KEY POINTS:
Australia's severe drought could have positive spin-offs for New Zealand, a Bank of New Zealand economist suggests.
"The areas of distress across the Tasman will certainly be a concern for the many New Zealand companies involved," said economist Craig Ebert.
"However, it's not all bad news."
New Zealand dairy farmers could benefit from Australia's drop in production, which had also been a factor in the rise in global dairy prices over the past month.
It was mostly showing up in casein and milk powder products rather than traditional butter and cheese prices, but it helped offset the stronger kiwi dollar.
The drought could be detrimental to New Zealand meat farmers, as more Australian lambs had gone to slaughter than usual, which would probably dampen prices, although Australia was not a big sheep meat rival.
The same was likely to happen to cattle.
But the bigger picture was a big surge in global grain prices as a result of drought not only in Australia but the United States.
"It's fortunate for New Zealand, then, that its animals are preponderantly fed on grass," Ebert said.
Fundamental and medium-term factors to consider included herd rebuilding, which was likely to support global prices generally.
Although New Zealand was not having a drought, it was possible that a moderate El Nino event this summer would mean the east coast would be drier and farmers in these areas would need to seek out feed.
- NZPA
