BNZ's Doug Steel looks at what El Nino means for New Zealand and how we fared in similar weather patterns in the past

BNZ's Doug Steel looks at what El Nino means for New Zealand and how we fared in similar weather patterns in the past

By Doug Steel*

Weather risk is ever-present in NZ agriculture. But sometimes it looms larger than others.

We have been watching the El Nino weather risk from as far back as April last year when the Southern Oscillation Index (SOI) swung lower.

The SOI has been flirting on and off with El Nino thresholds ever since, but has moved decidedly lower over recent weeks (to less than -15 through May more than double the level usually indicative of El Nino conditions). The SOI is only one indicator. Some weather agencies have called El Nino already, others not yet but have high odds on it occurring before long.

All El Ninos are different.

In general during an El Nino New Zealand tends to experience stronger or more frequent winds from the west and south-west leading to dry conditions in the east and more rain in the west. The drought declaration that remains on the South Island’s East Coast is testament to the El Nino-like indicators that have persisted for much of the past year.

In this note, we take a quick look at how NZ agriculture as a whole has fared during various phases of the weather including El Ninos, La Ninas and neutral conditions.

We should say up front that it is difficult to accurately assess the impact of weather on agriculture performance and the economy as a whole. Poor quality data is the first hurdle. And there are many aspects to consider across outputs, stocking rates, inputs and cost changes. Then there are the (biological) lags involved meaning that many weather events have multi season implications, each with their own financing and opportunity cost depending on all other factors at the time. And even when you assess what has actually happened, what do you compare it to in order to judge the weather event in isolation? Tricky. But we take a look.

El Nino conditions, and associated low SOI, tend to be negative for NZ agriculture. Recent average levels of the SOI indicate the clear risk that agriculture GDP will decline over coming quarters. We say risk because there is not always a one-for-one relationship, but a decline seems more likely than not.

Another way of gauging this is by looking at what the average change in agriculture GDP has been for the season during the various phases of the southern oscillation in the past. We admit looking at one year’s change is rather crude because agriculture performance can swing wildly from season-to-season for a host of different reasons. But, as simple as this analysis is, it does suggest some interesting general results, namely:

• El Nino events (whether weak, moderate, or strong) have previously coincided with modest declines in NZ’s agriculture GDP

• Moderate-to-strong La Nina events have also coincided with declines in agriculture GDP and larger than those associated with El Nino events

• Agriculture GDP has tended to grow faster during periods of weak La Nina events or neutral conditions

We are reluctant to draw very strong conclusions from this given that (even over the 25 year+ time span we looked at) the sample size of each weather pattern is small. But it does suggest NZ agriculture performs best when the weather is not extreme, it intuitively feels right.

Looking at similar metrics for individual sectors increases the chance that season-to-season variation is driven by other factors beyond the current climatic conditions.

We say this with reference to the stronger-than-average milk production growth coinciding with strong El Nino conditions in the past. This is counter-intuitive. Looking into the detail, the average result is influenced by a 10% lift in the 1987/88 season (a strong El Nino year). This overstates the strength in that season because the +10% did not even make up for the 14% production decline in the season prior (a moderate El Nino year). This highlights that we should not read too much into the specific results here, rather focus on the generalities.

Milk production growth has averaged 1.4% in El Nino years compared to overall average growth of 4.0% since the late 1970s. So, in general, El Nino conditions have tended to restrict NZ milk production growth rather than turn it seriously negative.

Change in livestock kill numbers correspond to the various states of the climate. Data over the past 30+ years show that livestock kill numbers have tended to increase in El Nino years. This likely reflects an undesirable situation, as farmers run lower stocking rates when dry conditions put pressure on feed supply.

In contrast, when neutral conditions exist, livestock slaughter numbers tend to fall by more than average. This is likely a positive sign as farmers retain to build or rebuild stock units as feed conditions allow. Weak La Nina conditions have also coincided with lower-than-average kill number changes.

Assessing the impact of climatic conditions on prices is even more difficult than on production. There are so many other factors to consider from market demand, to competitor supply, inventory levels, exchange rates, and expectations of all the above to name a few.

That said, it is interesting to observe that in previous El Nino years lamb prices have tended to decline. In contrast, in La Nina years lamb prices have tended to rise by more-than-average. This relationship could reflect the influence of the climate on the likes of Australian lamb supply or other factors as much as NZ conditions.

The latter is a reminder that El Nino conditions can affect agricultural producers around the world in many different ways. The impact of El Nino on NZ agriculture has tended to be negative in the past. The brewing El Nino risk is well worth monitoring to see how this one pans out.

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Doug Steel is a senior economist at BNZ Research. You can contact him here. This item was first publsihed as a Research Note by BNZ and is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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The combination of us being in a global warmer cycle , plus the effects of an el Nino , spell troubled times ahead for most NZ agricultural producers ...

