Big chill puts economic good times on ice

By PHILIPPA STEVENSON

The coldest spring in 20 years will take a $400 million bite from farm income already hit by the $1.5 billion cut in payout to dairy farmers.

The Ministry of Agriculture and Forestry said farm production losses would have a heavy effect on processors and marketers, whose losses would be even higher than those of farmers.

Regional economies are likely to be affected as shrinking farm incomes put a brake on growth.

Ministry senior policy analyst Chris Ward said cold weather nationwide since September, combined with regional frosts, hail and snow storms, could have a similar economic impact to the severe drought of the late 1990s.

Between 1997 and 2000, drought - mainly on the East Coast - cut farm income by nearly $1 billion.

It hacked 0.8 per cent off gross domestic product in 1997-98, 3 per cent in 1998-99 and 1 per cent in 1999-2000.

Mr Ward said this year's cold spring had a more widespread impact.

Horticulture industries, including apples, kiwifruit and grapes, which had borne the brunt of the bad weather, were usually protected from drought by irrigation.

But frost and hail damage to crops would lower the incomes of grapegrowers by $54 million, kiwifruit growers by more than $57 million, and apple orchardists by $27 million.

Late southern snow storms had killed more than $15 million worth of lambs and the continued chill was slowing grass growth.

This would reduce the weight of sheep, cutting a further $27 million from farmer incomes.

The lack of feed would also reduce wool, cattle and deer weights, and cut milksolids production by about 22 million kilograms.

This would reduce incomes by around $193 million.

The cold would also chop about $20 million off returns from vegetables and arable crops.

Federated Farmers president Tom Lambie said the $400 million loss caused by the weather followed commodity price falls, particularly in the dairy industry.

Dairy farmers would receive $1.5 billion less than last year because Fonterra had reduced its payout from $5.30 to $3.70 a kilogram of milksolids.

These were significant amounts to disappear from regional economies, Mr Lambie said.

In the good times of the past two years, some farmers had reduced debt, others had bought capital items or invested in more fertiliser, "and there was a degree of discretionary spending as well".

Now they were going to have to quickly redo their budgets to take account of the lower productivity and prices, and reduce spending to meet the new conditions.

This tightening would lead to slower regional growth.

Hopes would be pinned on good summer weather and a bright note had been recent substantial rain on much of the east coast of both islands.

"If we get a moist, warm summer, then going into the autumn you can have substantial feed reserves," Mr Lambie said.

BNZ chief economist Tony Alexander said some fruitgrowing regions would suffer more than others.

A $400 million drop in gross farm income "would tend to get lost in the wash" of a GDP of about $125 billion, but the loss would reinforce farmers' caution.

Mr Alexander warned that farmers should not become optimistic about signs of rising lamb, beef and dairy prices "when the rest of the world could still turn to custard".