New Zealand Agribusiness Report Q2 2009

Jan. 28, 2010 - PRLog -- In the New Zealand Agribusiness Report for Q2 2009 we introduce the new Business Environment section. This gives an overview of agriculture in New Zealand and its significance to the overall economy and labour market. We also cover government support given to agriculture.

High prices for New Zealand's key agricultural exports of meat and dairy products ensured profitable times for farmers for most of 2008. In the final months of the year, however, prices of beef, lamb and dairy products all fell sharply. The slump in the price of beef and lamb at least partly represented regular seasonal variations and the price in February 2009 was still above the price a year earlier, in the case of lamb by some 40-50%.

For dairy products, however, the slump in prices since mid-2008 has been more severe and in February 2009 prices were below the level seen two years earlier. We do not expect a recovery any time soon and are forecasting that by the end of 2010, milk prices will still be around a third lower than their 2008 peak.

This will see New Zealand's agricultural export earnings fall significantly in the next financial year, though the depreciating New Zealand dollar will help to offset some of the damage.

Despite the difficulties expected over the next couple of years, once the economy recovers, New Zealand's agriculture will be in a good position to capitalise on the anticipated rise in demand for meat and dairy products from the emerging markets of Asia. As incomes rise, demand for meat and dairy in Asia will increase, and with the dairy industries in many of the countries in the region undeveloped, this demand will have to be supplied with imports. Japan, South Korea and Taiwan are already important destinations for New Zealand's agricultural exports, and in the years to come are likely to be joined by other countries in the region.

The deregulation of the agricultural sector in the mid-1980s and the removal of most subsidies for farmers has forced the industry to work on improving efficiency. This has helped form a highly competitive industry not dependent on government hand outs or protection. In 2007, support for agriculture was worth only 0.3% of GDP and 0.7% of gross farm receipts, far below the Organisation for Economic Cooperation and Development (OECD) average of 23%. Average farm size has grown rapidly since the reforms as operators worked to improve economies of scale. In the hard times expected in the next couple of years, focus is again likely to move to cutting costs and maximising efficiency which will leave New Zealand's farmers in a good position to take advantage of demand in the future.

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