Dairying is set to rival construction in boosting New
Zealand's economy. Photo by ODT.
The dairy sector is now rivalling the construction sector
in boosting economic growth for the coming year, BNZ economist
Doug Steel says.
Mr Steel said Fonterra's recently-increased $7.80 per
kilogram forecast payment for milk solids, a record, included
a lift in production and equated to dairy revenue rising by
about $4 billion.
''This estimate includes our assumed 6% production lift from
last season's drought-induced decline,'' Mr Steel said.
While there is still risk to be assessed on weather and costs
of irrigation replacement from last week's high winds, Mr
Steel said the forecasts meant the lift in dairy industry
revenue was equivalent to almost 2% of GDP.
''That is very large in anyone's language. Moreover, high
advance rates mean farmers will see more of the cash
earlier,'' he said.
''The dairy sector is now rivalling the construction sector
to provide the biggest boost to economic growth over the
coming year,'' he said.
Mr Steel said part of the boost would be from more spending,
citing a recent Federated Farmers survey which found a net
28% of dairy farmers intended increasing expenditure over the
''This survey pre-dates the milk price forecast upgrades, so
net spending intentions could well be even higher now.
''Either way, a decent lift in dairy farmer spending looks
likely, generating the typical multiplier effects as the cash
works its way through the economy,'' Mr Steel said.
He said more revenue gave more options.
Some dairy farmers were taking on more debt, expanding and
investing for growth.
Others might use the extra revenue to reduce debt, perhaps
including any extra debt taken on to get through the
drought-induced cashflow squeeze, and strengthen balance
''Strong possibilities on both sides make it as difficult as
ever to determine the net change in agricultural debt, which
is currently growing at just under 4% per annum,'' he said.
However, more revenue also affords more saving, and he noted
bank deposits from the agriculture sector were up 7% during
the past year.
The question was how much of it boosted economic growth and
how much of it ''tilted towards'' improving our external
imbalances, Mr Steel said.
''It looks to us that it will be a combination of both over
the coming year,'' he said.