Strong dairy receipts help lift the primary sector’s export growth – and its boost to the economy

The Covid-19  pandemic has  put  enormous  pressure  on  the country’s  primary  sector,  yet it  has  managed to  expand  export  receipts  by  $1.7bn  over  the previous year.

The  government,  or  at   least  several ministers  in it, are  celebrating  the  effort  of  the  primary sector  in  doing so,  and   recognise  the  sector  is a  key  driver  in rebooting  the  economy.

Yet  the  government,  with   its climate  change  measures  hitting    agriculture’s methane  emissions  and  its freshwater  reforms, has  done   little to  encourage  farmers to  expand  production.

When  Agriculture  Minister  Damien O’Connor says the government is focused on creating more demand, pursuing greater market opportunities to generate higher export returns and growing rural communities with new jobs,   the  response  down on the farm may be   no more than a  one-handed  clap.

Farmers  are  more  likely  to  be   grumbling  over the   government’s failure   to  drive down the  exchange rate.  Or  to do  more to build irrigation  schemes.

But  at   least  O’Connor  accepts that the strength of   the primary sector, coupled with the success of the health response to Covid-19, gives NZ a head-start on the world as the economy  gets moving again.

In  place  of the June 2020 edition of the Situation and Outlook for Primary Industries (SOPI), the Ministry for Primary Industries  has released an Economic Update for the Primary Industries.  For the year-to-date it shows primary industries export revenue is tracking 4.5%   ahead of  the previous year.

*         Dairy exports were particularly strong since the start of March, up $512m (12%) compared with the same time last year.

*         Chinese meat imports surged in the second half of 2019. The animal protein shortage, due to the African swine fever outbreak in China, should help support prices and demand over the next year.

*         There was a strong start to the season for apple and kiwifruit exporters with revenue up $274 million (18%) on last year since the start of March.

O’Connor  says overseas consumers are now more than ever looking for healthy, NZ-made food.

We’ve seen that with the sustained demand for fresh fruit, particularly in Europe and North America and the strong demand for red meat in China,”.

He  notes  the  economic update provides a snapshot of how Covid-19 disrupted NZ’s primary industry exports – including logistics issues and more limited air freight options— and demonstrates how the sector and MPI worked together to find ways to operate safely under Covid-19 restrictions.

We are by no means out of the woods and the next few years are going to be tough on some sectors as importers and consumers re-evaluate their priorities in the wake of COVID-19”.

Fisheries Minister Stuart Nash reports the Chinese market for rock lobster, which was significantly affected by COVID-19,  is now showing signs of recovery as seafood markets begin to reopen.

He  says  NZ kaimoana enjoys an excellent reputation around the world, built on the hard work of generations of fishing operators.

The almost $2bn in export revenue it brings into the country will be particularly important in the recovery from the effects of Covid-19.

In   his   primary sector   area,  Forestry  Minister  Shane  Jones  said there is still considerable volatility in the log export sector, which the government is closely monitoring.

However, I am confident forestry and wood processing figures will improve over the coming months and that this multi-billion-dollar sector will play a significant role in the economic recovery“.

During the level 4 Covid-19 restrictions, forestry and wood processing was not considered an essential service, so the decrease in outputs was in line with what was expected.

The   MPI  economic  update    lists  these   points:

*         Fresh fruit exports, including apples, kiwifruit, and avocados, are expected to fare better relative to other sectors thanks to strong global demand.

*         Dairy companies had contracted a high percentage of the 2019/20 season’s milk supply and will be able to maintain current season milk prices at high levels, which will support on-farm profitability in the short term.  Looking ahead to 2020/21, the impact of declining dairy export commodity prices and weakness in dairy food service and consumer markets globally, will weaken processor profitability and flow on to farm gate returns.

*         Meat exports to China were reduced due to Covid-19 but were largely offset by exports to other countries such as the USA.  Since the start of lockdown the Chinese market has recovered and overall meat exports are tracking at similar levels to last year.

*         Seafood was affected by Covid-19 earlier than other industries, culminating in 68% lower export revenue to China in February, driven mostly by declines in airfreighted rock lobster. The Chinese market is slowly recovering and seafood markets are beginning to re-open, which should alleviate export constraints at least for live rock lobster.

*         Wool prices are likely to remain subdued for at least the next year due to lower demand for wool in China – a flow-on effect of a global recession.

*         Forestry has been able to ramp up since NZ moved to Alert Level 3 in late April, following a total harvest volume in April of just 377,000 cubic metres, 87% down from the corresponding period in 2019. Latest market reports show higher log prices in China and lower inventories at Chinese ports.

O’Connor  says  the  Labour  coalition government  is committed to supporting  the “vital”  primary sector  particularly  in continuing to fetch value and create jobs – including $19.3m to place 10,000 people into primary sector jobs, $127m for jobs to help control wilding pines and get populations of wallabies under control and the government’s $110m worker redeployment package, to create employment for people who have lost their jobs.

While farmers  may be  pleased   with both  the  MPI  economic  update   and the  ministerial huzzas,  they   may  be  absorbing    more finely   tuned    advice   on their own   individual  businesses,  seeking  in particular   financial  resilience  for the challenges  ahead.  They  know   the Covid-19 crisis poses a risk on top of others including climate, environmental regulations and compliance costs.

As  Point of  Order  sees it,  there  is  now  broad  acceptance    that    farming for   capital  gain  is  off the table   for the foreseeable   future,  and the focus    has  been  on    reducing   debt. The dairy sector in particular  has seen a significant reduction in debt over the past 12 months.

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