Concerns Treasury underestimated cyclone cost by $100m a year, thousands of lost jobs

The horticulture sector faces hundreds of millions of dollars' worth of losses. Photo / Mike Scott

A consultancy reckons the Government may have vastly underestimated the cost of Cyclone Gabrielle to the horticulture sector.

A report by the Boston Consulting Group (BCG) commissioned by the sector said horticulture faces an economic loss of $500 million this year and cumulative losses of $3.5 billion out to 2030 if there is no intervention.

It also warned that the decline in revenue could cause harvesting labour demand to plummet by 35 per cent, leading to 600-1500 permanent horticulture jobs lost in the short term.

The figures are significantly higher than estimates published by Treasury last week, which said the sector would face “an estimated $400 million to $600 million loss of output over the first half of 2023″ and persistent losses “averaging around $100 million per annum” in the years after. Treasury did not publish an unemployment estimate.

BCG thinks Treasury’s numbers would require a more “optimistic” recovery path than the one it sees.

“It looks like the Treasury report relates to the wider agricultural sector (including eg pastoral farming) across New Zealand, and for the first half of this year,” a spokesperson said.

“The ongoing loss estimates from Treasury appear lower at $100m per year which would indicate a more optimistic expectation of sector recovery without assistance,” they said.

They said their assessment came from “synthesising estimates from numerous industry sources on the level and extent of damage” and then “estimating a 35 per cent loss of production value in 2023 from original projections”.

The spokesperson said they wanted to highlight that “through the process of engaging with the key groups on the ground and in the wider industry as part of conducting this study, we have seen and heard significant variance in impact from the industry”.

“For example, some players are at close to a total loss, and some are going to be just fine.

“The purpose of highlighting this point is to say that, along with considering the cost, it’s important to also consider the way that the high variance adds complexity and risk to the situation as that can make a difference to outcomes,” they said.

BCG reckons the immediate response including removing silt, slash and other debris from farms, vineyards and orchards would cost about $370m.

The spokesperson said 2023 production losses were estimated to be in the vicinity of $500m.

“Looking to the future, for 2024-2030, the BCG report estimates cumulative production losses to be c$3.5b (below baseline pre-cyclone growth projections) given the sector won’t be able to fully recover on its own,” the spokesperson said.

They also estimated one-off costs to repair damaged land and replant at $900m.

Treasury’s own numbers were only released earlier this month following a speech by Prime Minister Chris Hipkins in which he said the Government would meet the cost of Cyclone Gabrielle without a capital gains or wealth tax.

“Estimates from Treasury has put the cost of asset damage from the floods and Cyclone at between $9b and $14.5b. This is more than the Kaikōura earthquake but significantly less than the Canterbury quakes,” Hipkins said.

He added that the Government would “fund the recovery from here on through a combination of the annual operating and capital allowances we set each year for the Budget, savings and reprioritisations, and some debt as we invest in infrastructure repairs and build back stronger.

“I say again, there will be no new tax everyone would have had to pay, such as a cyclone levy, to fund the recovery,” he said.