be hugely beneficial to the national and regional economies.

If the kiwi behaves as predicted, the primary sector will underpin national growth targets for most of the first decade of the 21st century.

Trade reforms, productivity improvements and clever marketing have energised agriculture and horticulture during the past decade.

Maf is forecasting improved returns during the next three years for most products, except wheat and pig meats.

But the kiwi's value will have the biggest influence, Maf says.

Three exchange rate assumptions, with different rates of fall in the value of the kiwi during the next three years, are used in Maf's latest Situation and Outlook for Agriculture and Forestry.

The assumptions are an amalgam of forecasts from Treasury, the major trading banks and the Institute of Economic Research.

The resulting baseline projections for the dollar are 55-56USc, £0.34, E0.49 and ¥62.

Increased milk production and some higher overseas prices will mean half the total sector export earnings boost will come from the dairy industry, Maf says.

However, it does not follow that milk payments to farmers will improve. Because of foreign exchange effects and the Fonterra hedging policy, Maf's payout projections for the next three seasons are $3.47, $3.07 and $3.33 per kilogram of milksolids.

Maf expects higher prices in the future for venison, velvet, apples and wine, while forestry product prices will generally rise, with some minor fluctuations over the outlook period.

Beef, lamb, wool and kiwifruit prices are projected to fall this year and then recover, while dairy prices are expected to fall in 2005/06 before recovering.

By 2007, dairying will earn 38% of land-based primary sector export value, followed by meat and forestry with about 20% each.

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