Drought starts to raise worries down south

The third drought in seven years is starting to dry out some of the country's biggest wine and sheep farming areas - meaning exports could be hit hard.

National Institute of Water and Atmospheric Research data shows the wine producing Marlborough area has had less than half its usual rain in the past three months.

And Niwa says any rain now will not be enough to restore waterways over the next three months..

Dry weather in 1998 cost the country, the world's biggest exporter of dairy products and sheep meat, as much as $2.6 billion as farmers were forced to cull stock and rural incomes plunged.

"We need to get continuous summer rain to avoid a drought," said Andrew Gillanders, a Darfield sheep farmer and cereal grower who is chairman of the Grain Council.

"We only need to go through a dry period for two or three weeks and it will be hard to pull back."

Government figures show dairy exports rose 2.2 per cent to $5 billion in the 12 months to October 31 while meat exports rose 2.4 per cent to $4.6 billion.

Among other grape, grain and sheep-farming regions of the South Island, Niwa said Buller, Nelson and Otago also had less than half their usual rainfall in the past three months. As rains fail and farms use more water from rivers and underground reserves, lake levels for the country's hydro-power plants are also falling, driving up electricity prices.

Wholesale power prices have more than doubled in the past seven weeks as operators of thermal plants such as Contact Energy scheduled maintenance in November and December, when rainfall is usually filling the country's dams. South Island lake levels were 54 per cent below normal on December 12.

Comalco, operator of the country's only aluminium smelter, Tiwai Point, cut production 5 per cent last month because of soaring electricity rates.

In 2001, power prices jumped when a drought reduced water in lakes for power stations that generate as much as 70 per cent of the nation's electricity.

Kevin Wilson, an agricultural economist at ANZ National Bank in Wellington, said demand for water for agriculture was also increasing as buyers demanded more consistency in the quantity and quality of fruit and vegetables.

"As the intensity of the business and the capital component goes up, farmers want greater certainty of production," he said.

Water demand in Canterbury, the country's most heavily irrigated region, has surged in the past five years. Environment Canterbury records show ground water allocation for farmers in the Rakaia-Selwyn district has risen to 230 million cubic metres this year, more than four times the amount in 1990. Restrictions have been placed on water use in 10 of the region's 11 irrigation areas.

"The pumps are working pretty hard at the moment," said Environment Canterbury hydro geologist Russel Sanders.

"Ground-water levels are very low."

The Ministry of Agriculture said irrigation added about $920 million to the $8.1 billion farm gate value of the country's produce in 2003.

Gillanders said the dry weather in recent months had spurred some farmers to prepare for drought. He planted earlier than usual to help establish crops before summer and reduced the amount of barley he sowed.

Wilson said light rain might be enough to maintain pasture growth through the summer but would not be enough to recharge underground stores such as aquifers and boreholes.

Niwa agricultural climatologist Alan Porteous said areas of the South Island needed as much as 100 millimetres of rain to bring surface water levels back to normal and forecast rain "won't overcome the deficit".

Local government estimates found Canterbury's Rangitata and Waimakariri rivers had not been this low this early in summer for 20 years.


What it means

* Falling stock numbers.
* Falling rural incomes.
* Falling exports.
* Rising power prices.
* Rising food prices.

- BLOOMBERG