NZIER economist Chris Nixon was speaking to the converted when he explained the importance of agriculture at the AGMARDT breakfast during the National Bank Young Farmer Contest.
He said that although agriculture contributes only about 5% of GDP at the farm gate that is only part of the story.
Agriculture has a major impact on downstream and upstream activities. The impact of these industries suggests that roughly 20% of GDP is directly affected by on-farm agricultural activity. These include businesses that service the farming community (downstream) and those that turn farm produce into consumer products – transport and logistics, processing, and marketing activities.
Furthermore, agriculture has a major impact on exports. Land and sea based exports are roughly 42% of exports.
The importance of agriculture to our economy is confirmed by a Statistics New Zealand report prepared for Fontera which showed dairy products accounted for 27% of exports earnings for the year to May and all but 2% of that was from Fonterra.
Fonterra is the world’s largest dairy exporter, fifth largest dairy company globally and trades in 140 countries. Chairman Henry van der Heyden said much of the increase had been driven by record commodity prices.
“If we hadn’t had the drought, which saw our milk production drop by around 4 per cent, the figure could have been even higher,” he said.
World economic growth and demand from emerging markets – along with reduced supply, drought in Australia and biofuel production driving up the costs of feedstock – helped drive up dairy commodity prices.
The ANZ Commodity Price Index for dairy products hit 291.9 in November, having risen for 15 consecutive months from 127.6 in August 2006. The dairy index has since fallen in all but one month to reach 256.7 in June.
“We’re seeing continued investment from farmers and in our processing capacity. That’s a huge boost, particularly for regions like Southland with a lot of new jobs and benefits flowing through,” van der Heyden said.
“It’s great that dairying is able to make such a positive and timely contribution to the New Zealand economy at a time when the broader economy is facing increasing pressure.”
It is indeed, although the best may still be ahead of us. Nixon said it takes roughly 18 months for export performance to filter through to the domestic economy so the impact of the good prices farmers are getting now won’t show up beyond the farm gate until the end of next year.