Boston Consulting Group thinks the damage in Hawke's Bay could be worse and longer-lasting than Treasury had forecast

Hawke’s Bay’s horticulture sector will need between $650 million and $960 million in funding in order to have a “real shot at recovery”, according to a Boston Consulting Group report.

Research by the consultancy firm was presented at a roundtable meeting chaired by Horticulture New Zealand on Tuesday and was based on six weeks of studying the impacts of Cyclone Gabrielle.  

The report paints a darker picture than Treasury’s estimate of $400 million to $600 million in lost output in 2023 for agricultural and horticultural industries, with ongoing losses of about $100 million for several years due to loss of capital assets. 

Boston Consulting Group (BCG) estimated the 2023 economic losses at $500 million for the horticultural sector alone, and a $3.5 billion cumulative loss—relative to pre-cyclone forecasts—by 2030. 

To prevent this outcome, the government is being asked to chip in more than half a billion dollars to help the industry rebuild. 

More than $370 million would need to be spent on clean-up alone. That is removing silt, slash and other debris from farms, vineyards and orchards. 

Then there will be a bill upwards of $550 million for replanting and reinstating all the crops that were damaged, submerged or permanently lost with like-for-like replacements. 

But the report suggests going further than just restoring the sector and taking the opportunity to make it more productive and efficient. 

The catchily-named ‘Grow Back Better’ plan aims to enable the sector to grow its economic value some 20% above pre-cyclone 2030 forecasts.

This would include making capital investments to replant damaged land with higher value crops, updated farming technology, and infrastructure to support more volumes. 

Extra funding support would be to meet the cost of additional costs that come with higher value crops and productivity systems, as well as maintaining end-market demand. 

While the Government may not be willing to go the full nine-yards, BCG said the sector was not expected to fully rebuild without at least some level of support. 

Many growers were already facing difficulties after a disappointing season in 2022 and erratic economic conditions in the past few years. 

For example, demand for NZ apples in Europe fell after economic sanctions on Russia resulted in an oversupply of the fruit in that market. 

Horticultural businesses have struggled to access bank loans or other funding on favourable terms, and the cyclone-related drop in revenue will only make it harder to borrow. 

Capital constraints may result in damaged land being repurposed into lower value uses—such as cropping or sheep farming—which require less capital to get up and running. 

It is this less-efficient land use that could result in the horticultural sector never fully recovering from the damage and achieving 2030 pre-cyclone forecasts. 

The report was sponsored by apple grower Rockit and created on behalf of the horticulture industry to aid its discussions with government and other stakeholders such as banks, and insurers. 

The Government has already provided $74 million of support for affected farmers and growers to clean up and reestablish their business. 

Further funding for the rebuild is expected to be announced in Budget 2023. 

Phillip Benedetti, BCG NZ’s manager partner and the report’s lead author, said the government should come up with a comprehensive funding package, rather than provide support piecemeal. 

“In our view, strong commitment from government, underpinned by a clear plan that responds to the complexity of the situation will be more productive than intermittent, as-needed funding.”

Having growers in the region lobby for small pots of money on a regular basis would be difficult and inefficient. Instead, spending between now and 2030 should be pre-planned. 

Benedetti said the region was of national significance to New Zealand, contributing $1.2 billion to the economy each year and directly employing 6,700 people in permanent roles. 

A $130 million reduction in 2023 earnings for growers could result in the short-term loss of 600 to 1,500 permanent jobs. This could worsen to more than 2,500 lost jobs in the long-term, if crop yields do not recover.