By Lucy Craymer
WELLINGTON, May 4 (Reuters) - The New Zealand farming
sector faces challenges as interest rates and other costs rise
and returns are forecast much lower, with dairy farms the
hardest hit, Reserve Bank of New Zealand (RBNZ) Governor Adrian
Orr said on Thursday.
"What we observe in the dairy sector in particular, is the
structure of the industry - the high leverage nature of the
industry - leads to a very high vulnerability to shifts and
interest rates up and down," Orr said in testimony to a
parliamentary committee.
Dairy is the country's biggest export earner, and the
primary sector including agriculture, forestry, fishing and
mining accounts for 7% of gross domestic product.
New Zealand mortgage rates have risen rapidly since the end
of 2021 as the central bank has increased its official cash rate
from 0.25% to 5.25%. At the same time, farmers have faced
increased costs for supplies such as fertiliser and dairy prices
have fallen by more than a third over the last year.
"Cost pressures remain so there's definitely challenges in
the sector," he said.
However, senior RBNZ officials also noted that debt levels
in the sector are down significantly from five years ago when
the central bank was highlighting debt as a major vulnerability
for the dairy sector.
In its Financial Stability Report released on Wednesday, the
RBNZ said the financial sector was resilient but there were
growing cash-flow pressures in some households.
RBNZ Deputy Governor Christian Hawkesby told the same
parliamentary committee that the central bank was not concerned
about New Zealand's growing current account deficit.
The country's current account deficit widened to 8.9% of
gross domestic product in the fourth quarter of 2022, leading to
concerns from ratings agency Standard & Poor's.
"New Zealand government debt is still relatively low
compared to other countries, and that puts us in a strong
position," Hawkesby said.
(Reporting by Lucy Craymer; Editing by Jamie Freed)
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