Report predicts primary sector exports to grow by $1.7b in wake of COVID-19

According to the report, dairy exports were particularly strong since the start of March.
According to the report, dairy exports were particularly strong since the start of March. Photo credit: Getty

A report released on Tuesday predicts primary sector exports will grow by $1.7 billion compared to last year, a rise of 4.5 percent.

However, those gains were "exaggerated" by a falling New Zealand dollar (NZD), without which export revenue would have fallen, the report said.

The findings come after the latest global outlook by the Organisation for Economic Cooperation and Development (OECD) earlier this month forecast New Zealand's GDP would shrink 8.9 percent due to the effect of the coronavirus pandemic and lockdown. If there is a second wave of the virus, that number could reach 10 percent, the study predicted.

GDP is expected to return to pre-COVID-19 levels by the end of 2021 if there is no second wave.

Tuesday's report by the Ministry for Primary Industries, titled the Economic Update for the Primary Industries, shows although many sectors have been hit hard, particularly the tourism and hospitality, the primary industries could be a lifeline of sorts for the country as the economy recovers from the pandemic.

"Overseas consumers are now more than ever looking for healthy, New Zealand-made food," said Agriculture Minister Damien O'Connor. 

"We’ve seen that with the sustained demand for fresh fruit, particularly in Europe and North America and the strong demand for red meat in China."

With many primary industries able to work through the nationwide lockdown, they have been widely credited with maintaining cashflow for the country during the lockdown. Now, it is hoped revenue from the sector will help the country in its economic recovery.

"Our farmers and growers are in a strong position to help us reboot our economy. Along with the sector, the Government is focused on creating more demand, pursuing greater market opportunities to generate higher export returns and growing rural communities with new jobs," said O'Connor.

According to the report, dairy exports were particularly strong since the start of March, up $512 million (12 percent) compared to the same time last year. However, the impact of declining dairy export commodity prices is expected to be felt in the 2020/2021 season.

Apple and kiwifruit exporters also had a strong start to the season, with revenue up $274 million (18 percent) on last year since the start of March.

The report also showed a surge in Chinese meat imports in the second half of 2019.

Exports to China were reduced due to COVID-19 but were largely offset by exports to other countries, such as the US.

Although total export revenue was tracking to be 4.5 percent higher than the previous year, much of that was due to the falling New Zealand dollar.

"If the NZD had not fallen, export revenue would have fallen 1.2 percent year-to-date from the previous year," the report stated. 

An uncertain future

Looking ahead, the report identified supply chain disruptions and a shift in the size and demand of future consumer demand as the most "pressing concerns" for the industry.

"It is increasingly apparent that the recovery will take years, not months," the report said.

"On top of this, COVID-19 may create lasting shifts in consumer behaviour."

Concluding that the resulting outlook over the next year was "quite uncertain", the report said it was probable that "New Zealand food and fibre exporters will be operating in global markets that are much diminished from their pre-COVID-19 potential". New Zealand primary industries could "reasonably expect" both lower demand and lower prices for their products.

Those that would fare better than others would be food products perceived to be healthy.

Fisheries Minister Stuart Nash said China's demand for rock lobster was significantly affected by COVID-19, with seafood export revenue to China 68 percent lower in February than a year earlier.

However, exports to China are now showing signs of recovery as seafood markets begin to open, he said.

"New Zealand kaimoana enjoys an excellent reputation around the world, built on the hard work of generations of fishing operators," said Nash. "The almost $2 billion in export revenue it brings into the country will be particularly important as we recover from the effects of COVID-19."

Another industry which took a hit from the pandemic was forestry. Forestry Minister Shane Jones said as forestry and wood processing were not considered essential services during the level 4 lockdown there was an obvious decrease in output.

"This has been an incredibly challenging time for the sector and there is still considerable volatility in the log export sector, which the Government is closely monitoring," Jones said.

In April, the sector had a total harvest volume of just 377,000 cubic metres, down 87 percent from the same period in 2019. Since the moving to alert level 3, however, the industry has begun to bounce back.

Wool prices are expected to remain low for at least a year, due to lower demand in China.

O'Connor said the country had a "head-start" in getting the economy going again thanks to the overall strength of the primary sector coupled with the country's successful health response to the pandemic.

"We are by no means out of the woods and the next few years are going to be tough on some sectors as importers and consumers re-evaluate their priorities in the wake of COVID-19," said O'Connor.