The rural sector is shaping up as a "country of two halves" because of weather extremes, BNZ says in a new report.
Dry weather in the North Island is hurting pastoral farming, while the South Island is faring relatively well, the rural wrap says.
"We are keeping a close eye on the weather situation, but while clearly a negative we do not think it is an economic game-changer at this point - not at least at the national level," the report's author, BNZ economist Doug Steel, said.
However, there will be adverse flow-on economic effects in the dry areas, which include Waikato, Bay of Plenty and Coromandel, as farmers reduce discretionary spending.
"This is likely to be most pronounced in sheep-concentrated areas where farm profitability was already under pressure from a one-third drop in lamb and wool prices from a year ago," Steel said.
For milk production, BNZ says it expects some large "negative growth rates" in the North Island this month, next month and April compared with last year. This is not only because of the dry weather but also because of last autumn's exceptional grass growth climate.
South Island dairy production, on the other hand, is expected to "keep honking along", showing strong growth even compared with last season's high levels.
For the whole season nationwide, BNZ expects national milk production will be up 2 to 3 per cent on last year.
"In the bigger picture, this would be a very good performance; given that last season was a ripper [up 11 per cent on the previous season]."
Rainfall was less than half the normal amount for January across most of the North Island, Niwa data shows. It was record dry in Waikato, Bay of Plenty, Coromandel, Auckland, Northland and Masterton. Rain early this month had at best brought a little time, Steel said.
"The dry is hurting North Island pastoral farming in particular. It is a negative for sure, with agriculture production being lower than it otherwise would be. As far as we can tell, agriculture economic growth will be negative in quarter one 2013 (and possibly quarter two if more rain does not fall in the north soon)."
In contrast, it was very wet for much of the South Island last month. The lamb kill reflected the weather - being well ahead of last season in the North Island but behind in the South Island, even after adjusting for additional lambs this year, Steel said. Fairfax NZ
- © Fairfax NZ News
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