NZ farmers benefit from Aussie drought, hurt by NZD

NEW ZEALAND - New Zealand's economically vital agriculture sector is set to benefit from severe drought in Australia, but local returns will be dented by a high kiwi dollar and interest rates, a report by Rabobank said on Wednesday.
calendar icon 7 February 2007
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However, the overall outlook for the sector, which earns about one-third of New Zealand's export earnings, was positive, the Dutch-based agricultural lender and agribusiness said in its annual report on New Zealand.

"With trade volumes restricted in many markets, New Zealand may benefit from disruptions to supply from key competitors during 2007," said Rabobank senior analyst Hayley Moynihan.

In particular, Australia's drought would reduce the amount of dairy, meat, wool and wine on the world market, while reductions in some commodity exports from the European Union and the United States were also likely.

"New Zealand has the opportunity to further build its market position in key sectors over the coming years," she said.

Australia has suffered its worst drought in a century in the past five years with crops devastated and large numbers of sheep and cattle sold for slaughter.

However, Moynihan said higher energy prices, land values, interest rates and the New Zealand dollar all looked set to crimp farmer earnings.

"The coming year is likely to test the stamina and hardiness of New Zealand farmers and exporters with little respite likely from domestic economic conditions," she said.

The Reserve Bank of NZ has kept interest rates at 7.25 percent since December 2005, but last month said another rise was likely because of the hot housing market and resilient consumer spending.

A Reuters poll has 11 of 16 forecasters expecting a quarter point rise to 7.5 percent at the central bank's monetary statement in March.

The New Zealand dollar so far this year has declined around 3.6 percent, and is forecast to fall a further 9 percent by year's end to $0.6200, according to a Reuters poll in late January.

A Rabobank-AC Nielsen survey of more than 800 New Zealand farmers last month showed 37 percent expected the rural economy to worsen in the next 12 months, up from 18 percent in the previous survey in October 2006.

Source: Yahoo Asia News

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