Tough economic conditions persist

Embargoed to 10 am Tuesday 2 February 2010

Media Release

2 February 2010

Tough economic conditions persist despite positive in-market pricing

The strength of the New Zealand dollar (NZD) will have the biggest impact on sheep and beef farm gate receipts and profitability, according to Meat & Wool New Zealand’s Mid-Season Update for 2009-10.

Meat & Wool New Zealand Economic Service Director, Rob Davison says the New Zealand dollar (NZD) appreciated remarkably over 2009, compared with the previous year.

“Unfortunately for the sheep and beef sector, the NZD strength has been against the US dollar (USD), British pound (GBP) and Euro (EUR) where the majority of New Zealand’s beef and lamb are sold.  We expect this will continue in the first six months of 2010.

“We estimate there will be an 8.6 per cent decrease in total gross farm revenue to $317,600 for the average New Zealand sheep and beef farm in 2009-10. On-farm input prices are expected to remain stable (+0.5 per cent) which will be a welcome relief from the 9.7 and 7.6 per cent increases experienced in the previous two years. However, this leaves per farm, profit before tax at $37,400, a significant decrease from 2008-09’s $58,800.”

Mr Davison said offshore prices for sheep and beef products continue to remain strong in 2010 in spite of the financial crisis and have improved in some cases.  With export volumes for wool, lamb, mutton and beef similar to last year (+1%), the exchange rate factor will reduce those export receipts to $5.4 billion which is  12 per cent down on last year, he said.

“This translates to $700 million being wiped from meat and wool sector receipts, just because of the exchange rate.  The high NZD completely masks the price levels achieved offshore and the productivity increases.”

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