... dairy farmers better have their water supplies locked in ...

"global warmer cycle"? is that a "I still deny climate change but I can see its getting warmer"? LOL.

Cycle suggests its temporary, well if you consider millions of years a cycle, yes....otherwise no.

The El nino btw is looking stronger as every day.

.. .. no , it's just a comment to a weather/farming piece ...

Not a rant from high atop my hobby-horse pedestal about climate change / peak oil / peak atoms ... yadda boring yadda ..

That's OK, those determined to ignore such things will I hope get their just deserts.

http://www.hubbertpeak.com/netenergy/energyuseconomy.pdf

yeah it needs to hurry up and get warming. From The Lancet "Cold weather kills 20 times as many people as hot weather, according to an international study analyzing over 74 million deaths in 384 locations across 13 countries."

http://www.sciencedaily.com/releases/2015/05/150520193831.htm

http://thinkprogress.org/climate/2015/05/22/3662117/2015-hottest-year-re...
Last week NASA reported that this has been the Earth’s hottest January-April on record. This week, the National Oceanic and Atmospheric Administration (NOAA) confirmed that finding with its latest monthly report on global temperatures.
It’s looking more and more like 2015 will crush previous global temperature records. May has already started out hot and is likely to be a record breaker itself. NOAA recently predicted that there’s “a greater than 80 percent chance” the current El Niño lasts all year. El Niños generally lead to global temperature records, as the short-term El Niño warming adds to the underlying long-term global warming trend.

we used lower animal numbers, culled the poorer animals. took big overdrafts. ate roadkill and puha.

that's how we got by then. haven't seen a "big dry" since the late 70s.
We were on heavy lowland clays when I was a kid then. Weird poking sticks into the cracks in the paddocks and even the creek beds/sides had been grazed flat. Everything was brown or bleached tan in every direction, even the gorse looked thirsty and was dying back.
I think we got down to 0.5 cows to the acre (1.1 to hectare).
The mud was horrendous when the rains came. The ground was bleached hard like dried timber so most of it just ran off. We had places which were still barren drought next to ponds of rainwater...until the cows feet got in and turned everything to deep silty mud. The dung mixed in which did wonders for fertility for years to come (normally the dung sits on top because the roots support the animals).
In many ways the 2 rounds of grazing after the drought breaking was worse than the drought - everything was deep mud, no growth, and the cows would wander around and around making huge messes. During the drought their wanderings caused little problem. Also mastitis went up sharply as bacteria thrived in the heat and moisture, but had been killed earlier because of the dry and UV. I remember my Dad tearing his hair out, the few milkers he had managed to keep on, all costing a fortune in penicillin and any profit had to be dumped until after the withhold period. At least during the drought you could complain about the lack of rain.
we were lucky though, we didn't live far from the DB factory in Mangatainoka, and they were selling water tankers so we could still have house water and water a few parts of the garden. I think that's what got us through that year.
IIRC a few of the cows were grazed off in sheep farms. Many of the Sheep & Beef farmers had completely cleared their stock and only kept on the barest capital animals, so payments from dairy farmers to graze stock was their only income. Not that they could support much but back in those days you tended to get a bit of support from other locals. These days operations are so big and so used to off farm supplies that I doubt that would even work now. I think that's when the development of grazing stock off the farm started. Before then farmers tend to stop milking/cull early to have feed enough to get the whole herd through the winter on farm. but desperation was the mother of invention and it was fortunate the the Sheep and Beef folk were able to lend a hand.
the townies never even had a clue and just loved all the "wonderful weather" and complained they couldn't water their lawns.

The worst season I remember was the spring of 92, it would not stop raining, mid Nov it was still pissing down and only 10 degrees ( just about needed a boat to go around the farm). I stock agent we new, reckoned the dairy cockies were ringing him up and crying on the phone. One guy lost it and started shooting cows. Give us a drought any day at least you can go to the beach.

Bring on the El Niño I say. With only 200 mls of rain since the end of June, surely an El Niño year can't be any worse than what the Hurunui district in North Canterbury is experiencing right now. It's got so serious now I think it will be financial ruin for some and there will be animal welfare problems for many.

It looks pretty desperate out there, coming into winter. I'd even say it looks unfarmable for now, worse then the Wither Hills.

I think yesterday's cold snap is really going to put the fear into a lot of hill country farmers, especially those with little ability to feed out to stock. Not much better for lowland farmers, lambing only 8 weeks away for some. Most Italian ryegrass crops are still struggling to get out of the ground. I drilled mine in early March and its only two cm high and starting to turn yellow. Been through several good droughts in my 20 years farming but this is dire.

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