Economic Impact of the 2007 East Coast Drought on the Sheep and Beef Sector
East Coast Region Economic Impacts
This section presents the economic impact results of the major 2007 drought impacting the East Coast North Island sheep/beef farming sector, from the following perspectives:
- The impact on the sheep/beef farming sector itself
- The multiplied impact on linked ‘backward’ (supplier) and ‘forward’ (user) industries
- Impact on the overall East Coast economy
For each of the above factors, the comparative economic impact results for both the ‘without drought’ and ‘with drought’ scenarios are provided.
Sheep/Beef Farming Sector
Table 5 indicates the direct economic impact of the drought on the sheep/beef farming sector specifically, over the 2006/07 to 2008/09 years. The Value-Added impacts take into account the revenue, income-equalisation and expenditure effects of the drought. The calculation of these effects is provided in Appendix 1
Table 5: East Coast Drought Direct Gross Output and Value-Added Economic Impacts for the Sheep/Beef Farming Sector 2005/06-2008/09
| Year | Gross Output$M | Value-Added/GDP$M |
|---|---|---|
| Base Year 2005/06 | 1,685.0 | 797.1 |
| Drought Year 2006/07 | ||
| - MAF Pre-Drought Forecast | 1,757.7 | 831.5 |
| - With Drought | 1,996.7 | 917.8 |
| 2007/08 Year | ||
| - MAF Pre-Drought Forecast | 1,821.1 | 861.5 |
| - With Drought | 1,342.5 | 721.7 |
| 2008/09 Year | ||
| - MAF Pre-Drought Forecast | 1,972.4 | 933.2 |
| - With Drought | 1,484.6 | 636.3 |
In the drought year, Gross Output of the East Coast sheep/beef farming sector increases by $312 million or 18%, compared to the ‘without drought’ forecast of a $73 million or 4% increase. In 2007/08, Gross Output falls by $654 million or 33%, compared with the pre-drought forecast of a $63 million or 4% increase. In 2008/09, Gross Output is forecast to increase by $142 million or 11%. The overall Gross Output impact during the three-year period is a $200 million or 12% decline on the 2005/06 figure. This compares with a pre-drought forecast of a $287 million or 17% gain.
The true direct contribution of the sheep/beef farming sector to the East Coast economy, as measured by Value-Added/GDP, was approximately $797 million in 2005/06. Without the drought impact, this figure was forecast to increase steadily up to some $933 million by 2008/09, a gain of $136 million or 17%. However, with the drought, the overall impact for the three years is a Value-Added loss of $161 million. In the drought year, Value-Added increased by $121 million or 15%; however, it then falls by $196 million or 21% during 2007/08. In 2008/09, total Value-Added for the sector is forecast to fall further by some $85 million or 12%. At the end of 2008/09, East Coast region sheep/beef sector Value-Added is some $297 million below the forecast figure excluding the impact of the drought.
As the drought is considered to have no direct employment impact within the sector, the base year total employment level of 6,964 and total direct Net Household Income of $357 million remain unchanged over the 2006/07-2008/09 period.
Industry Linkage Impacts
This section indicates the impact of the 2007 drought on ‘backward’/supplier industries in the East Coast region linked to changes in the sheep/beef farming sector and on ‘forward’ linked industries utilising the output of the sector.
Analysis by the University of Waikato indicates that the largest backward linked industries for the sector in the region are sheep and beef farming itself (farms supplying stock and other items to the sector), wholesale and retail trade (eg firms providing farm supplies to the sector), agricultural services, financial services, households supplying employment tot the sector, property services, dairy farming, mixed cropping and electricity, and road freight. These industries account for approximately 60% of the total value of backward industry linkages to sheep/beef farming.
The leading forward-linked industries are meat processing (accounting for 51% of the total value of output generated by all ‘forward’ industries in the region linked to sheep/beef farming), sheep and beef farming itself, wholesaling, textile manufacturing, retailing, agricultural services, beverage production and fruit/vegetable processing. These industries account for almost 90% of the value of all forward industry linkages to the East Coast sheep/beef sector.
Table 6 details the value of backwards and forward linked industries for the East Coast sheep/beef sector, incorporating the drought impact. Only the Gross Output impacts are presented.
Table 6: East Coast Region 2007 Drought Gross Output Impact for Industries Linked to Sheep and Beef Farming
| Year | Gross Output ($M) |
|---|---|
| 2005/06 Base Year | |
| - Backward Linkages | 2,137.6 |
| - Forward Linkages | 1,393.4 |
| - Total Linkages | 3,531.0 |
| 2006/07 Drought Year | |
| - Backward Linkages | 2,534.1 |
| - Forward Linkages | 1,651.8 |
| - Total Linkages | 4,185.9 |
| 2007/08 Post Drought Year | |
| - Backward Linkages | 1,714.2 |
| - Forward Linkages | 1,117.4 |
| - Total Linkages | 2,831.6 |
| 2008/09 Post Drought Year | |
| - Backward Linkages | 1,884.4 |
| - Forward Linkages | 1,228.3 |
| - Total Linkages | 3,112.7 |
The value of the industry linkage effects moves in concert with the changes in direct Gross Output induced by the drought. The total value of the backward industry linkages is significantly higher than the forward linkages and account for around 60% of the total linkage impacts. The results in the table for the Gross Output linkages indicate a $655 million or 19% gain over 2006/07, a 32% decline in 2007/08 and a 10% gain in 2008/09.
