Worst New Zealand Drought in 30 Years Weighs on Economic Growth

New Zealand is experiencing its most widespread drought in at least 30 years, the government said today, as dry conditions across the North Island threaten economic growth and cause global milk prices to rise.

“Nearly all farmers in every part of the North Island are facing very difficult dry conditions,” Minister for Primary Industries Nathan Guy said in a statement. It’s the first time in at least three decades the entire island is suffering from drought, his spokesman Phil Rennie said by telephone.

Finance Minister Bill English warned this week the drought may curb economic expansion in the nation, where dairy exports of NZ$11.4 billion ($9.4 billion) last year made up 25 percent of all merchandise shipments abroad. The local dollar is heading for a fourth weekly decline, which would be the longest losing streak since May, after the central bank held the cash rate at a record-low yesterday and cited concerns the dry conditions may “substantially reduce economic output.”

Economists at Bank of New Zealand Ltd. reduced their projection for first-half economic growth to 1.1 percent from 1.3 percent because of the drought.

Fonterra Cooperative Group Ltd. (FCG), the world’s biggest dairy exporter, last month revised lower its forecast for milk collection. Whole-milk powder auction prices climbed the most in two-and-a-half years at the last Fonterra auction on March 6, as the dry conditions curbed supply.

Global Trade

Fonterra, which accounts for about 40 percent of the global trade in dairy products, said in a Feb. 27 statement that dry weather conditions in mid-December and January, particularly in the North Island, had resulted in a slowdown in milk supply growth. Spokesman Kobus Retief said today he couldn’t comment on this week’s production.

Drought was declared earlier this month in several North Island regions, including the largest dairying provinces.

“This is a difficult time for rural families and they need to know that the government and all New Zealanders are behind them,” Guy said in the statement. “Some rain is forecast this weekend which is welcome news. However, we will need more than this to help prepare for the winter and set up for next spring.”

The government is also watching parts of the South Island that are also “very dry,” Guy said.

To contact the reporter on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net

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