New Zealand forestry has been hit particularly hard by the Middle East conflict’s flow-through into diesel, freight and fertiliser costs, alongside arable, one of the sectors most exposed to the input shock, with smaller woodlot operators now most at risk of scaling back harvest activity.
That is according to the latest Agri Focus report from ANZ Bank, released Friday, which identifies fuel as the most immediate pressure point for energy-intensive, domestically focused rural sectors, already worn down by several difficult years.
ANZ agri economist Matt Dilly said the sector has been pushed from a stable input cost environment into a volatile one virtually overnight, with diesel surging, fuel surcharges now applied across land, sea and air transport, and shipping costs to China jumping sharply in recent weeks. “The main impact of the Middle East conflict has been a stark shift from a stable input cost environment to a volatile one,” Dilly revealed in the latest report.
Log harvesting, internal transport and shipping are all fuel-intensive operations, leaving forestry directly exposed to the diesel spike, with Dilly warning that smaller woodlot operators, who have less capacity to absorb cost shocks, are the most at risk of pulling back. He pointed to anecdotal reports of an expected decline in harvest activity should fuel prices remain elevated, a pattern already showing up in the country’s log export volumes.
PF Olsen’s March 2026 Log Market Report recorded diesel in New Zealand climbing roughly 80 per cent in a month to NZD $2.34 per litre, whilst shipping rates into China rose 36 per cent over four weeks, pressures that have already forced a broad cohort of forest owners to trim harvesting to 80 per cent of capacity, with some smaller operators temporarily suspending operations.
The country’s largest forest management company has also estimated that New Zealand’s harvesting consumes around 4 litres of diesel per tonne of logs produced, with a further 2 litres needed for every 100 kilometres of road transport.
Arable farmers are feeling the same squeeze alongside forestry, with several seasons of poor returns having dented confidence before diesel and fertiliser costs spiked again, and in some cases, input prices rose whilst crops were still being harvested. Dilly said the timing could hardly be worse for arable operators facing the prospect of key input prices doubling during the harvest window.
Global urea prices have already roughly doubled, with the Gulf region supplying a major share of the oil, gas and petrochemical feedstocks that feed fertiliser production, and Dilly cautioned that local fertiliser prices, which have risen only modestly to date, are likely to climb further by spring. Fuel and fertiliser together account for around 12 per cent of total farm expenditure, according to the report, with sheep and beef operators typically cutting fertiliser first when cash flow tightens, a decision that erodes productivity over time rather than immediately.
Not every part of the rural economy is equally exposed, with dairy and red meat prices holding at elevated levels that are providing a stronger income buffer than many farmers have had in recent years, and ANZ has lifted its 2025/26 farmgate milk price forecast to NZD $9.85 per kilogram of milk solids on the back of stronger global dairy pricing. Beef and lamb prices have also held steady at high levels, with optimism building for the coming apple and kiwifruit crops despite the broader cost pressure on horticulture growers.
Freight disruption is opening a second front, with cargo destined for the Middle East now being rerouted at extra cost and fuel surcharges spreading across shipping routes, although container supply has not yet tightened materially. Dilly cautioned that disruption cannot be ruled out even with signs of de-escalation, warning that a reopening of the Strait of Hormuz would not quickly unwind the damage to the supply chain or to markets.
Forestry export revenue reached NZD $6 billion in the year to March 2025, or 8.7 per cent of New Zealand’s total merchandise exports, according to the Ministry of Foreign Affairs and Trade, and for sector operators working on those margins, Dilly said the defining challenge now is not any single cost spike but managing ongoing volatility in energy, inputs and freight as the global shock continues to unfold.
