The New Zealand Dollar (NZD) has weakened against a number of its peers after coming under pressure from a strong United States Dollar (USD) and the mounting concerns over the impact of the drought currently hitting the nations North Island to the New Zealand economy.
On Wednesday, the official drought zones were extended and now include five regions in New Zealand’s North Island. Profits from sheep and beef farms are expected to halve this season as the drought weighs on farm revenues.
The North Island has received less than 50mm of rain since Christmas with the last bout of rain landing on February the 6th. Drought was declared in South Auckland, the Bay of Plenty, Waikato and Hawkes Bay. Drought in 2007 cost the country as much as $2.5 billion and farmers fear this drought could be just as damaging. Stock feed is in short supply, farmers are selling off their animals and milk production in affected areas is down 10 to 20%.
Consumers in the country can expect to hit in their pockets as milk prices are expected to soar as dairy herds begin to run out of feed. Dairy New Zealand anticipates milk production between January and March to be around 545 million litres less than the same period last year. The difference equates to around $215 million in lost revenue.
The New Zealand government is warning that the drought could cost the economy billions of Dollars.
“The numbers that we’ve seen are reasonably significant at this point,” said Prime Minister John Key.”The longer it goes on without rain the bigger impact it obviously has and this is a big milking time for us so for the dairy sector and some of the numbers I saw were around a billion dollars.”
Dairy products are New Zealand’s biggest export to the rest of the world and with drought beginning to impact the sector we can expect the currency to weaken as investors get spooked over the implications of lost revenue.
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