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Home / Business / Companies / Agribusiness

Liam Dann: Golden weather puts heat on the economy

Liam Dann
By Liam Dann
Business Editor at Large·NZ Herald·
9 Dec, 2017 04:00 PM5 mins to read

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Sunbather wearing an umbrella sunhat enjoys a hot sunny summer day at Parnell Baths in Auckland. Photo / File

Sunbather wearing an umbrella sunhat enjoys a hot sunny summer day at Parnell Baths in Auckland. Photo / File

Liam Dann
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
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What a week of weather. Summer has arrived this year with unusual punctuality.

"Phew, what's this going to shave off GDP?" I thought, as I lay on the sand listening to the surf, licking a Fruju and watching the children build sandcastles through the shimmering haze.

It is early days, New Zealand's weather has a habit of packing in as soon as the holidays start, but this is shaping up as one of those golden summers.

You know those ones from your childhood, with endless blue-sky days and a soundtrack of lawnmowers and cricket commentary.

This country doesn't turn it on every year but when it does, it's epic.

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Apparently the summers of 1955/56, 1977/78, 1987/88, 1998/99, 2007/08 and 2012/13 were all corkers.

Unfortunately, those years aren't recorded in our national history books for the plays, songs and icecream commercials they inspired.

They are remembered for the dent they caused in the national economy.

Most of us haven't even finished peeling from our first the sunburn of year and the economists are already worrying.

"It is of particular concern that conditions are getting dry so early in the season," wrote BNZ rural economist Doug Steele last week.

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"Some gentle widespread rain is required, not the recent localised thunderstorms and very heavy rain that has caused flash flooding in some parts of the country."

Rain? Already? Okay, sure, let it pour for the next week and a half. After that I'll have hyperactive kids to deal with.

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Steele says it is too early to start adjusting GDP forecasts yet.

"Every La Nina is different and some can hurt," he says.

"Indeed, recall the 2008 La Nina that caused a drought in the Waikato, New Zealand milk production to fall 3.5 per cent in that season, and helped tip New Zealand into recession ahead of the Global Financial Crisis."

It's sobering to think a drought did more dramatic damage to the economy in 2008 than the near-collapse of the global financial system.

It's also a reminder of just how dependent we still are on agricultural production.

Agriculture, including forestry and fisheries, accounts for more than half of annual export earnings.

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In recent years the growth of dairying has underpinned New Zealand's economic strength.

According to the NZ Institute of Economic Research "despite the recent drop in global dairy prices, dairy remains New Zealand's largest goods export sector, at $13.6 billion in the year to March 2016".

Over the past five years, average export revenue has been $14.4b - nearly a third of all our annual export dollars.

Which is great, except that it is a considerably more water-dependent type of farming- upping the national risk in droughts.

Treasury estimates the drought in 2008 knocked 0.5 per cent off GDP – at what turned out to be a bad time, heading into a global slump with interest rates at highs above 10 per cent.

If you dig back a bit, Treasury also says there is strong evidence that the 1998 drought triggered or precipitated the onset of the recession in the late-1990s.

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It's not always doom and gloom of course.

In 2013 we sailed through a widespread drought - at a macro-economic level at least.

I appreciate there will be farmers in the Hawke's Bay who will never have good memories of that summer.

But the drought-driven drop in dairy production came at a fortuitous time in the commodity cycle. It pushed dairy prices to record highs in April 2013 offsetting the fall in the volume of exports.

So here's hoping we see a similar pattern this time around.

It didn't take long for our sunny weather to make global news.

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Drier New Zealand Pastures May Bolster US Dairy Exports said a Bloomberg news headline on Monday.

"Slowing grass growth at dairy pastures in New Zealand, crucial feeding grounds for cows, is raising the prospect of tighter-than-expected milk supply and may offer a window for US exports," Bloomberg reported.

I think that's a round-about way of saying cows in New Zealand live in fields and eat grass.

Not rocket science, you'd think. But bear in mind dairy farming in the US and Europe is based on grain feeding.

The abundance of land that can grow grass has been New Zealand's biggest economic asset since the 19th century. And as much as we like to celebrate our business and tech innovators - it still is.

Our economy remains more vulnerable to the vagaries of the climate than most.

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That makes the outlook for climate change over the next 100 years pretty ominous.

It's a reminder we need to do our bit to push for solutions globally and locally.

And given our scale and ability to alter political outcomes, it is also a warning we need to be looking closely at our land use. We can't afford to let up on the push to diversify our economic base.

For now, though, I'll enjoy the sunshine while I can get it.

I'm camping in Northland this year and history suggests I'll be bringing the lucky farmers up there some rain.

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