Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Dairy cows leave hobbits eating their dust

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Lush grass is the New Zealand economy's lifeblood. Photo / The Aucklander
Lush grass is the New Zealand economy's lifeblood. Photo / The Aucklander

Warm, wet weather is putting the nation's lawnmowers to the test this year.

But if you're cursing your two-stroke this weekend you might take some consolation from the fact that a good grass-growing season is still worth more to the economy that just about any other event we could wish for.

It is likely to top the value The Hobbit films can deliver to the country over the next few years.

All the fuss over the near-loss of that production created the impression - in international media at least - that the economy would sink without Sir Peter Jackson and his furry-footed little guys running around the Waikato.

But when you look at the numbers, it's pretty clear that it is a different set of furry beasts roaming the Waikato that continues to make or break our economic fortunes.

The budget for the two Hobbit films has been reported at a pretty epic $650 million.

Not all of that will be spent here, of course, a lot of it will be used to market the films.

But even if we see half a billion, the figure will be dwarfed by the returns generated from our dairy industry.

At levels confirmed yesterday, Fonterra's payout forecasts for this season would see $9.11 billion injected into the economy in 2011.

That's $500 million more than the season before and some $2.5 billion more than the season before that.

That increase is primarily down to booming global dairy prices. But in the past month the weather has added to the good news.

Fonterra this week reported its best peak production day ever.

That's what you might describe as the busiest day of the year for the dairy industry.

This year the peak day of the season saw 76.8 million litres of milk processed - three million litres more than last year's record.

Westpac economist Doug Steel is picking that total production for the season is likely to be up by about 5 per cent on last season.

If current payout predictions hold, that's another $560 million that will flow in to the economy thanks to the weather (taking the total value to $9.6 billion).

Not only is the price per kilogram nearing record highs but so too is the number of kilograms the country is producing.

This kind of alignment of the stars is pretty rare.

It's going to take a while for the cash to flow through - even when they get it farmers have plenty of debt to pay down. But it will flow.

It was a drought and a commodity slump that led us into the economic downturn and it looks set to be the weather and a commodity boom that will lead us out.

Probably we still suffer a bit of cultural cringe when it comes to acknowledging the extent to which our fortunes rise or fall on grass growth. There is no shortage of commentators (including myself) who will point out we can't afford to rely on it forever.

But when it delivers, it really delivers.

It is wonderful that we kept The Hobbit. The films are about more than just the final numbers on a balance sheet.

The industry ensures that the nation keeps a lot of talented young people in the creative sector who might otherwise head off for an open-ended OE.

It also makes New Zealand a more interesting place to live. But it doesn't have a major impact on our economic fortunes.

Prime Minister John Key will no doubt get good mileage from The Hobbit on the campaign trail next year.

It will be in full swing by then and, with the Rugby World Cup, should generate a feel-good factor we haven't felt for a while.

He is unlikely to spend a lot of time talking about grass growth.

But in reality it is the food chain that starts with this country's fortunate capacity to grow the stuff that will be underpinning the economic data which wins elections.

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- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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