KEY POINTS:
A surge in agricultural export earnings will lift the New Zealand economy out of the recessionary doldrums over the next two years, according to latest forecasts from the Ministry of Agriculture and Forestry.
Revenue from agriculture is tipped to top $20 billion for the first time next year,
as a post-drought recovery boosts production and a falling exchange rate increases New Zealand dollar earnings, according to MAF's Situation and Outlook for New Zealand Agriculture and Forestry 2008 report.
It also forecasts a continued strong performance in the dairy industry despite a short-term fall in prices and much improved returns for the beef and lamb sectors.
Agricultural gross revenue is expected to grow 26.5 per cent from $18.9 billion in 2008 to $23.9 billion in 2012.
MAF director general Murray Sherwin said improved domestic conditions and continuing global commodity demand would help restore agricultural confidence.
The big message was that despite some "headwinds" in the international and domestic economy, the primary sector was in good shape, Sherwin said.
Real gross domestic product is expected to fall to 1.5 per cent in the year ending March because of drought, high interest, falling house prices, higher petrol and food prices.
But a post-drought recovery will contribute to 2.3 per cent GDP growth in 2010, rising to about 3 per cent a year in 2011, with a falling exchange rate boosting exports, the report said.
The dairy sector will see export revenue grow to $11.9 billion in 2012, while beef exports are forecast to climb to $2.3 billion by 2012.
In May, Fonterra raised a record forecast payout to $7.90 per kg of milksolids, compared with $4.46 the previous season. The opening forecast for the new season is $7.
Fonterra said the last season's payout would inject about $9 billion into the economy.
In inflation adjusted terms dairy payouts had reached a 43-year high, the report said. Drought and low prices had driven a decline in sheep numbers, with export volumes expected to fall 11 per cent to 287,000 tonnes by 2012, although higher prices were expected to push export earnings up to $2.6 billion.
The kiwifruit and the wine industry were both forecast to top the billion dollar annual export barrier during the five-year forecast period.
"Individual sectors all face their own challenges, but overall the combination of strong commodity prices, growing global food demand and new market developments such as the China [free trade agreement] signing presents positive opportunities for the primary sector over the next five years," Sherwin said.
Federated Farmers president Don Nicolson said the outlook for lamb beef and cropping sectors was brighter than for some time.
"All in all the outlook is positive for our members," Nicolson said. "As always when New Zealand farmers are doing well, the New Zealand economy will do well."
ANZ economist Steve Edwards said the economy was rebalancing towards earnings and export.
"We were more or less spending outside our means and that's half the reason we've had this correction in the housing bubble. It wasn't a sustainable rate of growth and a correction was necessary."
There would be some heartache in the economy during the next 12 to 18 months as some sectors performed better than others, he said.
Agricultural performance was not solely driven by the dairy sector, with prices rising in areas including venison, seafood and beef, he said.
Westpac senior economist Donna Purdue said increased dairy production in the new season would produce a similar performance to the previous year despite a lower forecast payout per kg.
"We've been quite optimistic about New Zealand's medium term prospects purely because we do have that primary focus," Purdue said.
Growth was moving towards emerging markets and during the next 20 years about 300 million Chinese would be urbanised, she said.
As the emerging markets become wealthier economies they start to demand more of the products we produce, she said.
"So 2009 is looking a lot more optimistic purely because of a turnaround in agricultural production."
