$1.3b primary export income drop for June year end

Forecast primary sector export revenue for the year ending June 2020 is $1.3billion lower than the previous forecast in December and further downward revisions are likely.

The latest Situation and Outlook for Primary Industries report, released last week, showed export revenue was forecast to reach $46.5billion, up 0.5% from the previous year.

Downward revisions were made to most sectors, particularly dairy, meat and wool, and forestry, on the back of Covid-19 and drought.

Dairy export revenue was revised downwards by $390million due to hot and dry conditions resulting in expectations of lower production than previously had been forecast, combined with weakened international dairy prices in the wake of the Covid-19 global pandemic.

Meat and wool export revenue had been revised downwards by $220million due to short-term reductions in demand from China, while forestry export revenue was expected to be down $350million on the previous forecast with high log inventories at Chinese ports.

The outlook for agricultural market conditions had become increasingly uncertain as the potential impact of Covid-19 on the global economy unfolded.

At the end of summer, much of the country was very dry with Niwa’s New Zealand Drought Index ranging from extremely dry to severe drought for most of the North Island and top of the South Island.

The forestry sector was facing ongoing slowdowns and uncertainty and export revenue was expected to be down $350million from the previous forecast.

Many New Zealand harvesting workers had been stood down or were working reduced hours and there had been less work for domestic transport companies.

Industry reports suggested there were upwards of four months worth of log inventory at Chinese ports that needed to be cleared before meaningful harvesting and exports could resume.

Dairy export revenue was forecast to rise 6.3% to $19.2billion, driven by strong domestic production and favourable export prices.

International markets had weakened in the wake of the Covid-19 outbreak. with the GlobalDairyTrade index declining 7.5% during February, and whole milk powder prices falling 8.2%. Despite that, export prices remained strong by historic standards.

Meat exports were expected to remain relatively stable compared to last year, with meat prices staying at record highs due to high protein demand from China because of African swine fever.

Short-term growth was constrained because of disruption in China due to strategies to contain the spread of Covid-19.

A combination of dry conditions, lack of cold storage space and disruption at Chinese ports remained short-term challenges for the meat industry.

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