A cocktail of storms in the South and the Canterbury earthquake will halve growth in agricultural production in the coming year and will also be felt in lower economic growth.
BNZ rural economist Doug Steel was forecasting agricultural growth in the year to June 2011 of 1% to 2% - half earlier forecasts - which he said would limit national gross domestic product (GDP) growth by "a few tenths of a percentage point".
The bank was forecasting the economy to grow at 3.6% in the coming year on the back of activity around the Rugby World Cup activity, rebuilding in Canterbury following the earthquake and higher commodity prices.
Mr Steel initially forecast agriculture output growth of 3% to 4% as areas of the North Island recover from drought, but said that was now more likely to be between 1% and 2% after a torrid month in the South Island from the earthquake and then a week of storms in South Otago and Southland.
But with signs a La Nina weather pattern was brewing for summer and autumn, potentially causing a wet season in the North Island and drought in parts of Otago and Canterbury, Mr Steel said the economy could take an even greater hit than he is forecasting.
The exact impact of last month's storms is still to be determined, but Mr Steel said lamb losses on farms in South Otago and Southland alone could be 350,000 to 500,000, equal to between 7% and 10% of the region's projected lamb crop.
Losses of that extent would wipe between $28 million and $40 million off Southern sheep farm incomes from lamb alone, not taking into account ewe deaths.
If 500,000 lambs were killed, that would equate to 2.4% of the expected export lamb kill.
Partially balancing that loss was a recovery in wool prices, which were now the highest in 20 years.
Mr Steel said unfavourable spring weather over much of the country would halve earlier forecast milk production growth of 8% to 10% as regions recover from last year's drought.
Spring storms will also curb an expected recovery in beef production, with growth now expected of about 3%.
Mr Steel said for the past three years, agricultural production had "gone largely sideways" due to unfavourable weather affecting various regions, so any growth now was off a static base.
"We were hopeful things would have showed some growth off a pretty poor base. Obviously, the storms in South Otago and Southland have knocked our optimism that we are not going to get as much of a bounce back."
Sector growth now was expected to be generated from regions recovering from drought, such as dairying areas of Northland, Waikato and the sheep and beef region of the East Coast of the North Island, rather than the sector expanding.
"The anticipated lift reflects partial recovery from previous droughts rather than genuine growth," he said.
The weather and earthquake had taken the gloss off what should have been a favourable year for farm income, with lamb prices expected to remain solid, coarse wool prices 40% higher than at the start of the year and dairy returns remaining strong.
