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New Zealand Economic and Financial Overview 2015

Industrial Structure and Principal Economic Sectors

Primary Industries

The agricultural, horticultural, forestry, mining and fishing industries play a fundamental role in New Zealand's economy, particularly in the export sector and in employment. Overall, the primary sector directly accounts for around 7.5% of real GDP and contributes around half of New Zealand's total export earnings.

Agriculture and Horticulture

Agriculture directly accounts for around 4% of GDP, while the processing of food, beverage and tobacco products accounts for a further 4%. Downstream activities, including transportation, rural financing and retailing related to agricultural production, also make important contributions to GDP. Dairy farming is the predominant agricultural activity, followed by beef and sheep farming and horticulture.

Prices for New Zealand's key agricultural commodities recovered strongly following large declines during the GFC and continued to increase over 2010 and the first half of 2011. Prices came off their highs in the second half of 2011 as renewed euro area concerns emerged and continued to fall in the first half of 2012. Prices increased strongly again in 2013, with historically high levels for dairy products due to robust demand from China and tighter global milk supply. However, dairy and forestry prices declined following the March 2014 quarter, with dairy prices down about 50% at the start of 2015 compared to their peak in February 2014. Meat prices rose to a record high in September 2014 before falling somewhat over the December quarter.

Rising prices over 2013 enabled New Zealand's major dairy exporter, Fonterra, to lift the final farm gate milk price for the 2013/14 season to $8.40 per kilogram of milk solids, from $5.84 in the 2012/13 season. However, Fonterra expects the farm gate milk price for the 2014/15 season to be significantly lower at $4.70 per kilogram of milk solids, noting high uncertainty in the price outlook owing to increased global milk production and weaker international demand.

Wine and kiwifruit are the principal horticultural products. Other significant horticultural exports include apples and pears, fresh and processed vegetables, and seeds.

The following table shows sales of the principal categories of agricultural products for the years indicated and as a percentage of agricultural sales for the year to March 2014.

Table 9 - Gross Agricultural Production (1)
Year ended 31 March 2010 2011 2012 2013 2014 2014
% of Total
Dairy 8,888 10,960 10,567 10,386 14,637 54.9%
Sheepmeat 2,165 2,364 2,820 2,263 2,518 9.4%
Cattle 1,848 2,129 2,289 2,316 2,209 8.3%
Fruit 1,983 1,882 2,071 2,017 2,030 7.6%
Vegetables 988 1,062 1,065 987 1,027 3.9%
Sales of live animals 766 848 871 866 895 3.4%
Crops and seeds 799 588 745 751 703 2.6%
Wool 450 563 675 587 580 2.2%
Non-farm income 387 399 408 472 576 2.2%
Other farming 252 225 232 210 423 1.6%
Agricultural services 221 216 216 220 269 1.0%
Other horticulture 259 243 251 239 249 0.9%
Deer 189 200 234 200 230 0.9%
Poultry/eggs 156 169 185 174 185 0.7%
Pigs 179 153 167 167 168 0.6%
Value of livestock change 70 87 200 -30 -30 -0.1%
Total Gross Revenue 19,600 22,089 22,995 21,826 26,667 100.0%

Source: Ministry for Primary Industries

(1) All data estimated.

Forestry

Forestry and logging makes up around 1.0% of GDP and is the basis of an important export industry. Almost 70% of wood from the planted production forests is exported in a variety of forms, including logs, wood chips, sawn timber, panel products, pulp and paper, and further manufactured wooden products such as furniture.

For the year ended June 2014, the value of exports of forestry products was $5.1 billion, 10.0% of New Zealand's total goods exports. China, Australia, South Korea and Japan were the largest markets for forestry products. China was the largest market for logs and wood chips, sawn timber and pulp. Japan was the largest market for panels and Australia the largest market for paper and paperboard.

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 90% 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.

For the year ended June 2014, an estimated 30.1 million cubic metres of wood were harvested from production forests, representing an increase of 55% over the last five years and the largest production volume on record. Wood availability is forecast to be relatively stable at 26 to 28 million cubic metres a year up to 2016. Wood availability is then forecast to increase rapidly to 35 million cubic metres per annum between 2016 and 2025. Market conditions and logistical constraints (availability of logging crews, transport and wood processing capacity) will dictate how quickly the additional wood can be harvested. Capacity in logging and wood processing is expected to expand over the coming years.

Logs, wood and wood article export values fell 2.0% in the year to November 2014 due to declines in the price of forestry products and the volume of forestry exports, as the downturn in the Chinese housing market and a high level of inventories in China weighed on demand. Nevertheless, the price of forestry products remained at an historically high level after peaking in April 2014, and global forestry prices and demand are expected to pick up further in 2015 on the back of further economic stimulus measures in China. Meanwhile, relatively low supply from other forestry exporters is also expected to support global prices in 2015.

Fishing

New Zealand has an Exclusive Economic Zone (EEZ) of 4.1 million 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 $1.4 billion in export revenues in the year ended November 2014, up by 2.5% from the previous year.

The most important export species are green-lipped mussels, salmon, hoki, mackerel, squid and tuna. Smaller volume but high value exports are rock lobster, abalone and orange roughy. The main export markets are China, Hong Kong, Australia, the United States and Japan. Around 80% of export volumes are from wild capture with the remainder from aquaculture. Ninety percent of New Zealand's commercial seafood production is exported.

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. With quotas fully allocated, forecast future growth in wild capture seafood exports is modest. Stronger growth is expected in aquaculture exports, as salmon farm capacity expands.

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