Our reality is closer to Christopher Luxon’s infamous description of a ‘wet, whiny, inward-looking country’.
Fieldays was a smash hit this year. Thousands of vendors showed up in Waikato to hawk their wares to hundreds of thousands of attendees, many freshly flush with cash. It has been a brilliant couple of years for New Zealand’s farmers. Sheep, beef and wool prices are at record highs while dairy, kiwifruit and apple prices are at near-records.
Favourable weather has supported production volumes, allowing farmers to make the most of these prices. Export revenue from food and fibre will likely be $64.3 billion in the year ending June, up 6% from the prior year — which was itself a strong year. That’s before we even mention the $3.2 billion that has just been deposited in dairy farmers’ bank accounts after Fonterra sold its consumer brands to French firm Lactalis last year.
All this good news has prime minister Christopher Luxon jazzed. “The food and fibre sector is not just another part of New Zealand and its economy, it is without doubt the engine room of the economy,” he said at Fieldays, according to a Bloomberg report. So, if agriculture is (a) the undisputed engine room of the economy and (b) going absolutely gangbusters, then the wider New Zealand economy must be doing well too, right?
Wrong! The Reserve Bank’s real time GDP forecast for the June quarter turned negative last week after a survey showed manufacturing activity had shrunk slightly. That’s right, the economic recovery you ordered has been delayed for the hundredth time.
It has been a bad couple of years for New Zealand’s not-farming sectors. Construction has collapsed 13%, while the services sector grew a measly 1.6% over two years. Economists keep lowering their growth forecasts, with ANZ now expecting GDP to grow 1.5% in 2026, following just 0.2% last year. For comparison, the historical average is around 2.5% and really ought to be faster when bouncing back from recession.
It is obvious that good fortune in the agricultural sector, the alleged engine room, has not yet been able to propel the rest of the economy out of its perpetual funk.
‘Dinned in your big lop-ears’
New Zealand has been telling itself that agricultural exports are the backbone of its economy for more than a century. In 1875, an Auckland newspaper wrote: “This journal has always taken the liveliest interest in agricultural matters, feeling, as those who think at all must feel, that the industrial products of the soil must form the very backbone of our colonial prosperity.”
Twenty-five years later the phrase had already become a bitter cliché for one New Zealand Farmers’ Union organiser, who complained in 1901: “You have the sweet song dinned in your big lop-ears that ye are the backbone of the colony, and your big, jovial [prime minister] tells that it is just and right for the tradesmen and town labourers form unions, but that you should not do so!”
And, we are still saying it today. “Primary industries are the backbone of the economy,” trade and agriculture minister Todd McClay wrote in a press release on Friday. Search results on the Beehive website suggest a version of the phrase has been used literally hundreds of times in government speeches and announcements since 1996.
But it might be time to admit this is no longer true. Contrary to its national myth, Aotearoa is a relatively low-export economy and its growth rate ditched the agriculture sector long ago.
Backbone detached in 2006
New Zealand’s reality is closer to Luxon’s infamous description of it as a “wet, whiny, inward-looking country”. Exports as a percentage of GDP have fallen from 30% in 2010 to less than 25% today — the average for OECD countries is 28%, and usually much more for smaller countries.
Last October, economist Rodney Dickens argued the economy separated from its traditional “backbone” 20 years ago. “Since peaking in the 2006 September quarter there has been only a 5% increase in agricultural production up to the 2025 June quarter, while overall economic activity or GDP increased by 48%,” he wrote in a blog.
Much of New Zealand’s growth since 2006 has been driven by services, which now make up about 75% of GDP, compared with 5.2% for primary industries. That understates the full role of the primary sector, however. MFAT has estimated its overall contribution to GDP, including its related services, is closer to 15%. Food and fibre still make up the bulk of New Zealand’s exports, but traditional agriculture production has grown slower than tourism, horticulture and wine over the past two decades.
None of this should be taken as a criticism of farmers. They work incredibly hard in difficult conditions with world-class efficiency, all while managing financial risks that would give salary earners a mouth ulcer. But the country has passed peak cow.
It is still possible to argue farming is a sort of backbone, as it does play a structural role in the economy, but it’s much harder to pretend it is a serious growth engine.
New Zealand’s future growth will come from exporting services like Xero or WetaFX, specialised manufacturing like Fisher & Paykel Healthcare or Rocket Lab, and higher rates of investment in the domestic economy.
