MPI’s latest Situation and Outlook for Primary Industries report may be justified in its prediction of total primary sector exports of $59.9 billion for the year ended 30 June, rising to $61.4 billion for the next 12 months. The main reason for the projected increase is firm prices underpinned by tight global supply for most commodities. Threats are attributed to geopolitical tensions and tariffs.
The report assumes the steady increase in primary sector exports, predicted to reach $65.9 billion by 2029, will continue uninterrupted without any recognition of other possible factors that might prevent it being achieved.
Any number of unforeseen events could prevent this figure being achieved, among the possibilities being outright war disrupting world trade; the collapse of the tariff based global trade system, already severely weakened by Trump’s unilateral declaration of tariffs on American imports; climate disasters affecting New Zealand production; or the disruption caused by another pandemic.
This list of adverse events does not include sector specific risks associated with government policies, like climate change commitments, the ETS and pastoral land allowed to be sold for forestry conversion, particularly affecting numbers of sheep and prime beef. After all the productivity gains which have compensated for fewer sheep for many years now can only go so far, unless the decline in sheep numbers stabilises.
While the present government is more aware of the need to avoid policies which unduly penalise agricultural production, its focus on freeing up land for housing development poses a threat to productive land on the outskirts of large population bases. The prospect of a change of government with a return to the less agriculture tolerant policies of Labour and the Greens is also a concern.
The SOPI report highlights the critical importance of agriculture to the New Zealand economy: the food and fibre sector represents 51% of our total exports, 10% of gross domestic product and 12.4% of employment. In year to June 2025 dairy made up 45.7% of the sector’s total, meat and wool 20.5%, horticulture including wine 14.2% and forestry 10.5%.
Feedback from some meat exporters indicates real concern about the trends evident as this season progresses. Prime beef supply is down 12% year on year, the bull kill is down more than 5%, while lamb numbers are down nearly 10%, whereas the ewe kill is 250,000 higher year to date.
The reduced level of supply is clearly reinforcing the firm price trend which sees farmers being paid in excess of $8 per kg for prime and up to $9.80 for lamb. These livestock costs are causing most processors to blink, but without a combination of greater supply and less processing capacity the pressure is likely to persist.
For now the market price remains at historical highs, but at some point the market will refuse to pay these prices and the industry will be forced to react. Although farmers no doubt will be hoping for the golden weather to continue, at some point supply and demand will inevitably come back into balance and push market prices down. Either way slaughter capacity will come under threat.
While dairy is less vulnerable that sheep and beef to land use change, it is also bolstered by high prices. However the latest DairyNZ forecast breakeven cost has risen 27 cents to $8.68 per kg of milk solids, while next season’s opening payout is $10. It would not take much of a hit to global dairy prices for any of the reasons listed earlier, for the profit margin to become uncomfortably slim, particularly when debt repayment is factored in.
Much is made of the fact we tend to rely too much on a limited number of markets, but this is dictated by the need to maximise the price. It doesn’t make economic sense to sell at a lower price to an alternative market or customer, unless there is a strategic reason to do so.
Meat and wool exports are reasonably well spread with the USA and China buying 28% and 24% respectively by value, followed by the EU (14%) and several markets - UK, Canada, Japan and Australia – taking 4 to 5%; smaller but still significant buyers, including South Korea, Taiwan and Indonesia, round out the top 10.
Dairy in contrast is less balanced with exports to China making up 35% of the total and half a dozen others taking between 4 and 5%.
Horticulture has the best spread of export markets with 10 countries contributing 88% of the total, with China the largest at 18%, followed by EU (16%), USA (14%), Australia (10%), Japan (10%), UK (6%) and Taiwan (5%).
New Zealand’s dependence on China is graphically illustrated by the fact meat and wool is the only agricultural sector for which it is not the biggest customer, last year at least. Overall China buys 29.9% of sector exports, followed by the USA which takes 11.5%.
As a small country, totally reliant on our ability to trade with the world, it is naïve to think we can afford to choose one or other of our biggest trading partners. As Vangelis Vitalis reminded the Primary Industry Summit, we must built resilience through strategic trade depth.
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