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The average payout to dairy farmers will fall again next season, then start to pick up in 2011, Ministry of Agriculture and Forestry economists say.
"Payout and overall export value of dairy are both expected to increase after a lean 2010, but are not expected to return to 2008 levels in the foreseeable future," the economists said today.
Costs had been slow to return to historical levels, eroding net farm income in real terms so that returns were back at inflation-adjusted historical levels.
Dairy farmers who pocketed a record payout -- averaged over all the main cooperatives -- of $7.64/kg of milksolids in 2008, saw that crumble to $5.24/kg in the past season, and MAF predicted a fall to $5/kg in 2010.
Long-range economic forecasts showed averaged payouts picking up to $5.27 in 2011, $5.78 in 2012, and $5.96 in 2013.
But MAF director general Murray Sherwin said the Situation and Outlook for NZ Agriculture and Forestry (Sonzaf) released today forecast steady increases in returns for meat and forestry products over the years to 2013.
While the forecasts showed a "downgrade" for the year ahead "it is by no means all doom and gloom," said Mr Sherwin.
"People will always need feeding, so with the global population continuing to grow, demand for food products will also increase." But the dynamics of global trade would continue to affect farmers, who needed to be alert to demands and changes in conditions offshore to make the most of the available opportunities.
"Many producers need to concentrate on innovation and productivity gains," he said.
Recession-hit economies in Europe and the United States would reduce spending and continue to protect their own producers, he said.
Mr Sherwin, a former Reserve Bank executive, said exchange rates helped insulate New Zealand from some of the effects of the global recession.
"The value of the Kiwi dollar against major currencies will be key to determining the value of exports in coming years," he said.