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Canterbury drought hits GDP growth

Tags: Canterbury Rural

Despite the booming city rebuild, lower income for farmers will affect city spending with the drought removing $60 million to $100 million from the Christchurch economy.

Drought paired with low milk prices has reinforced the influence of rural returns on the otherwise healthy economy and will eventually take its toll on the local GDP.

Canterbury Development Corporation (CDC) chief executive Tom Hooper says the healthy rural economy “insulated” the city from the severe economic impact of the 2011 earthquakes. The combination of a prosperous rural sector with the booming city rebuild lifted the GDP to 11.7 per cent above pre-quake levels with an increase in population across the wider Christchurch and Selwyn Waikmakariri districts.

Today, GDP loss estimations of 0.5% or $60 million (ANZ) to 0.8% or $100 million (CDC) emphasise the significance of the agricultural sector on the overall economy.

“How the table has turned. The city economy is booming but the agricultural community is facing difficulties due to drought conditions across the region. The effects of a drought can be devastating. It can result in lower production, reduced revenue and overall less money flowing into the regional economy”, says Hooper.

‘‘If on-farm costs are fixed, such as wages, then it may mean increasing debt or drawing on capital reserves to cover operational costs. We know this has a flow-on effect into the city with less money being spent in a number of areas including farm machinery and professional services.’’

Hooper explained that Christchurch could not rely on the temporary booming rebuild economy as the city will eventually return to the underlying city and rural economy.

‘‘At the moment because of the rebuild it’s easy to forget about the importance of the agriculture sector because the rebuild boom is generating enormous business in the city.’’

Unsteady milk prices for Fonterra in 2014/15 and changing weather patterns can also impact the Canterbury economy and the CDC team are closely monitoring these changes, he said.

‘‘We can’t ignore that droughts affect the city economy and this is where water storage and distribution offers a compelling case for risk mitigation, as drought is essentially a water supply issue’’.

Brown field with horses

He said water could add value to the city’s economy with major water projects analysing methods to strengthen water supply security by storing alpine water and downsizing surface and shallow groundwater takes. This would be successful given there is adequate land management to check nutrient losses and preserve water quality, he explained.

‘‘Some estimate the value to be up to $1 billion, while at the same time reducing the future risk of a drought on the region’s economy and enhancing water quality.’’

International disaster experts had expected a permanent 10 per cent GDP loss and 10 per cent population loss after the 2011 earthquakes. However Christchurch felt knock on effects from favourable rural climates which combined with a record Fonterra milk price of $8.40 per kilogram of milksolids for the 2013/2014 season. This season’s milk price is down to around $4.70/kg.

However, the future for Christchurch’s economy remains bright with its thriving economy, GDP estimates above the New Zealand national average and the lowest unemployment rate in Australasia.

Source: Canterbury Development Corporation

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