Fonterra announced on Friday it had revised its forecast Farmgate milk price for the 23/24 season due to a decrease in demand for whole milk powder from China.
National Party Leader Christopher Luxon told REX host Hamish McKay that the flow-on effects of this could have a significant impact across the country.
"If you think about the GST in COVID it was agriculture that got us through," he said.
"The worrying thing is that there is so much on farm inflation."
A big part of fixing the economy for the rural sector in particular Luxon believes is removing the costs and unnecessary regulations, getting to the underlying causes of the inflation and reducing interest rates.
He outlined five major steps as part of National's plan to tackle inflation and get the economy back on track.
Remove the costs for farmers and businesses that lead to higher prices.
Free up immigration settings and red tape so that businesses can grow.
Go through $137 billion of Government spending and get rid of wasteful spending.
Lift tax rates and thresholds to be inflation adjusted.
Get the Reserve Bank focused on inflation under 3%.
"When you do that interest rates come down, the economy then can grow and we avoid the risk of unemployment."
Having spent some time at Lincoln University seeing the innovation they are working on in farming, Luxon told McKay he is optimistic New Zealand has the people and knowledge to become a world leader in agriculture exports.
"I think it's quite exciting, we can do it, we just have to turn the mindset around to actually say we can go for it.
"We've got smart people, we're in the right part of the world, we've got a Liberal Democracy, there's no reason why we can't do well in the next 50 years."
While Luxon stood firm on his position on the decision to import synthetic carpets to 800 rural New Zealand schools instead of going for a local, wool alternative, he believes the wool industry has failed to innovate enough to demand higher prices.
"We're sitting in an interesting place where it's just not economic for wool farmers, you think about the cost of what they are incurring versus the prices they are getting, so they are now down on just the raw commodity end of the market essentially."
Dealing with the costs and reducing on-farm inflation, opening up to new markets and focusing on innovating are three steps, the National Party Leader believes could elevate the value and income of the wool industry.
Listen to the full chat between National Party Christopher Luxon and Hamish McKay above.