El Ninos traditionally bring drought to the eastern areas of both the North and South Islands. Photo / NZME
El Ninos traditionally bring drought to the eastern areas of both the North and South Islands. Photo / NZME
There are many things New Zealand can influence about its own economic destiny, but one thing no one controls is the weather.
A strong El Nino weather pattern, likely to last through to next autumn, represents an unwelcome additional headache for agricultural producers and economic growth in the year ahead.
El Ninos traditionally bring drought to the eastern areas of both the North and South Islands, reducing agricultural output and export receipts, while raising on-farm costs and hitting farmers' returns.
The Bank of New Zealand's head of economic research, Stephen Toplis, also notes an unfortunate coincidence between previous El Ninos in New Zealand and economic weakness induced by other factors. Examples include the El Ninos that coincided with fiscal austerity in the early 1990s and the Asian financial crisis of the late 1990s.
The impact of drought on dairy production may not be of great moment. Fonterra is already expecting a 2 per cent reduction in milk production this season in response to low global prices. But drought hits every other agricultural producer as well. The ability to take greatest advantage of high prices for other commodities is constrained if production is down owing to low rainfall.
Having said that, the correlation between a fall in agricultural production and overall economic output is not as strong as the relationship between El Ninos and agricultural production.
An El Nino drought in 2003/04 had no discernible impact on GDP growth, which showed a cyclical peak that year, while in 2008/09, agricultural output boomed but the economy slumped in response to the global financial crisis.
