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Primary sector export revenue for the year to June next year is forecast to be down about 5% on the previous year's income, as deteriorating global economic conditions significantly impact on returns.
A half-year update to the annual Situation and Outlook for Primary industries report, released this week by the Ministry for Primary Industries, showed there had been strong pastoral production so far in the 2012-13 season.
However, the continuing economic slowdown, particularly in the traditional markets of the European Union, was causing weaker demand for some products, such as lamb. The strengthening of the New Zealand dollar against most major trading currencies in recent months was having a dampening effect on farm-gate returns for primary produce.
International dairy prices were expected to recover over the remainder of the 2012-13 season and beyond.
New Zealand's dairy export revenue was expected to fall by 8.1% to $12.6 billion in the year to June 2013, compared with the previous year.
International dairy prices had recovered 24% from their recent low in May this year, due to market expectations of a reduction in milk supply from the European Union and the United States.
The domestic farm-gate milk price for the year ended May 31, 2013 was expected to average $5.54 per kg of milk solids, down 42c on last season's price, due to the stronger New Zealand dollar eroding the expected gain in international prices.
Lower lamb prices were expected, resulting from weaker demand in key European markets. Lamb export revenue was expected to decrease 17% to $1.91 billion in the year ended June 2013.
Increased lamb exports from Australia and weak economic conditions in global lamb markets were expected to keep prices ''subdued'' over the next two years.
Wool export revenue was expected to decrease 23% to $580 million, due to lower export prices. Weaker demand for finished wool products in developed countries meant wool export prices in the September 2012 quarter declined 41% from their peak in the December, 2011 quarter, when prices were high due to limited global supply.
Beef prices were expected to remain firm over the next two years, following a major drought in North America.
The forestry sector would remain squeezed for the next few years, due to low demand from major export markets.
Export revenue from all horticultural products was on track to reach $3.5 billion in the year to March 2013, with higher in-market prices expected to offset lower kiwifruit and wine exports and the stronger New Zealand dollar.
Forecast export volume for wine in the year ending June 2013 remained at 155 million litres, representing a 13% drop on the previous year due to the smaller grape harvest in 2012.
The decreased export volume was forecast to raise the average price per litre by 15% to $7.60.