Drought already affecting next year's farming – economist

The lack of rainfall is causing beef and lamb prices to fall as meat processing plants are working overtime to keep up with demand.

Lincoln University’s plant science professor Derrick Moot says the drought across the entire North Island and growing parts of the South Island has seen an increase in livestock being sold to the meat works.

BNZ economist Doug Steel says the lamb and beef price schedules are very much under downward pressure, not only as a result of the drought but also from soft international market prices especially in the UK and Europe.

“I think we’re already affecting next year. Each day it gets worse as the breeding stock and the capital stock gets killed. That means fewer calves and lambs for later – which will also affect food processors left with very small lamb and beef numbers in the second and third quarter.”

Professor Moot says last year farmers held on to their animals because there was feed everywhere.

“This year they all want to get rid of them,” he told NBR ONLINE.

Primary industries minister Nathan Guy officially declared a drought throughout the North Island.

“Extra government funding will now be available to Rural Support Trusts who work closely with farmers, providing support and guidance.”

Work and Income assistance will also be available through rural assistance payments – the equivalent of the unemployment benefit for those in extreme hardship.

Financial effects

Mr Guy has so far estimated the cost to the economy of the drought could be one billion dollars, and says it is worse than the 2007-08 drought, which cost $2.8 billion.

Mr Steel is reluctant to put a figure on the economic impact at this stage but points to the 2007-08 drought as a reference.

“If it’s anything like that, it’s a pretty significant hit to the national economy.”

Mr Steel says the economic impact on the government, from reduced export and tax income and its assistance package, could be significant.

Earlier in the week, finance minister Bill English admitted the effects of the drought could roll on for a couple of years, as stock numbers are rebuilt.

He also said Treasury would be looking carefully at the effects of the drought as it prepares its forecast for the budget.

“It was looking as though the forecast might be a bit better, but the drought has probably pegged that back.”

Still more time

Unlike Mr Steel, Professor Moot is more optimistic about timing. He believes there is a three week window left before the dry spell will start affecting next year’s pastoral farming season as well.

Rainfall early in April will be critical to set up grass growth for the winter months, he says.

“It’s too late towards the end of April – temperatures are too cold and it’s too late for grass to grow.”

In addition to government support, at least one bank is offering assistance to farmers.

BNZ is offering distressed farmers immediate overdraft approval of up to $100,000 at 6% interest, along with access to emergency family funding of up to $10,000.

bcunningham@nbr.co.nz