There will be strong growth in overall exports of 6pc in 2008-2009, or double last year's growth rate, according to the budget estimates.

In the budget's economic outlook papers, farm production is forecast to increase by 20pc in the coming year following the past two years of drought.

The outlook says the recovery is underpinned by a rebound in the production of cereal crops such as wheat and barley.

However, livestock production is expected to remain subdued, according to the budget papers.

The papers say while the improved seasonal conditions are expected to result in increased herd rebuilding, the number of livestock slaughtered is expected to fall.

While wheat production is expected to recover significantly, the recovery in total farm GDP is forecast to be weak by historical standards due to low water availability.

"Despite good rainfall over large parts of Australia during summer, low water storage levels still persist in some of Australia's key farming regions," the papers say.

"This is particularly the case for the Murray Darling Basin, which accounts for 40pc of Australia's gross value of agricultural production.

"Constrained growth in this region will weigh on aggregate farm production."

But strong rural prices and falling import prices are also expected to support Australia's terms of trade, which is set to witness a big rise from levels that are already the highest in 50 years.

Rural prices have risen in recent times, driven by temporary supply side factors such as drought, rising demand from emerging economies and increased biofuels production.

Australian dollar import prices are expected to continue to fall but at a slower rate, given some upward pressure from higher world inflation.