New Zealand Farmers Face Water Restrictions as El Nino Develops

New Zealand farmers are facing summer water restrictions in some regions as an El Nino weather pattern develops, hitting dairy farmers already feeling the effects of plunging milk prices.

The chances of an El Nino pattern that leads to dry conditions on the east coast of the North and South Islands developing in the next three months have increased, the National Institute of Water and Atmospheric Research said yesterday. Officials this week imposed restrictions on water flowing from the Opuha dam in South Canterbury that helps irrigate 16,000 hectares (40,000 acres) of farmland.

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said New Zealand milk production through October was 4 percent higher than a year earlier. Dry conditions could slow output, curbing production growth to about 2 percent by the end of the season and damping gains in gross domestic product, economists say.

“We are conscious that milk output may come back a bit as we go through summer” in the Southern Hemisphere, said Doug Steel, senior economist at Bank of New Zealand Ltd. in Wellington. “An El Nino pattern usually hits agricultural production and the electricity sector via the lack of cheap hydro generation, so it’s a drag on GDP.”

Milk production plunged in the 2012-2013 season during New Zealand’s worst drought in 30 years, especially in the largest dairy regions on the North Island. This season those northern provinces are enjoying good grass growth so any impact from dry conditions in the south may be less damaging, Steel said.

Farm Incomes

Still, potential drought looms as farm incomes fall amid a slump in global dairy prices. Fonterra predicts its milk payment per kilogram (2.2 pounds) of milk solids will fall 37 percent this season.

“Grass is the cheapest source of feed and when the grass doesn’t grow you look to alternatives, but you’ll only do that if it’s economic,” Steel said. “With milk prices lower, supplements won’t be as economic.”

NIWA said Nov. 28 that drought conditions may be imminent in several regions unless sustained rainfall occurs. It said yesterday that measures of Pacific Ocean temperature and atmospheric conditions add to signs of an El Nino pattern.

“International guidance indicates that the chance for El Nino developing over the December–February period is about 75 percent,” the Wellington-based institute said in a statement. The chance was 66 percent a month earlier.

Environment Canterbury on Dec. 1 imposed restrictions on Opuha Water Ltd., which supplies farmers who then supply Fonterra’s Clandeboye plant. Dam storage levels are just above 50 percent of full, an unprecedented amount reflecting low rainfall and a lack of snowfall in the winter, Opuha’s chief executive said in a Nov. 27 statement.

Farmers are required to reduce their take by 25 percent to extend the time that water can be provided. If current conditions prevail, more severe restrictions will be needed by late January, the company said.

Related News and Information: Fonterra Cuts Milk Payout Forecast as 2014 Earnings Plunge

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