The Economy Hub: How kiwifruit helped the dairy slump

Despite the dairy downturn a big lift in kiwifruit and apple exports has boosted New Zealand's total agricultural revenue by $1 billion, or three per cent, in the year to June 30, a new government report shows.

Dairy export revenue fell six per cent to $13.23 billion while horticulture grew 20 per cent to top $5 billion for the first time, a new Ministry of Primary Industries outlook report shows.

So total agricultural export revenue will hit $36.7 billion up form $35.7 billion last year.

The bump was a positive sign that other areas of the agriculture sector were firing while dairy was in the slump, NZIER economist Christina Leung told the The Economy Hub video show.

"The New Zealand economy is diversifying beyond dairy. We're seeing good growth and demand for horticulture and seafood. For example, just with kiwifruit exports - that's gone up by 46 per cent over the past year."

The big slump in dairy was caught in last year's numbers. Dairy export revenue fell from a peak of $17.8 billion in 2014 to $14.05b in 2015.

So despite topping last year's total export revenues the industry is still short of the dairy boom peak of $38.3 billion.

Despite expectations that dairy prices will take a long time to recover total export revenues are predicted to grow to $41.6 billion by June 2018 and $43.9 billion by 2020.

We were starting to see dairy farmers adjust their cost structures and take a more proactive approach to aligning their on farm output with consumers, said KPMG partner and agri-business specialist Simon Hunter.

"The sector is around the mindset of our business leaders taking more risk and looking for innovation, looking for change," he said. "In particular, getting closer to the consumer, understanding the consumer, walking in the consumer's shoes so that we're developing products with the right attributes so that the right form that allows us to be competitive and actually maintain that competitiveness over a longer period."

Horticulture is the star in 2016 with exports forecast to surge 20 per cent to $5.1 billion, the first time the sector has exceeded $5 billion. Growth is projected to moderate to 6 per cent in 2017, with total exports reaching $5.7 billion in 2020.

For the June 2017 year, MPI forecasts primary sector exports will grow 3 per cent, the second straight year with that rate of growth, before accelerating in the following year.

"Next year's price outlook reflects expectations that global agricultural markets are expected to turn a corner in 2017 and prices for key commodities should start to recover," it said. "The boost to New Zealand export growth is expected to be strongest in the dairy, forestry, and horticulture sectors. These sectors are expected to lead a 10 percent increase in export value from June 2017 to June 2018."

- additional reporting from BusinessDesk.

See the Government's full outlook report here: