Situation and Outlook for Primary Industries - December 2020 - Beehive.govt.nz
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Situation and
Outlook for
Primary Industries
December 2020
Contents
Acknowledgements
Natasha Abram, Anthony Anyanwu,
Overview 4
Paul Berentson, Kara Brown, Annette Carey,
Matt Dilly, Loretta Dobbs, Geoff King,
Claudia Riley, and Wido van Lijf. Freight challenges 12
Cover photo: Beef+Lamb New Zealand
Notes Dairy 16
Annual figures are for the year ended June unless
otherwise noted. Currency figures are in
New Zealand dollars unless otherwise noted. Meat and Wool 18
Some totals may not add due to rounding.
MPI welcomes feedback on this publication at
SOPI@mpi.govt.nz. Forestry 20
Publisher
Ministry for Primary Industries
Economic Intelligence Unit
Horticulture 22
Charles Fergusson Building, 34-38 Bowen Street
PO Box 2526, Wellington 6140, New Zealand
Tel: 0800 00 83 33 Seafood 26
This publication is available on the
Ministry for Primary Industries website at
www.mpi.govt.nz Arable 28
Further copies may be requested from
SOPI@mpi.govt.nz
ISBN No. 978-1-99-004338-3 (online)
Processed foods and 30
ISBN No. 978-1-99-004339-0 (print) other products
Disclaimer
While care has been used in compiling this document, the Ministry for Primary Industries do not give any prediction, warranty
or assurance in relation to the accuracy of or fitness for any particular purpose, use or application of any information contained
in this document. To the full extent permitted by law, neither the Ministry for Primary Industries nor any of its employees shall
not be liable for any cost (including legal costs), claim, liability, loss, damage, injury or the like, which may be suffered or
incurred as a direct or indirect result of the reliance by any person on any information contained in this document.
This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy,
distribute and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms.
To view a copy of this licence, visit http://creativecommons.org/licenses/by/3.0/nz/. Please note that no departmental or
governmental emblem, logo or Coat of Arms may be used in any way which infringes any provision of the Flags, Emblems,
and Names Protection Act 1981. Attribution to the Crown should be in written form and not by reproduction of any such
emblem, logo or Coat of Arms. Photographs may not be reproduced without permission.
Minister's foreword
I am pleased to again have been appointed to the agriculture,
biosecurity, and rural communities portfolios, at a time when
the food and fibres sector has shown its value in our export-led
economic recovery from COVID-19.
The sector has already demonstrated its ability to adapt in a
changing world to keep their businesses viable, keep their staff
and communities safe, and provide food for Kiwis and
consumers around the world.
Many countries around the world are still grappling with second
and third wave outbreaks, so the economic future will be
challenging, and we may see weaker demand for some of our
goods, as well as pressure on prices.
However, in Aotearoa New Zealand our success in combatting COVID-19 – and a solid
elimination strategy – gives us a good base from which to build back better than before.
Kiwi farmers, growers, fishers, foresters and processors already have the passion and now they
have a roadmap – Fit for a Better World – to help steer us on the right course and accelerate
recovery efforts.
MPI has brought forward $84 million to kick-start the delivery of this roadmap through its
Sustainable Food & Fibre Futures (SFF Futures) fund, adding to the $70 million already available
over the next two years.
Furthering New Zealand’s trade and export opportunities is something I’m passionate about and
that’s reflected in my new additional role as Minister for Trade and Export Growth.
Last month the Prime Minister and I signed the Regional Comprehensive Economic Partnership
(RCEP) Free Trade Agreement (FTA). This agreement is the largest free trade agreement in the
world and positions New Zealand at the centre of a group of economies which accounts for
30 percent of the world’s population, nearly a third of the world’s GDP and includes seven of
New Zealand’s top 10 trading partners.
I’m pleased to present the December edition of the Situation and Outlook for Primary Industries.
I’m encouraged by the outlook for the sector. Our Government is committed to continuing its
work with the sector to seize opportunities to ensure the food and fibres sector continues to
thrive.
Hon Damien O’Connor
Minister of Agriculture
SOPI DECEMBER 2020 • 1
Director-General’s introduction
December 2020’s update of the Situation and Outlook for Primary
Industries (SOPI) shows that despite this year’s significant and
various challenges, our food and fibre sector’s prospects are
bright thanks to the hard work of those in the sector, coupled with
a successful COVID-19 elimination strategy.
Despite a forecast one percent fall in primary sector export
revenue, to $47.5 billion for the year ending June 2021,
New Zealand’s high-quality food and fibre is still highly sought
after around the world. While there will be more challenges
ahead, I believe this is an invaluable opportunity for the food and
fibres sector to lay the foundations for a more prosperous future,
with diversified, higher-value product offerings, high production
standards, and a supercharged ability to adapt and innovate.
This latest SOPI shows continued strength in our horticulture exports as well as a recovery in the
forestry sector.
To help us to navigate the future and drive economic recovery after COVID-19, we developed
Fit for a Better World – Accelerating our Economic Potential, our roadmap towards creating
more value from what we produce, in a way that cares for the environment, while creating jobs
and the foundations for future growth and prosperity.
Our Fit for a Better World roadmap brings together actions, investment and resources to
accelerate the transformation we need. It recognises that we can’t continue to rely on volume
growth to generate even greater returns, so a key goal of the roadmap is adding $44 billion in
export earnings over the next decade through creating value. MPI is working with the
agriculture, horticulture, fisheries, aquaculture, and forestry sectors to explore initiatives that
will shift the dial.
As you’ll see in this SOPI, consumer demand for fresh fruit – particularly kiwifruit – is expected
to remain strong, across multiple overseas markets with consumers seeking out healthy food
options. This is evidence that overseas consumers are willing to pay a premium for healthy
New Zealand products with strong environmental credentials.
I am encouraged by the passion I have seen first-hand over the past several months to get on
with the task at hand in helping feed New Zealand and the world. I’m proud of how the entire
food and fibres sector and MPI have responded to what has been a difficult year, and I look
forward to tackling the challenges ahead together.
Ray Smith
Director-General, Ministry for Primary Industries
2 • MINISTRY FOR PRIMARY INDUSTRIES
Dairy export revenue is forecast to fall 4.6 percent to $19.2 billion for the year ending June
2021. Expectations of another strong production season are forecast to be offset by weaker
global dairy prices, as markets continue to deal with the impacts of the COVID-19 crisis.
For New Zealand’s dairy farmers, this is expected to translate into lower farmgate milk
Dairy
prices for the current season. However strong underlying demand, particularly from
New Zealand’s largest trading partner China, should support strong sector profitability over
the medium-term.
The outlook for meat and wool exports remains volatile, with export revenues forecast to
decrease 8.2 percent to $9.8 billion for the year ending June 2021. This outlook is being
driven by export prices receding in early 2020 from the near record levels in late 2019,
mainly due to uncertainty and food service closure caused by COVID-19, and competition
Meat & Wool from poultry and other lower priced proteins. The global protein shortage, caused by
African Swine Fever (ASF) outbreaks in China and major herd rebuilding in Australia, is
slightly offsetting COVID-19’s impact on international meat prices.
Forestry exports are expected to increase 8.1 percent to $6.0 billion for the year ending
June 2021 due to strong demand for logs from China and robust demand for sawn timber
from the United States. Growth in the Chinese construction industry and the US housing
Forestry market is expected to support demand for our key forestry products over the medium-term.
In addition, domestic timber demand is strong due to increases in residential construction.
Horticulture export revenue is forecast to rise 9.1 percent for the year ending June 2021 to
nearly $7.1 billion following successful harvests in early 2020 for most crops. Consumer
demand for fresh fruit and wine has remained strong despite COVID-19-related
disruptions, and this is expected to continue. However, seasonal labour supply concerns
Horticulture and logistics constraints may make it challenging for the upcoming harvests to reach their
full potential.
New Zealand’s seafood sector continues to experience significant impacts from COVID-19
and the ongoing global economic downturn. Prices and volumes have experienced volatility
throughout 2020 and this is expected to continue into 2021 as food service closures,
challenging freight logistics, and lower consumer spending all contribute to a lower
Seafood forecast over the period to June 2021. Seafood export revenue is forecast to be down by
1.4 percent to $1.8 billion for the year ending June 2021.
Arable export revenue in 2021 is expected to increase by 5.3 percent to $305 million,
building on the significant growth in 2020 (up 23 percent) in the year ended June 2020.
This growth is expected to continue in the year to June 2022, but at a more moderate rate.
Uncertainty in the ryegrass and clover seed export markets is tempering our growth
Arable forecast while the outlook for vegetable seeds remains positive. Grain production exceeded
1 million tonnes for the 2020 harvest and dry conditions saw good uptake of stocks.
Processed foods and other products are expected to reach $3.3 billion for the year ending
June 2021, up 9.2 percent from 2020. This builds on growth of just over 5 percent for the
previous two years. The main contributors to this growth are increases in live animals,
Processed honey, innovative processed foods, and sugar and confectionery. Honey exports are growing
foods and as beekeepers have had another good production season and are also clearing stock from
other products previous years.
SOPI DECEMBER 2020 • 3
Overview
Primary industry production and exports have performed consumers in distant markets and their ability to harvest
better than expected during the unprecedented challenges all their produce. The Government’s recent decision to
presented by the COVID-19 pandemic. The situation and allow up to 2,000 experienced seasonal workers into
outlook varies significantly by sector, with some sectors New Zealand along with a range of other critical workers,
more impacted than others by the lockdowns in early 2020, in addition to other initiatives such as encouraging
and some sectors facing lower consumer demand than New Zealanders to work in the primary industries, will
others for the next few years. help address some of the labour concerns.
Primary industry exports rose 3.6 percent in the year This is a relatively positive outlook given the circumstances
ended June 2020 to reach $48 billion despite the forestry, of a global pandemic and recession. Over the past few
seafood, and meat and wool sectors being among those months, many of the worst-case scenarios for economic
most significantly impacted by COVID-related lockdowns, growth and unemployment have not materialised, and this
both in New Zealand and overseas. This was aided by a has translated to a less negative outlook for commodity
strong start to the year prior to the pandemic, a large prices. However, the uncertainties present downside risks
kiwifruit and apple harvest in March/April, and a weaker to the outlook, including the potential for the global trade
New Zealand dollar (NZD). and economic outlook to deteriorate, a stronger NZD, an
emerging La Niña weather pattern, labour and skill
Looking ahead to the year ending June 2021, primary
challenges, and logistical difficulties.
industries export revenue is forecast to fall 1.0 percent to
$47.5 billion, with a strengthening NZD and a lower There is much uncertainty as to the future path of the
outlook for meat and wool, dairy, and seafood offsetting a pandemic and government responses to contain it. While
recovery in forestry and continued strength in horticulture there has been good news recently about potential
exports. vaccines, many countries are reporting record infection
levels in November and December and strengthening
Although export revenue trends are relatively positive, this
public health measures. Government stimulus packages in
has been a difficult year for primary industry businesses,
many of our major markets could wind up in the coming
and challenges remain. The pandemic has created a
year, which will negatively impact consumer incomes so
commercial environment with unprecedented uncertainty,
there is still a downside risk to this forecast.
particularly for seasonal labour supply, logistics, and the
availability of production inputs. Businesses are facing
uncertainty around reliably transporting their products to
Table 1: Primary industries export revenue 2015-22 (NZ$ million)
Actual Forecast
2015 2016 2017 2018 2019 2020 2021 2022
Dairy 14,050 13,289 14,638 16,655 18,107 20,135 19,210 20,140
Meat and Wool 9,000 9,200 8,355 9,542 10,176 10,678 9,800 10,090
Forestry 4,683 5,140 5,482 6,382 6,883 5,539 5,990 6,150
Horticulture 4,185 5,000 5,165 5,392 6,134 6,501 7,090 7,200
Seafood 1,562 1,768 1,744 1,777 1,963 1,855 1,830 2,020
Arable 181 210 197 243 236 290 305 310
Processed foods and 2,417 2,714 2,639 2,709 2,854 3,003 3,280 3,310
other products*
Total 36,079 37,323 38,220 42,700 46,355 48,001 47,505 49,220
% Change year on year -6.8% +3.4% +2.4% +11.7% +8.6% +3.6% -1.0% +3.6%
Source: Stats NZ and MPI.
* Processed foods and other products includes live animals, honey, beverages, chocolate and soups.
4 • MINISTRY FOR PRIMARY INDUSTRIES
As mentioned earlier, there is a wide divergence in primary sector roles;
outlooks across the sectors. In this post-COVID-19 world, − making the most of the onshore migrant primary
there are four key drivers that play out differently in each sector workforce through temporary changes to
sector: current onshore visa settings such as automatic visa
• Retail versus food service: Social distancing extensions and the removal of stand-down periods;
requirements to limit virus transmission have hit the and
food service sector harder than any other industry except − supporting highly targeted border exceptions for
perhaps tourism. Products typically sold at retail, critical primary sector roles such as deep sea
especially via large format grocery stores, have fishermen, veterinarians, shearers, and rural
performed much better than products marketed through contractors.
the food service industry or via specialty retailers. For
Industry also has a number of targeted programmes
example, retail products associated with healthy
underway to attract more New Zealanders into the primary
lifestyles such as avocados and mānuka honey have
sector.
seen increased demand in 2020. In contrast, lamb,
venison, and seafood are typically sold in restaurants, • Logistics: Air freight capacity and prices have been an
and have experienced falling prices since the pandemic issue since the start of the pandemic as the vast
began. majority of air freight shares cargo space on commercial
• Underlying market fundamentals: Independent of passenger flights. In addition, sea freight has also
COVID-19 related impacts, the underlying supply and become disrupted, with less reliable service and
demand fundamentals in commodity markets remain a increased difficulty in sourcing shipping containers.
key driver for product prices. For example, rising milk This not only impacts exports, but also imports of
production overseas present a headwind for machinery, spare parts, animal feed, and other key
New Zealand’s dairy export prices regardless of whether agricultural inputs.
the pandemic impacts consumption patterns. Other
notable examples include increasing competition in Over the medium term, primary industry exports are
China’s log market coming from Europe, the significant forecast to return to their previous growth trajectory,
drought in New Zealand this past autumn reducing assuming the pandemic recedes and global economies
livestock numbers and lambing rates, China’s African recover. In addition, the Fit for a Better World roadmap
Swine Fever outbreak driving increased demand for seeks to transform the primary industries toward a more
imported meat, and high prices incentivising continued prosperous, sustainable, and inclusive future. This
investment in gold kiwifruit and other horticulture roadmap includes improving market access for
production. New Zealand products and investment in open ocean
• Labour supply: COVID-19 has had significant impacts on aquaculture and wood processing to access new markets.
New Zealand’s workforce, and ongoing border
restrictions mean that industries reliant on migrant
Climate
Dry conditions at the end of last summer have eased,
labour (such as backpackers and Pacific horticulture
however following the warmest winter on record, soil
and viticulture workers) are facing worker shortages.
moisture levels remain drier than normal in in the north
Parts of the primary sector that are used to relying on
east of the North Island and Otago and Canterbury. NIWA’s
migrant workers are being forced to look to different
outlook for December to February is for a different
domestic sources for workers, and many are not set up
summer to last year, with moderate La Niña conditions
and resourced to do this well and at pace. This is
expected to persist, typically bringing higher air pressure
disrupting business models and causing workforce
to the south east of the South Island and lower pressure to
uncertainty across the primary sector, which could
the north west of the North Island. Marine heat wave
impact production and processing in the 2020/21 season.
conditions are likely to bring higher temperatures over the
In addition to the recent decision to allow up to 2,000
country. Extended dry spells may be interspersed with
Pacific horticulture and viticulture workers into
unsettled weather including an elevated risk of tropical
New Zealand early next year, the Government has
cyclones, which bring heavy rain especially in the north of
implemented a range of initiatives to help mitigate
the country. Generally, though, the higher rainfall in the
workforce issues, including:
North Island should benefit pasture growth and meat and
− the Primary Sector Workforce Programme, focused
dairy production.
on getting New Zealand jobseekers (who have been
displaced by COVID-19-related unemployment) into
SOPI DECEMBER 2020 • 5
Macroeconomic overview Figure 1: Global GDP 2015-24 by IMF Forecast Round
120
Global economic impact of the pandemic remains Forecast
uncertain 110
World GDP (US$ trillion)
Despite nine months passing since the onset of the
100
COVID-19 pandemic, the disease is still unfolding rapidly
around the world, resulting in continued uncertainty 90
around the economic outlook for New Zealand’s primary
80
sector.
70
The global economy is now beginning to recover from the
initial wave of lock downs, which constrained international 60
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
supply chains and resulted in a severe decline in global
IMF October 2020 Forecast IMF October 2019 Forecast
demand. As economies reopened and consumer spending Source: International Monetary Fund.
increased, global economic activity rebounded faster in the
second half of 2020 than many commentators anticipated.
Much of this success was supported by massive temporary If the resurgence in the virus currently being experienced
fiscal and monetary policy stimulus provided by in many countries is unable to be controlled quickly, the
governments and central banks. However, with the toll on economic activity is likely to be more severe than
intensification of the pandemic over the past few months, during the first wave of infections, with the added potential
this momentum may now be under threat. to introduce increased risks to financial markets.
With respect to New Zealand’s key trading partners, new Unfortunately, this is occurring at a time when government
infections in the US, Europe, and the UK are now exceeding support schemes are now starting to unwind across many
the first wave experienced in those countries in April. countries. With the economic headwinds to these nations
Fortunately, two of New Zealand’s largest trading partners, increasing, the strain on both political appetite and
Australia and China, (which account for 42 percent of financial capacity for governments to deliver further
primary sector exports) are doing much better than most. support also increases the risks to the global economic
In other parts of Asia where virus transmission rates are recovery.
also low, economic activity is now also expected to improve In addition, the risk of geopolitical uncertainty, and
faster than elsewhere. restrictions on trade and international investment also
Despite the positive economic recovery to-date, the scars represent further key factors which could harm the outlook
from this deep recession are expected to result in lasting for global economic recovery.
damage to the economic capacity of most countries. This In the medium-term, any full recovery will depend on
is expected to keep economic output below pre-pandemic nations bringing the pandemic under control. Encouraging
trends for the next few years. recent reports on vaccine development is a significant
As a result, the International Monetary Fund’s (IMF) latest upside to this outlook, but only over the medium to long
forecast for economic growth (as at 13 October) is term. Widespread deployment of any vaccine is unlikely
predicting that the global economy will now shrink by before the middle of next year and achieving global
4.4 percent in 2020. While the global economy is now immunity make take several years.
beginning to grow as of Q3 2020, the recovery to pre-
COVID-19 levels is expected to take longer, be more
uneven, and less certain than previously expected.
With the exception of China, the IMF projects economic
output across advanced, emerging market, and developing
economies to remain below 2019 levels even into next year.
This will leave global output in 2020 and 2021 $US 11
trillion lower (6.2 percent) than the IMF’s last pre COVID-19
forecast released in January 2020 (Figure 1). Note that this
forecast outlook remains very uncertain with both upside
and downside risks.
6 • MINISTRY FOR PRIMARY INDUSTRIES
Strengthening of the New Zealand dollar could total volumes are expected to remain well below pre-
weaken export returns over the coming year pandemic trends.
Much of the export price strength experienced over the
first six months of 2020 was supported by a temporary Figure 3: Merchandise exports and imports by region
weakness in the New Zealand dollar that boosted export 2012-20
140
returns.
130
Trade volume index (2012=100)
However, New Zealand’s relative success in dealing with 120
the pandemic and its positive economic performance has 110
subsequently been reflected in a steady appreciation of the 100
New Zealand dollar since its low point in mid-March 90
against key trading currencies such as the US dollar and 80
the Euro. 70 North America Export North America Import Europe Export
60 Europe Import Asia Export Asia Import
The impact of the Reserve Bank’s Monetary policy stimulus
50
programme will be a key factor any potential weakening of
2012Q1
2012Q2
2013Q1
2013Q2
2014Q1
2014Q2
2015Q1
2015Q2
2016Q1
2016Q2
2017Q1
2017Q2
2018Q1
2018Q2
2019Q1
2019Q2
2020Q1
2020Q2
the New Zealand dollar over the coming months. Other key
factors, including an improvement in global risk appetite
(evident in the buoyancy of equity markets) as economies Source: WTO and UNCTAD.
reopen, ongoing fiscal and monetary policy support across
key trading partners, and the improving prospects for Continued economic growth in China will be critical
recovery in global economic activity may offset this for New Zealand’s short-term export prospects
momentum. If these factors remain, the strength in China’s rapid economic recovery since the virus first hit the
New Zealand’s currency can be expected to continue, country at the start of this year is reflected in the fact that
contributing to downward pressure on export earnings it is the only major economy expected to record positive
over the coming months (Figure 2). GDP growth in 2020. While government investment and
production initially led the first part of the recovery,
Figure 2: Selected New Zealand dollar exchange rates consumer demand is now also returning. At first this
2018-20 year to date strength was limited to online retail channels, but the
recovery has now spread to traditional retail channels and,
0.7000 importantly for many New Zealand producers, also the
food service sector.
0.6500
Demand for China’s key export products has also been an
0.6000 important factor in China’s recovery. However, should the
economic outlook worsen in its own export markets, China
0.5500 will not be immune to the effects of any further slowdown
in global economic growth. This has the potential to filter
0.5000
through to weaker demand for New Zealand primary
Euro/NZD US dollar/NZD
products.
0.4500
03 Jan 2018
03 Mar 2018
03 May 2018
03 Jul 2018
03 Sep 2018
03 Nov 2018
03 Jan 2019
03 Mar 2019
03 May 2019
03 Jul 2019
03 Sep 2019
03 Nov 2019
03 Jan 2020
03 Mar 2020
03 May 2020
03 Jul 2020
03 Sep 2020
03 Nov 2020
Brexit is another source of uncertainty
On 31 December 2020 the UK will exit the EU Customs
Source: Reserve Bank of New Zealand. Union and single market, impacting trade from third
countries, including New Zealand. Over several years, the
New Zealand Government and MPI have been preparing to
Global trade volumes remain subdued
manage the impacts of Brexit, and working with food and
Global merchandise trade recorded its sharpest ever
fibre stakeholders who export to the UK, and between the
decline in the second quarter of 2020, falling 14.3 percent.
UK and the EU, to prepare for end of the Brexit transition
Europe and North America experienced the greatest
period. It is important for those trading into the UK that
impact, with imports declining 19.3 percent and
they are aware of any changes to UK requirements and
14.5 percent respectively. By comparison, imports into
market conditions.
Asian countries performed much better, falling just
7.1 percent (Figure 3).
RCEP trade agreement deepens New Zealand’s
economic connections with the Asia-Pacific region
As a result, the World Trade Organisation (WTO) is now The signing of the Regional Comprehensive Economic
forecasting (as of October) merchandise trade volumes to Partnership (RCEP) on 15 November represents another
fall 9.2 percent over the course of 2020. This compares significant step toward deepening New Zealand’s
favourably to the WTO’s April forecast of a 32 percent drop, connections with the Asia Pacific region.
but is still a significant fall. Although trade volumes are
RCEP is the world’s largest trade agreement, covering
expected to rebound in 2021 (with the WTO forecasting a
30 percent of the world’s population, and 30 percent of
7.2 percent increase), as with the outlook for global GDP,
global GDP. The deal covers seven of New Zealand’s top
SOPI DECEMBER 2020 • 7
ten trading partners and will cover 62 percent of Impacts of COVID-19 on 2020 exports
New Zealand’s primary sector export trade. Member The first impacts of COVID-19 were driven by China’s
countries include Australia, Brunei-Darussalam, lockdown from late January to late March. During this
Cambodia, China, Indonesia, Japan, Laos, Malaysia, time, the two sectors most significantly impacted were
Myanmar, New Zealand, Philippines, Singapore, South forestry, which suffered from a slowdown in demand as
Korea, Thailand, and Viet Nam. China’s ports struggled to clear freight, and seafood
New Zealand currently has trade agreements with all the (mainly live rock lobster exports to China) as the food
member nations, which have already eliminated tariffs on service industry closed there.
most of New Zealand’s export products. Therefore, RCEP Then from late-March to late-April, New Zealand’s
will not deliver significant market access gains for response escalated rapidly alongside the rest of the
New Zealand primary producers as a result of tariff cuts. world. Forestry, wool, and other non-food businesses
The exception to this will be the Indonesian market where were not able to operate during New Zealand’s lockdown.
the tariff barriers on certain beef products, sheep meat Although the rest of the sector was able to continue
exports, seafood, selected dairy products, honey, and operating as essential businesses, social distancing
some horticultural products will be eliminated. requirements in production facilities and the sudden
The reduction in non-tariff barriers for export trade is closure of the food service industry created significant
expected to deliver the greatest benefits to the primary difficulties.
sector – particularly with regards to reduced processing This caused significant disruptions to meat processing,
times for clearing customs for perishable foods. Critically, seafood production, and domestic-market oriented
this agreement will provide a consistent set of rules industries such as vegetable and pork production. Meat
covering all 15 markets, making trade simpler and processing was reduced to 50 to 80 percent of normal at a
reducing compliance costs for exporters. peak time of the year. This made the autumn 2020 drought
With the IMF forecasting economic growth across RCEP’s even more challenging for the sheep and beef industry as
15 member countries to outperform the global average demand for processing capacity far exceeded supply.
over the next few years, the signing of the deal is Aside from forestry and seafood, many of these impacts
considered an important part of New Zealand’s post are not apparent in the aggregate trade data. A weaker
COVID-19 trade recovery strategy. The Ministry for Foreign NZD boosted export returns in March and April and the
Affairs and Trade has estimated that the RCEP deal will horticulture harvests were able to proceed despite the
increase New Zealand’s GDP by around $2 billion per lockdown. In addition, impacts to business profitability
year. and to domestic oriented industries are not represented in
the aggregate trade data.
Figure 4: Primary industries export revenue 2019-20 (NZ$ million)
Dairy Meat & Wool Forestry
3,000 1,500 2019 2020 800
2019 2020 2019 2020
600
2,000 1,000
400
1,000 500
200
0 0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Horticulture Seafood Arable and other
1500 400 2019 2020 400 2019 2020
2019 2020
300 300
1000
200 200
500
100 100
0
0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Stats NZ.
8 • MINISTRY FOR PRIMARY INDUSTRIESImpacts of COVID-19 on export forecasts horticulture, which has seen consumer demand remain
As compared to the last pre-COVID-19 forecast published strong in the wake of the pandemic.
in December 2019, export revenue for the year ended June
2020 exceeded forecasts by $131 million despite the onset Figure 5: MPI export revenue forecasts 2015-22
of the COVID-19 pandemic. A weak NZD contributed to this
strong result. 55 SOPI Dec 2019 SOPI Mar 2020 SOPI Dec 2020
For the year ending June 2021, our export forecast has
been revised downward by nearly $1.4 billion compared to
Export revenue (NZ$ billion)
50
the December 2019 forecast. A stronger NZD presents a
headwind to all sectors, the outlook for meat and wool
prices has been revised down significantly, and dairy prices 45
have been revised down moderately. In addition, the
autumn 2020 drought is expected to have carryover effects
to meat and wool production in the current year. 40
Log export prices are expected to remain near current
levels for a longer period as compared to the pre- 35
2015 2017 2019 2021
COVID-19 forecast and the outlook for seafood is lower due
to reduced food service demand and a reduced hoki quota. Source: Stats NZ and MPI.
This is partially offset by a more positive outlook for
Table 2: Export forecast comparison 2015-22 (NZ$ million)
Year to 30 June Actual Forecast
Forecast round 2015 2016 2017 2018 2019 2020 2021 2022
Dec 2020 14,050 13,289 14,638 16,655 18,107 20,135 19,210 20,140
Dairy
Dec 2019 14,050 13,289 14,638 16,655 18,107 19,630 19,450 19,590
Difference – – – – – +505 –240 +550
Meat & wool
Dec 2020 9,000 9,200 8,355 9,542 10,176 10,678 9,800 10,090
Dec 2019 9,000 9,200 8,355 9,542 10,176 10,430 10,680 10,740
Difference – – – – – +248 –880 –650
Dec 2020 4,683 5,140 5,482 6,382 6,883 5,539 5,990 6,150
Forestry
Dec 2019 4,683 5,140 5,482 6,382 6,883 6,000 6,600 6,750
Difference – – – – – –461 –610 –600
Dec 2020 4,185 5,000 5,165 5,392 6,134 6,501 7,090 7,200
Horticulture
Dec 2019 4,185 5,000 5,165 5,392 6,111 6,400 6,530 6,800
Difference – – – – +23 +101 +560 +400
Dec 2020 1,562 1,768 1,744 1,777 1,963 1,855 1,830 2,020
Seafood
Dec 2019 1,562 1,768 1,744 1,777 1,963 2,090 2,210 2,310
Difference – – – – – –235 –380 –290
Dec 2020 181 210 197 243 236 290 305 310
Arable
Dec 2019 181 210 197 243 236 260 255 255
Difference – – – – – +30 +50 +55
Dec 2020 2,417 2,714 2,639 2,709 2,854 3,003 3,280 3,310
Other
Dec 2019 2,417 2,714 2,639 2,709 2,852 3,060 3,140 3,220
Difference – – – – +3 –57 +140 +90
Total exports
Dec 2020 36,079 37,323 38,220 42,700 46,355 48,001 47,505 49,220
Dec 2019 36,079 37,323 38,220 42,700 46,329 47,870 48,865 49,665
Difference – – – – +26 +131 –1,360 –445
SOPI DECEMBER 2020 • 9Top 10 Export Destinations
Year ended June 2020
Dairy Forestry Seafood Other
Meat & Wool Horticulture Arable
China USA
$15,628m Japan $4,323m
$2,884m
UK
$1,127m
S. Korea
$1,292m
EU
$2,979m
Taiwan
$1,225m
Indonesia
$1,004m
Malaysia Australia
$1,009m $4,542m
Dairy Meat & Wool Forestry Other
8,000 4,500 37% 3,000 51% 1,400
34% 4,000 41%
7,000 32% 2,500 1,200
6,000 5,500 2,000
5,000 3,000 2,500 1,000
2,500 18%
4,000 2,000 800
2,000
3,000 13% 1,500 17%
1,500 11% 400 12%
2,000 7% 1,000 1,000 10% 10% 8%
4% 4% 4% 3% 5% 4% 3% 3% 2% 7% 6% 5% 4% 200 6% 4% 4%
1,000 3% 3% 3% 3% 500 2% 1% 500 3% 2% 2% 3%
2% 2% 2% 2%
0 0 0 0
Philippines
Australia
China
Japan
United States
South Korea
Singapore
Hong Kong
EU (excl. UK)
UK
Vietnam
All other
China
Australia
United States
Japan
Malaysia
Indonesia
Philippines
UAE
Saudi Arabia
Thailand
All other
China
United States
EU (excl. UK)
UK
Japan
Australia
Taiwan
Canada
South Korea
Singapore
All other
China
Australia
Japan
South Korea
United States
India
Thailand
Vietnam
All other
Indonesia
Horticulture Seafood Arable All Exports
1,200 700 160 47% 16,000 33%
16% 33%
1,000 600 140 14,000
14% 25%
13%13% 500 120 12,000
800 12% 12% 100 10,000
400
600 8% 80 8,000
300 13% 13%11% 13%
400 60 6,000
200 13% 9% 9%
4% 40 4,000 6% 6%
200 3% 2% 2% 6% 7% 7% 6% 7%
100 4% 2% 2% 2% 20 4% 3% 2,000 3% 3% 2% 2% 2%
2% 3% 2% 1%
0 0 0 0
Australia
South Korea
EU (excl. UK)
Australia
United States
South Korea
Japan
China
Chile
South Africa
UK
Vietnam
All other
EU (excl. UK)
Japan
United States
China
UK
Taiwan
Canada
Vietnam
All other
China
United States
EU (excl. UK)
Australia
Japan
South Korea
Thailand
Hong Kong
Canada
Vietnam
All other
China
Australia
United States
EU (excl. UK)
Japan
South Korea
Taiwan
UK
Malaysia
Indonesia
All other
10 • MINISTRY FOR PRIMARY INDUSTRIESSOPI DECEMBER 2020 • 11
Freight challenges
Global responses to control the spread of COVID-19 continue to severely disrupt global supply chains causing
congestion, delays, increased cost and risk. Exports by both sea and air are being impacted by high or
increasing freight charges and supply chain disruptions, which are affecting the viability and sustainability of
exporting these products.
Maritime supply chains tightening: more ships are starting to by-pass Auckland and Tauranga
uncertainty and risk ports which is leading to capacity issues at alternative
Over 99 percent of New Zealand’s primary sector exports ports or delays to loading and unloading. There were also
by volume are exported by sea. Total export volumes are significant disruptions at Australian ports due to industrial
around 8 percent down by weight on 2019 levels, action. As Asian shipping routes typically transit through
averaging 2,920 thousand tonnes each month. Import Australia before sailing to New Zealand, these industrial
volumes are usually lower in January as many businesses actions caused additional impacts on sea freight
are closed over the Christmas period. This does, however, schedules and availability of empty containers.
mask seasonality within many sectors. On a volume basis,
There is also an international container shortage due to
around 75 percent of New Zealand’s exports by sea are
unexpected increases in demand, particularly in the
forestry products, with dairy and horticulture the next two
United States. While Chinese container manufacturers
biggest sectors.
have increased production, demand for containers is
Sea freight volumes have until recently been at similar expected to continue to outstrip supply in the short term.
levels to recent years for most sectors, except for forestry Capacity constraints have also led to increases in
during NZ’s level 4 lockdown to control the spread of maritime freight charges for imported product into
COVID-19 as it was not considered an essential service New Zealand. Freight charges for imported products have
(Figure 6). However, supply chain difficulties are starting increased fourfold since April and are currently at historic
to emerge. International shipping companies are highs while freight charges for exports are beginning to
changing their shipping schedules due to capacity increase. While some larger businesses have been able to
constraints. Some shipping lines have reduced or even negotiate guaranteed shipping rates, smaller importers
stopped sailings to New Zealand. Auckland and Tauranga and exporters are exposed to spikes in spot prices.
ports in New Zealand have reduced capacity so some
Figure 6: Monthly primary industries sea freight volumes by sector (2018-20)
Dairy Meat & Wool Forestry
500 500 3,000
2018 2019 2020 2018 2019 2020 2018 2019 2020
450 450
2,500
Export volume (thousand tonnes)
400 400
Export volume (thousand tonnes)
Export volume (thousand tonnes)
350 350
2,000
300 300
250 250 1,500
200 200
1,000
150 150
100 100 500
50 50
0 0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Horticulture Seafood Arable and other
500 100 100
2018 2019 2020 2018 2019 2020 2018 2019 2020
450 90 90
Export volume (thousand tonnes)
Export volume (thousand tonnes)
400 80 80
Export volume (thousand tonnes)
350 70 70
300 60 60
250 50 50
200 40 40
150 30 30
100 20 20
50 10 10
0 0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Stats NZ.
12 • MINISTRY FOR PRIMARY INDUSTRIESAir freight exports continue to face International flights arriving in New Zealand have dropped
challenges from over 750 per week to around 120 per week. Current
While only 0.2 percent by volume of New Zealand’s air freight levels in New Zealand are keeping pace with
primary sector exports are sent by air freight, these tend seasonal volume increases, which are tracking at a
to be high-value products and represent 5 percent of slightly lower level than in 2019.
exports by value ($1.9 billion in the year to June 2020). Air freight charges from New Zealand are currently
Products sent by air freight include fresh cherries, rock significantly higher than pre-COVID-19 levels. Charges
lobster, live horses, blood products and chilled lamb. have now stabilised, but at 1.5 to 4 times higher than
Exports are at their lowest during the winter months from pre-COVID-19 levels, depending on the route. Inbound
June to August, and peak from November to January, with freight charges are significantly higher than outbound
another peak in March. Horticulture air freight exports charges.
peak in January during the cherry export season while red
meat peaks in December and in April, aligning with peak The impacts of disruptions to air freight since February
seasonal demand around Christmas and Easter. have been concentrated in the horticulture, seafood and
meat sectors. The main products affected so far in these
Prior to COVID-19, 80 percent of air freight arrived or left sectors include lemons, capsicums, infant formula,
New Zealand in the holds of passenger flights. COVID-19 chilled lamb and chilled seafood. Risks lie ahead as we
has resulted in a 90 percent reduction in air passenger enter peak production and air-freight capacity
services. While the proportion of freight carried on requirements for horticultural produce such as cherries,
dedicated air freight services has risen to meet demand, but also for other products such as chilled lamb.
overall airfreight capacity is still 30 percent down on
pre-COVID-19 levels.
Figure 7: Monthly primary industries air freight export volumes by sector 2018-20
Dairy Meat & Wool Forestry
3,500 3,500 1,000
2018 2019 2020 2018 2019 2020 2018 2019 2020
3,150 900
3,000
2,800 800
2,450 2,500 700
Export volume (tonnes)
Export volume (tonnes)
Export volume (tonnes)
2,100 2,000 600
1,750 500
1,400 1,500
400
1,050 1,000 300
700 200
500
350 100
0 0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Horticulture Seafood Arable and other
7,000 3,500 3,500
2018 2019 2020 2018 2019 2020 2018 2019 2020
6,000 3,000 3,000
5,000 2,500 2,500
Export volume (tonnes)
Export volume (tonnes)
Export volume (tonnes)
4,000 2,000 2,000
3,000 1,500 1,500
2,000 1,000 1,000
1,000 500 500
0 0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Stats NZ.
SOPI DECEMBER 2020 • 13Impacts and responses exported and the end market. Exports of some products or Businesses are starting to mitigate their supply chain risks product formats can be narrowly concentrated in a few and adapt to the new circumstances. Measures include companies. For others, the export and domestic sectors re-focusing market priorities; changing product formats to can be closely intertwined with the export market providing more shelf-stable, long life products; deferring scale, resilience, innovation and opportunity. Loss of export investment; scaling back production; and/or shifting to revenues may significantly impact the domestic industry, alternate modes of transport. Some companies are including for upcoming seasons. accepting short terms losses on products to maintain The extension of the Government’s International Air market share and customer relationships. This is not Freight Capacity scheme until 31 March 2021 will go some sustainable, particularly for smaller companies. Returns to way to ensuring New Zealand has the aviation services it farmers and growers have reduced where increased needs for the flow of critical trade, services and personnel. freight costs cannot be recovered. A strategic review of New Zealand’s aviation requirements The impact of this disruption is falling unevenly across beyond March 2021 will be completed early next year. primary sectors depending on the nature of the product 14 • MINISTRY FOR PRIMARY INDUSTRIES
SOPI DECEMBER 2020 • 15
Dairy
New Zealand’s dairy export revenue is forecast to fall 4.6 percent to $19.2 billion for the year ending June
2021. Expectations for another strong production season are expected to be offset by weaker global dairy
prices, as markets continue to deal with the impacts of the COVID-19 crisis. For New Zealand’s dairy farmers,
this is expected to translate into lower farmgate milk prices for the current season. However, strong
underlying demand, particularly from New Zealand’s largest trading partner China, should support strong
sector profitability over the medium term.
Table 3: Dairy export revenue 2015-22 (NZ$ million)
Actual Forecast
Year to 30 June 2015 2016 2017 2018 2019 2020 2021 2022
Whole milk powder 5,385 4,609 5,271 5,818 6,675 7,565 7,000 7,280
Butter, AMF, and cream 2,219 2,378 2,794 3,812 3,612 3,365 2,740 2,750
Skim milk & butter milk powder 1,762 1,347 1,385 1,228 1,323 1,792 1,770 1,810
Casein & protein products 2,129 1,834 1,735 1,601 1,574 1,997 2,160 2,200
Cheese 1,557 1,720 1,830 1,905 1,965 2,074 1,910 1,970
Infant formula 415 685 778 1,240 1,641 1,851 1,920 2,220
Fluid milk and other dairy products* 582 716 845 1,050 1,318 1,492 1,710 1,920
Total 14,050 13,289 14,638 16,655 18,107 20,135 19,210 20,140
% Change year on year -21.0% -5.4% +10.1% +13.8% +8.7% +11.2% -4.6% +4.8%
Source: Stats NZ and MPI.
* Other dairy products include: liquid milk and cream, ultra-high temperature milk, yoghurt, and ice cream.
• Strong pasture growth from July to August has alleviated • Despite the strong start to the season, overall export
the pressures caused by the drought earlier in the year volume growth has been relatively mixed for the
and has set up the New Zealand dairy sector with a September quarter, compared to the same period as last
strong start to the season. Total milk solids production year. Volume growth for whole milk powder (up
for the first five months to October is 1.9 percent ahead 13.2 percent) and liquid milk products (up 4.8 percent),
of last year, representing a record start for New Zealand was offset by declines in cheese (down 6.0 percent),
production (Figure 8). In addition, despite dry weather skim milk powder (down 13.2 percent) and infant
conditions during October, good rainfall in November formula (down 20.3 percent). Combined with weakness
over eastern and central North Island regions has in export prices across some key categories, including
subsequently boosted pasture growth. While we are not butter (down 22.4 percent) and whole milk powder (down
forecasting production growth to match the record levels 10.4 percent), this has resulted in a 6.1 percent decline
achieved during the second half of last season, in overall export revenues for the September quarter
expectations of a strong La Niña weather pattern are relative to the same quarter in 2019.
likely to bring summer rainfall to key dairying regions
boosting production. As a result, we are forecasting milk
solids production to be up 0.4 percent for the 2020/21
Figure 9: September quarter dairy export revenue –
season compared to the record result in the previous
2020 vs 2019 (price and volume effects)
year.
150
Figure 8: Monthly New Zealand milk solids production 100
300
2018/19 Season 2019/20 Season 2020/21 Season to date 50
Export value change (NZ$ millions)
250 0
Milk solids production (Million kg ms)
200 -50
-100
150
-150
100
-200 Price effect Volume effect Revenue change
50
-250
Butter Cheese WMP SMP Casein Infant Liquid Total
0
& AMF Formula Milk &
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Other
Source: Stats NZ.
Source: DairyNZ.
16 • MINISTRY FOR PRIMARY INDUSTRIES• The impact of the COVID-19 pandemic has resulted in • For farmers, these weaker prices are expected to flow
significant volatility in dairy export revenues, driven by through to reduced farmgate returns, with New
both fluctuations in exchange rates and commodity Zealand’s all company average milk solids pay-out
prices. Dairy commodity prices weakened significantly (including dividend) for the 2020/21 season forecast at
at the beginning of this year, as pandemic induced $6.90 per kilogram of milk solids. This forecast is based
lock-downs disrupted supply chains and reduced on the assumption that there will be no further major
demand for dairy products, particularly in the food negative shocks to commodity pricing from the global
service sector. This has now been followed by a recovery economic effects of COVID-19 in New Zealand’s key
in demand, especially from China, New Zealand’s key export markets.
market. However, despite this improved trading
environment, dairy commodity prices still remain below • Despite this downside risk, the strong underlying
the averages experienced over the previous year. In drivers for demand of New Zealand’s dairy products still
particular, weighted average Global Dairy Trade auction supports our expectation of ongoing strength in dairy
prices, as at the middle of November, sit 9.3 percent pay-outs (and therefore profitability) over the next few
below their peak in November 2019. years (Figure 11). However, the downside risks to future
pay-outs beyond the current season will depend on the
Figure 10: Weighted average Global Dairy Trade finely balanced nature of global markets, with the risk
auction prices (2019/20 season & 2020/21 to mid that rising global production may exceed any recovery in
November 2020) global demand.
3600
Figure 11: New Zealand all company average milk
3400 solids pay-out (including dividend) 2015-22
8.00 Forecast
3200 7.06 6.90 7.05
6.72
Farmgate payment (NZ$/kg ms)
($US per tonne)
6.36 6.28
3000 6.00
4.77
2800 4.35
4.00
2600
21 Jan 2020
7 Apr 2020
16 Jun 2020
1 Sep 2020
17 Nov 2020
4 Jun 2019
20 Aug 2019
5 Nov 2019
2.00
2019/20 Season 2020/21 Season to date Season average price
0.00
2015 2016 2017 2018 2019 2020e 2021 2022
Source: Global Dairy Trade.
Source: MPI.
• Despite the negative impacts that COVID-19 has had on
global markets, the underlying drivers of export demand
for New Zealand’s dairy products remains strong. This
has allowed dairy prices to perform much better
relative to many other agricultural commodity products
throughout the COVID-19 crisis. This resilience has
been supported in large part by the swift and strong
recovery in demand from China.
• Nevertheless, over the short-term, dairy export prices
are expected to remain relatively constrained.
Expectations of increasing New Zealand milk solids
production growth this season will feed into an
international global dairy supply chain that is currently
experiencing supply pressures. Seasonal milk
production growth in Europe (up 1.8 percent), the US (up
1.9 percent), and Australia (up 2.0 percent) is also
expected to temper any upward price pressure over the
coming months. Lastly, if the recent strengthening of
the New Zealand dollar relative to the US is maintained,
this will also act as a drag on export revenue growth.
SOPI DECEMBER 2020 • 17Meat and Wool
The outlook for meat and wool exports remains volatile, with export revenues forecast to decrease
8.2 percent to $9.8 billion for the year ending June 2021. This outlook is being driven by export prices
receding in early 2020 from the near record levels in late 2019 mainly due to uncertainty and food service
closure caused by COVID-19, and competition from poultry and other lower priced proteins. The global
protein shortage, caused by African Swine Fever (ASF) outbreaks in China and by major herd rebuilding in
Australia, slightly offsets COVID-19’s impact on international meat prices.
Table 4: Meat & Wool export revenue 2015-22 (NZ$ million) Forecast
Actual
Year to 30 June 2015 2016 2017 2018 2019 2020 2021 2022
Beef & veal 2,980 3,096 2,706 2,943 3,324 3,811 3,440 3,460
Lamb 2,504 2,569 2,441 3,018 3,227 3,331 2,920 3,020
Mutton 418 419 417 575 576 643 550 560
Wool 805 760 522 543 549 432 370 410
Venison 174 182 162 196 186 152 130 130
Other meat* 466 503 513 543 610 593 590 620
Hides & Skins 570 509 416 396 354 240 240 280
Animal by-products 578 598 587 700 729 803 780 810
Animal fats & oils 118 125 156 147 115 140 150 160
Animal products for feed 216 247 273 332 376 430 510 530
Carpets & other wool products 172 192 163 148 130 102 120 110
Total 9,000 9,200 8,355 9,542 10,176 10,678 9,800 10,090
% Change year on year +10.3% +2.2% -9.2% +14.2% +6.6% +4.9% -8.2% +3.0%
Source: Stats NZ and MPI.
* Other meat includes: edible offal, processed meat, and poultry.
• Continued food service restrictions and lower • Strong demand from China is expected to continue to
discretionary incomes internationally are expected to partially offset COVID-19’s impact on meat export
place downward pressure on sheep, beef and venison prices. China’s strengthened demand since 2018 was
prices. The COVID-19 pandemic has impacted the types primarily driven by its protein shortage caused by the
of cuts consumers are demanding. Reduced food ongoing ASF outbreak (Figure12). China will continue to
service activity has led to decreased demand for higher import meat to fill its domestic protein production gap
priced restaurant-focused cuts, such as chilled bone-in as it cannot be addressed without large import volumes.
beef and lamb, and higher demand for lower-priced Demand from China is also being buoyed by higher
products that lend themselves to home cooking, such incomes leading to increased meat consumption.
as ground beef. These trends are highly dependent on
future overseas government-mandated lockdowns, but • Another factor partially offsetting the fall in export
we expect food service demand to remain low in the prices is Australia’s decrease in sheep and beef exports
coming year before gradually recovering. due to herd rebuilding following severe drought
conditions over the past few years. Australia’s sheep
Figure 12: Meat and Wool export revenue to China and beef herds are expected to take multiple years to
2014-20 recover. This is particularly important for mutton and
$3.5
lamb export prices due to Australia’s large market
ASFoutbreak share. Australia and NZ combined account for
$3.0 confirmed in China
76 percent of global sheep meat export revenue.
$2.5
Export revenue (NZ$ billion)
$2.0
$1.5
$1.0
$0.5
$0.0
2014 2015 2016 2017 2018 2019 2020
Year ended June
Source: Stats NZ.
18 • MINISTRY FOR PRIMARY INDUSTRIESFigure 13: Quarterly export prices (NZ$) 2014–20 Figure 14: Export revenue by wool micron (NZ$)
$14.00
2017-21
30.00
$12.00 Less than 24.5 microns
Export revenue (NZ$ per kg)
25.00
$10.00
Export price (NZ$ per kg)
20.00
$8.00
$6.00 15.00
24.5 to 31.4 microns
$4.00 10.00
$2.00 Lamb Mutton Beef and Veal 5.00
$0.00 More than 31.4 microns
Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun 0.00
2014 2014 2015 2015 2015 2016 2016 2017 2017 2017 2018 2018 2019 2019 2020 2020 Jan MarMay Jul Sep Nov Jan MarMay Jul Sep Nov Jan MarMay Jul Sep Nov Jan MarMay Jul Sep Nov Jul Sep
2017 2018 2019 2020 2021
Source: Stats NZ.
Source: Stats NZ.
• The value of beef and veal exports are forecast to
decline to $3.4 billion for the year ending June 2021, a • Wool export revenue is forecast to decrease to
10 percent decrease from the previous year, as the $370 million in the 2020/21 season, a 14 percent
market settles after receiving record prices as a result decrease from the previous year. Wool prices were
of frantic ASF-fuelled buying through November and declining prior to COVID-19, and since then have been
December 2020 (Figure 13). Prices in 2020/21 are depressed further by lockdowns and lower consumer
forecast to be similar to those received in the 2018/19 demand (Figure 14). New Zealand inventories are also
season. The forecast decrease in revenue is growing in response to low export volume and demand,
predominantly driven by a 10 percent decrease in prices which presents a downside risk to farmgate prices.
and flat volumes. The decrease in export prices is Farmgate wool prices are forecast to remain depressed
expected to be due to China’s increased meat over the next year, due to lower demand for wool in
inventories, a firm global beef supply, COVID-19’s China where wool processing volumes are significantly
ongoing impact on the food service industry, and falling reduced (a flow-on effect of reduced consumer
consumer confidence. demand).
• New Zealand’s sheep meat exports also hit record Figure 15: Sheep and beef total gross revenue 2013-
prices in 2019-20, with lamb returning $11.05 per 21f
kilogram and mutton returning $7.58 per kilogram on $700,000 Forecast
average. Higher prices were driven by constrained $600,000 5-year average:
global production as Australia begins to rebuild its
$500,000
Total gross revenue per farm
flock. Lamb and mutton export revenues are forecast to
decline (to $2.9 billion and $550 million respectively) for $400,000
the 2020/21 season. Export volumes are expected to fall $300,000
slightly, while prices are expected to decrease as a
$200,000
result of food service restrictions and lower consumer
confidence. $100,000
$0
• We expect farmers to retain breeding ewes in the 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20e 2020-21f
2020/21 season as they rebuild flocks following the
Source: B+LNZ.
drought in 2019/20, leading to a forecast decrease in
mutton exports. A lower lamb crop in the 2020/21
season (Spring 2020) is expected due to fewer sheep • Beef and Lamb NZ forecast gross farm revenue to be
mated, poor ewe condition during pregnancy due to dry $559,300 per farm for the 2020/21 season, which is
conditions, and losses as a result of the South Island 10 percent lower than the previous season (under its
snowstorm. The lower 2020/21 lamb crop is the driver USD0.66 exchange rate scenario) (Figure 15). The
behind a forecast decline in lamb exports in 2020/21. revenue forecast for the 2020/21 season is similar to the
5-year average. Farm expenditure is expected to
• New Zealand’s beef herd is expected to have remained decrease in response to lower revenue.
static at around 3.9 million as at 30 June 2020, which
has led to 2020/21 season export volumes to be forecast
in line with 2019/20.
SOPI DECEMBER 2020 • 19You can also read
