“Our decision to have a closer look at the impact of El Nino came from hearing a lot of chatter that El Nino means drought, which means recession, and we wanted to tease out whether that was the case,” he said.
The most common benchmark for the El Nino pattern being experienced this year was the 1997-98 one that shaved more than $600 million off NZ’s economy after severe drought hit across the country, particularly in eastern regions.
“It is a reasonable benchmark but we also had the Asian crisis at that time and farming practices have changed, even since then, too,” he said.
NZIER studies on the correlation between El Nino and recession indicated one could follow the other, as happened in 1982 and 1997 (see graph).
However, in 1972 other factors generated strong output growth despite the severe weather conditions.
They might have included stronger commodity prices, development of new markets for NZ products and increased Government spending.
“Looking back at the statistics tables, there was a 20% jump in commodity prices, possibly related to short supply due to drought.”
He cautioned GDP data was not as strong then as it was now but growth levels might have also been sustained by strong population growth at the time.
Better productivity per animal and improved practices might do much to help buffer against any drought effect but Lees also acknowledged the significant shift in land use, even since the last El Nino of 1997.
Since 1990 the sheep flock had almost halved but better management and genetics meant the tonnage of lamb exported remained about the same.
“Land used for dairying has risen to 1.1m hectares in 2013-14 in the North Island and 0.6m hectares in the South Island. Some growth is on relatively marginal land for production but land under irrigation has also increased.”
“Looking back at the statistics tables, there was a 20% jump in commodity prices, possibly related to short supply due to drought.”
Dr Kirdan Lees
NZIER
The report said irrigation made a difference to farm systems resilience, mitigating the extent to which warm El Nino conditions translated to drought.
“Even the fact that Met Service has signalled the strong likelihood of El Nino, that is a significant level of advance knowledge that farmers can act on.”
Snow levels in the Southern Alps this winter were high, providing confidence irrigation systems would have enough melt water to cope with irrigation demands over the summer.
Reports from vulnerable areas including Hawke’s Bay indicated farmers had been wary about stocking up too heavily heading into the traditional spring buying period.
Significant levels of dairy cow culling in response to lower payouts would have already added to dairy farms’ ability to withstand a dry spell.
The impact of El Nino would also depend on which regions were most affected.
Lees pointed to Reserve Bank research on the 2013 drought that largely affected the upper North Island.
The net impact of that event was to shave 0.3% from GDP. An event with a larger impact on the North Island could shave 0.7% or $1.6 billion off NZ’s GDP.
Lees said a global perspective on El Nino was also important when assessing the impact on the primary sector.
“If many of our competitors are also adversely affected by El Nino then we would expect some offsetting impact of commodity prices being pushed higher by a lack of supply of dairy, although higher supplies of meat may push some commodity prices lower.”
NZ and Australia typically got “hammered” by El Nino but it tended to favour the United States and Europe, he said.
