Economy may lose a billion from drought
The economic impact of the September storms and the dry start to summer could easily stretch to more than $1 billion, BNZ economists said.
The risk was growing as each day passed without significant rain, they said in their latest rural review. It was hard to be precise with so many unknowns ‘‘ and with much still in the hands of the weather gods.’’
The September lamb losses alone had already put the damage into the hundreds of millions.
For dairy, a rough guide was to compare current production forecasts with those made pre-season, they said.
The Ministry of Agriculture and Forestry forecast of a 14 per cent production rise from last year’s poor lateseason milkflow was optimistic.
The bank’s view was that an 8-10 per cent rise looked likely.
However, the September weather bomb and the present dry spell had changed that to a rise of just 2-3 per cent.
Economists said the difference between MAF’s pre-season production view and today’s outlook was about 165 million kilograms of milksolids.
‘‘ Taking Fonterra’s recently upwardly revised milk price of $ 6.90 a kg of milksolids, this translates into revenue being around $ 1.1b below what it might have been.
‘‘Even with a more conservative forecast of 9 per cent growth, revenue lost is about $650m.’’
Falling production expectations in New Zealand were likely to be one factor putting upward pressure on world prices, the economists said.
‘‘This is little solace for those battling dry conditions and sharp reductions in production. And, of course, on the other side of the ledger, costs are rising and especially so for those facing dry conditions.’’
Rural confidence was low, with Waikato farmers facing a fourth consecutive drought and extra costs of around $ 100,000 per farm for extra feed and lost production. The rural property market has also dried up. Real estate agents said it would take nearly six years to sell the Waikato’s farm inventory of 296 farms if sales continued at the current rate.
BNZ economists noted the National Institute of Water and Atmospheric Research December-February forecast was for normal or above-normal seasonal rainfall in the north and east of the North Island.
‘‘ This rain cannot come quick enough. Even if it does come as forecast, it will not be the silver bullet to resurrect the season.’’