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New Zealand Economic and Financial Overview 2010

Industrial Structure and Principal Economic Sectors

Primary Industries

The agricultural, horticultural, forestry, mining and fishing industries play a fundamentally important role in New Zealand's economy, particularly in the export sector and in employment. Overall, the primary sector accounts for 7.1% of GDP and contributes over 50% of New Zealand's total export earnings.

Agriculture and Horticulture

Agriculture directly accounts for around 5% of GDP, while the processing of primary food products accounts for a further 2.9%. Downstream activities, including transportation, rural financing and retailing related to agricultural production, also make important contributions to GDP.

The importance that agriculture plays in the New Zealand economy has been highlighted by the impact of fluctuations in dairy prices over the past couple of years. In late 2007, rising demand from developing countries and supply constraints helped push dairy prices to their highest ever level in both world and New Zealand-dollar terms. As a result, disposable incomes were boosted, which in turn lifted spending and investment, driving the economy higher.

Prices for New Zealand's key agricultural export commodities then turned down in 2008, gathering momentum as the financial crisis intensified and placing pressure on already soft domestic demand. Commodity prices have since recovered rapidly and the dairy exporter, Fonterra, increased its forecast payout to dairy farmers for the 2009/10 season from an initial $4.55 per kilo of milkfat as at May 2009 to $6.05 in November. The upward revision reflects sharply rising dairy prices more than offsetting the appreciating dollar, as well as the expectations that the commodity price increases will be sustained. Prices for meat and wool have not rebounded to the same extent as dairy, but are considerably higher than lows briefly recorded earlier in 2009.

Horticultural crops have become increasingly important, with the principal crops being apples and kiwifruit. Other significant export crops include wine, fresh and processed vegetables and seeds. The value of horticultural exports is estimated to be around $3.3 billion per annum.

The following table shows sales of the principal categories of agricultural products for the years indicated, and as a percentage of agricultural sales for 2009.

Gross Agricultural Production(1)
   (dollar amounts in millions) 
Year ended 31 March 
2005 2006 2007 2008 2009 2009
% of Total
Dairy 5,518 4,642 5,220 9,949 8,503 36.7%
Agricultural services 2,433 2,879 3,123 3,234 3,444 14.9%
Cattle 2,209 2,078 2,167 2,069 2,608 11.3%
Sheepmeat 1,821 1,742 1,756 1,780 2,169 9.4%
Fruit 1,336 1,449 1,452 1,456 1,756 7.6%
Sales of live animals 789 1,006 1,087 1,090 1,351 5.8%
Vegetables 739 715 807 892 854 3.7%
Crops and seeds 374 334 423 448 464 2.0%
Wool 586 545 525 473 440 1.9%
Other farming 230 171 208 278 345 1.5%
Deer 187 210 249 256 320 1.4%
Other horticulture 276 278 280 280 268 1.2%
Non-farm income 221 205 224 291 249 1.1%
Pigs 157 164 166 161 181 0.8%
Poultry/eggs 137 135 148 161 166 0.7%
Value of livestock change (77) 85 (60) (82 ) 29 0.1%
TOTAL GROSS REVENUE 16,936 16,638 17,775 22,736 23,147 100.0%

(1) All data estimated.

Forestry

Forestry and logging makes up around 1.1% of GDP and is the basis of an important export industry, with almost 70% of wood from the planted production forests eventually being exported in a variety of forms, including logs, wood chips, sawn timber, panel products, pulp and paper, and further manufactured wooden products, including wooden furniture.

For the year ended December 2009, the value of exports of forestry products was $3,250 million (f.o.b.), 8.1% of New Zealand's total merchandise exports. For the year to June 2009, China and Korea were the largest markets for log exports at $430 million and $290 million respectively, while the US, Australia and Japan continue to be important destinations for the export of sawn timber.

New Zealand's climate and soils are well-suited to the growth of planted production forests. These forests cover an area of 1.8 million hectares and produce over 99% of the country's wood. Radiata pine, which makes up 89% of the plantation estate, matures in 25 to 30 years, more than twice as fast as in its natural habitat of California. This species has had considerable research investment and has demonstrated its versatility for a wide range of uses. The second most important species is Douglas fir, which makes up 6% of the planted forest area.

New Zealand's total planted forest growing stock at 1 April 2008 was estimated at 446 million cubic metres. For the year ended June 2009, an estimated 18.9 million cubic metres of wood were harvested from production forests. Of this, 7.6 million cubic metres were exported as logs and the balance was manufactured into a range of products, including 3.5 million cubic metres of sawn timber, 1.6 million cubic metres of wood panels (consisting of fibreboard, veneer, plywood and particleboard) and 1.5 million tonnes of wood pulp (made from harvested logs plus residues from sawmills). The wood pulp was then exported as unprocessed pulp (824,000 tonnes) or manufactured into paper and paperboard (878,000 tonnes, including from recycled paper).

Forecasts indicate that annual wood availability could increase from the current level of 19 million cubic metres (year ended June 2009) to around 25 million cubic metres by 2016. Market conditions and logistical constraints (availability of logging crews, transport capacity, and wood processing capacity) will dictate how quickly the additional wood is harvested.

Total forestry export revenues increased 11% in the year to June 2009. This is largely due to growth in log exports, which experienced a 57.6% increase in export value in the year to June 2009. Demand for other wood products remained weak. However, additional wood availability is expected to support additional exports as market conditions improve and commodity transport costs fall.

Fishing

New Zealand has an Exclusive Economic Zone (EEZ) of 3.1 million nautical square kilometres supporting a wide variety of inshore fish, some large deep-water fin fish, squid and tuna. New Zealand's unpolluted coastal waters are also well-suited to aquaculture. The main species farmed are Pacific oyster, green-lipped mussels and quinnat salmon.

Fishing is a major New Zealand industry and an important merchandise export earner. Fish and other seafood accounted for $1,249 million in export revenues in the year ended December 2009, about 3.1% of total merchandise exports. The most important export species are green-lipped mussels, hoki, mackerel, squid and tuna. Smaller volume but high value exports are rock lobster, abalone and orange roughy. The main export markets are Hong Kong, Australia, the United States and Japan.

The conservation and management of the fisheries is based on a quota management system designed to protect the future sustainability of the fisheries while facilitating their optimum economic use. The system uses markets, together with scientific assessments of fish stocks, to allocate fishing rights without arbitrarily restricting fishing methods.

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