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New Zealand Economic and Financial Overview 2016

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. Overall, the primary sector directly accounts for around 6% of real GDP and contributes just over 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. World 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 owing 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. Dairy prices continued to decline through the middle of 2015, but began to recover in the final quarter of the year. Meat prices rose to a record high in September 2014 but declined by nearly 20% in the following year.

Rising dairy 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 lowered its farm gate milk price for the 2014/15 season to $4.40 per kilogram of milk solids in mid-2015 lowered again to $4.15 at the end of January.

Lamb and mutton exports also benefited from strong demand from China in the 2013/14 season and similarly declined in the 2014/15 season, partly as a result of slower demand from China as well as increased competition from Australian sheepmeat (where slaughter rates were high in response to drought). The New Zealand farm gate price for lamb and mutton has remained fairly stable at around $5.00/kg to 6.00/kg over 2014 and 2015, with the depreciation of the New Zealand dollar in 2015 helping to offset lower international prices. Export volumes for the coming season are expected to fall following a reduction in the sheep flock and poor weather in the lambing season.

Beef exports performed well over 2014/15, largely as a result of strong demand from the US where domestic production is at historically low levels. Export volumes lifted by 8% over the 2014/15 season in response to the strong farm gate prices, which lifted from around $3.50/kg to 4.00/kg in prior seasons to $4.75/kg in 2014/15. More recently, prices have eased and volumes slowed as New Zealand approaches its quota limit for exports to the US. Volumes are expected to pick up again in early 2016 as the quota resets, although volumes for the 2015/16 season as a whole are expected to fall owing to the reduction in the beef herd.

Wine and kiwifruit are the principal horticultural products. Other significant horticultural exports include apples and pears, fresh and processed vegetables, and seeds. Fruit exports were worth NZ$2 billion in the year to June 2015, up 20% from the previous June year, and wine exports were worth NZ$1.4 billion, up 7% from the previous year.

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 2015.

Table 9 - Gross Agricultural Production[1]
2011 2012 2013 2014 2015 2015
Year ended 31 March (dollar amounts in millions) % of Total
Dairy 10,960 10567 10,386 14,823 10,341 45.0
Cattle 2,129 2,289 2,316 2,166 2,852 12.4
Sheepmeat 2,364 2,820 2,263 2,340 2,369 10.3
Wool 563 675 587 573 680 3.0
Deer 200 234 200 187 173 0.8
Poultry/eggs 169 185 172 186 185 0.8
Pigs 153 165 167 184 193 0.8
Other farming 225 221 216 214 250 1.1
Sales of live animals 848 871 866 760 885 3.9
Value of livestock change 87 199 (153) (77) (90) (0.4)
Fruit 1,882 1,979 1,998 2,371 2,568 11.2
Vegetables 1,062 1,065 987 1,053 988 4.3
Other horticulture 243 251 325 363 341 1.5
Crops and seeds 588 745 751 758 699 3.0
Agricultural services 216 216 220 216 187 0.8
Non-farm income 399 425 421 407 352 1.5
Total Gross Revenue 22,088 22,907 21,723 26,523 22,973 100.0

Sources: Ministry for Primary Industries, Statistics New Zealand

  • [1]All data estimated.

Forestry

Forestry and logging makes up around 1.0% of GDP and is the basis of an important export industry with around 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 June 2015, the value of exports of forestry products was $4.8 billion (free on board), 10.0% of New Zealand's total merchandise exports. China, Australia, South Korea and Japan were the largest markets for forestry products. China was the largest market for logs and poles, sawn timber and wood 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. Planted production forests cover an area of around 1.8 million hectares (approximately 7% of New Zealand's land area) and produce 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 since it was introduced last century 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 total planted forest area.

For the year ended June 2015, an estimated 29.6 million cubic metres of wood were harvested from New Zealand production forests representing a 34% increase over the past five years and the largest production volume on record.

Logs, wood and wood article export values decreased 11.3% in the year to June 2015, owing 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 in 2016 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 2016. Low shipping costs are providing a partial offset for New Zealand exporter margins.

A relatively stable harvest of 26 to 28 million cubic metres a year is forecast for the period to 2016. Wood availability is then forecast to increase to 35 million cubic metres by 2023. Market conditions and logistical constraints (availability of logging crews, transport capacity and wood processing capacity) will dictate how quickly the additional wood availability is actually harvested. The capacity in logging and wood processing is expected to expand at a solid pace over the coming year.

Fishing

New Zealand has an Exclusive Economic Zone (EEZ) of four million square kilometres supporting a wide variety of inshore fish, and some large deep-water fin fish, squid and tuna. New Zealand's coastal waters are also well-suited to aquaculture. The main species farmed are Pacific oysters, 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 an estimated $1.4 billion in export revenues in the year ended June 2015, an increase of 6.2% from the previous year.

The most important export species are green-lipped mussels, salmon, hoki, squid, mackerel 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 US 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 proportional quota management system designed to protect the future sustainability of the fisheries while facilitating their optimum economic use. The system uses market forces, together with scientific assessments of fish stocks, to allocate fishing rights without arbitrarily restricting fishing methods. With fishing 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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