The Ministry for Primary Industries expects agriculture export income to fall this year with the end of booming dairy and lamb prices.

The ministry's annual forecast for the industries that make up more 70 per cent of the nation's produce show prices fallng this year.

However, ministry deputy head Paul Stocks says farmers will still be smiling because of the good summer and autumn pasture growth.

He sees the agriculture economy bouncing back after this year's price correction and the forecast for future years is for a steady improvement.

"Primary industries are continuing to sell more into Asia. With recessionary pressure in Europe, the trend towards Asia has turned into a stampede," he told agriculture reporters in Wellington this morning.

Stocks said the forecasts were based on the expectation that the exchange rate will exchange rate "will continue to hold up for some time, but ultimately depreciate due to New Zealand's high level of overseas debt."

These are the ministry's reports on the main sectors:

Dairy production increased significantly in the season just ended - 10 per cent overall - as a result of regular rainfall over the summer and an increase in the cow herd. The milk price is still strong, but for this year a drop is expected due to weaker international demand and increased production in the European Union and United States.

Lamb schedule prices are falling back faster and further than the normal seasonal decline after a record high of $137 a lamb in November 2011. This is because price-conscious consumers in Europe have shifted to less expensive meats. Some further falls are expected, but these should be modest because of lower stock numbers here and overseas.

Beef demand and schedule prices have held up because of robust demand from Asian markets, and falls in US and Australian production.

Horticulture has faced more challenging conditions over the past year, due in part to its greater exposure to the European market. These industries did not gain the high prices in overseas markets that others did this past season. Gold kiwifruit production this year has fallen due to the impact of the vine disease Psa, especially around the Te Puke area. The 2012 wine vintage is down, and this is expected to provide some lift in prices from the current low levels.

Record volumes of logs were harvested from commercial forests last year. A large proportion went overseas in the form of raw logs, due to strong demand from China. Export log volumes are not expected to increase over the forecast period. High log prices have continued to put pressure on the New Zealand timber processing industry. This, coupled with weaker demand from traditional export markets like the US, resulted in profit margins being squeezed.

Seafood prices are holding up despite global economic conditions, due to strong demand out of China and Australia. Wild capture volumes are stable but aquaculture production is expected to increase in the medium term.

- © Fairfax NZ News