ANZ estimates pastoral incomes could fall by $150 million
over the first half of the year because of the drought.
Photo by The New Zealand Herald.
The entire North Island has been declared as being in
drought, Primary Industries Minister Nathan Guy warning
yesterday parts of the South Island were also very dry.
In particular, a close watch was being kept on the Grey and
Buller districts, but all regions were being monitored.
''Local groups have asked for regional declarations of
drought in the past week and it has become clear that nearly
all farmers in every part of the North Island are facing very
difficult dry conditions.''
Extra government funding would be available to rural support
trusts, which worked closely with farmers, providing support
and guidance, Mr Guy said in a statement.
ANZ estimated pastoral incomes could fall by $150 million
over the first half of the year and the wider impacts could
reach as high as $500 million.
The bank estimated a 0.5% hit to economic growth by late
The drought declaration comes a day after Reserve Bank
governor Graeme Wheeler held the official cash rate at 2.5%
and said that worsening drought conditions were creating
difficulty in much of the country.
Craigs Investment Partners broker Peter McIntyre said the
impact of the drought on the economy and financial markets
would be broad.
''With New Zealand's huge reliance on the agricultural
sector, there are wide-ranging impacts on the economy and the
markets from weather conditions such as these.
''While there aren't many companies in our market that are
directly exposed to the agricultural sector, it remains our
key export and our largest industry. The impacts are
Most sectors and industries were likely to feel to varying
degrees the effects of lower farmer incomes, reduced consumer
spending, potentially higher food prices and lower economic
The currency could also come under further pressure, he said.
The New Zealand dollar had been strong over recent years,
which was a reflection of the economic outlook, relatively
high interest rates and a strong agricultural sector.
If the drought persisted, the outlook would begin to look
shaky, the prospect of interest rate cuts would increase and
economic growth expectations would fall, Mr McIntyre said.
Those exporters not linked to the agricultural sector should
be well-insulated from the drought and might even benefit
should the currency lift further.
Companies such as Fisher and Paykel Healthcare and Delegat's
- where a good harvest was expected - were in strong
positions under that scenario.
Wholesale electricity prices were rising because of lower
inflows, so generators such as Contact Energy should benefit
if the drought conditions continued, he said.
Companies with close associations with the agricultural
sector, such as the Fonterra Shareholders Fund, PGG Wrightson
and Skellerup, might come under pressure in coming months.
''We may also see these sectors that are highly correlated
with the economy, or linked to consumer spending, face
additional challenges if conditions worsen and begin to
impact GDP and consumer spending.''
That included retailers and companies such as Freightways, Mr