New Zealand faces drought and economic challenges
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New Zealand faces drought

New Zealand faces drought

On the 15th of March, the government of New Zealand informed that the country was going through the worst drought in at least 3 decades.  Drastically extreme weather conditions threaten economic growth of New Zealand as they are “eating” millions of dollars. Without a doubt, the drought has a negative impact on the New Zealand’s economy.

Worst drought in 30 years

The government indeed noted that the drought was the worst in at least 30 years.  Minister for Primary Industries Nathan Guy underlined: “Nearly all farmers in every part of the North Island are facing very difficult dry conditions.”  As a matter of fact,  the entire North Island is the first victim of the extreme weather conditions.  But even the South Island has been experiencing some signs of the drought.

Analysts note that New Zealand farmers face many challenges. Indeed, prices schedules of meat are under so-called downward pressure due to the dry conditions and challenging situation in Europe. And what is worse is that farmers are forced to reduce their stocks as they cannot simply feed them. This in turn will affect food processors and the New Zealand’s economy in general.

However, the official confirmation of the drought means that New Zealand ranchers will be given financial help through tax loopholes and substantial funding as well. But the government has also ensured that farmers, who are challenged by dramatic financial difficulties, will be able to get unemployment benefits.

As mentioned above, New Zealand farmers are reducing their herds. And the situation seems to be really dramatic as New Zealand simply is dependent on the industry. According to estimates, the extreme weather anomaly has already cost farmers as much as $820 million in export earnings.

Drought & economy

The New Zealand's economy is undeniably driven by the farming industry. Therefore it is not surprising that the drought is expected to lead to a decrease in economic growth of New Zealand. The country faces periodically the same problem of a drought which usually costs farmers billions of dollars.

But the drought will not only hit farmers, who are given the financial relief, but also rural communities in general, starting from the retail shops and ending with food processors. According to estimates, the 2013 drought will  be more costly than the one in 2007 – 08 which cost around $2.8 billion.

Without a question, the government of New Zealand will feel the effects of the drought as it will witness reduced export and tax income.  The impact of the 2013 drought might be noticeable in the next years. Bill English, Finance Minister, has highlighted that it is more than certain that the economy of New Zealand, where diary exports generate around 25 percent of all merchandise exports, will suffer from the drought and it will take years to rebuild the sector.  The drought has started bearing fruits as Bank of New Zealand has already decreased its estimates for first-half  economic growth by 0.2 percent to approximately 1.1 percent.

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