Regional Economy Impacts
This section indicates the overall impact of the drought on the East Coast regional economy, taking into account both the direct and multiplier impacts. Table 7 shows the relevant results for the ‘without drought’ and ‘with drought’ scenarios.
Table 7: East Coast Region Economic Effects of the Drought Impacting the Sheep and Beef Farming Sector 2005/06-2008/09
| Economic Impact Variable | Period | ||||||
|---|---|---|---|---|---|---|---|
| 2005/06 | 2006/07 | 2007/08 | 2008/09 | ||||
| Base Year | Without Drought | With Drought |
Without Drought | With Drought |
Without Drought | With Drought | |
| Gross Output ($M) | |||||||
| - Direct Impact | 1,685.0 | 1,757.7 | 1,996.7 | 1,821.1 | 1,342.5 | 1,972.4 | 1,484.6 |
| - Industry Linkages | 3,530.9 | 3,683.4 | 4,185.9 | 3,816.2 | 2,813.2 | 4,133.1 | 3,111.0 |
| - Total Impact | 5,215.9 | 5,441.1 | 6,182.6 | 5,637.3 | 4,155.7 | 6,105.5 | 4,595.6 |
| Value-Added/GDP ($M) | |||||||
| - Direct Impact | 797.1 | 831.5 | 917.8 | 861.5 | 721.7 | 933.2 | 636.3 |
| - Industry Linkages | 1,398.1 | 1,458.4 | 1,609.7 | 1,511.0 | 1,258.3 | 1,636.8 | 1,232.5 |
| - Total Impact | 2,195.2 | 2,289.9 | 2,527.5 | 2,372.5 | 1,980.0 | 2,570.0 | 1,868.8 |
| Net Household Income ($M) | |||||||
| - Direct Impact | 357.0 | 357.0 | 357.0 | 357.0 | 357.0 | 357.0 | 357.0 |
| - Industry Linkages | 452.4 | 491.5 | 536.3 | 525.9 | 362.8 | 530.2 | 398.8 |
| - Total Impact | 809.4 | 848.5 | 893.3 | 882.9 | 719.8 | 887.2 | 755.8 |
The points to note from the table are as follows:
- Gross Output – Without the drought impact, total regional Gross Output increases in nominal terms from approximately $5,216 million in 2005/06 to $6,106 in 2008/09, a gain of $890 million or 17%. The impact of the drought is an overall Gross Output loss of $620 million or -12%.
- Value-Added / GDP – Without the drought impact, total East Coast Value-Added/GDP increases from approximately $2,195 million in 2005/06 to $2,570 million in 2008/09, a gain of $375 million or 17%. Taking into account the drought impact, the overall result is a Value-Added loss of $326 million or 15%. At the end of 2008/09, regional Value-Added following the drought is $701 million below the level it would have been if the event had not occurred.
- Net Household Income – Without the drought impact, total Net Household Income in the East Coast region increases by some $78 million or almost 10% over the three-year. With the drought impact, the overall result is a $54 million (7%) decline in Net Household Income generated in the region.
Multipliers
Using the information provided in Table 7 above, Table 8 below indicates the size of the various economic impact multipliers in relation to the economic effects of the drought.
Table 8: East Coast Drought Impact Multiplier Values 2005/06-2008/09
| Economic Impact | Multiplier Value |
|---|---|
| Gross Output | 3.1 |
| Value-Added/GDP | 2.8 1 |
| Net Household Income | 2.2 1 |
Note: 1. Average multiplier value for the three year period 2006/07-2008/09
The relatively high values of the above multipliers reflect the importance of sheep and beef farming in the East Coast economy and the consequent strong industry linkages to the sector in the region.
Overall Regional Economy Impact
Table 9 indicates the overall economic impact losses for the 2005/06-2008/09 period, as a proportion of the total East Coast economy in the 2005/06 base year. Total Gross Output for the regional economy falls by 2.3% during the above period, as a result of the drought; total Value-Added/GDP falls by 3.2%; and total Net Household Income falls by 1.8% overall.
Table 9: Total East Coast Economy Impact of the Drought for the 2005/06-2008/09 Period
| Economic Impact Variable | Overall Decline 2005/06-2008/09 |
East Coast Economy Year 2006 | Economic Impact % of Total Regional Economy in 2006 |
|---|---|---|---|
| Gross Output ($M) | 620.3 | 26,828.5 | 2.3 |
| Value-Added/GDP ($M) | 326.2 | 10,033.3 | 3.2 |
| Net Household Income ($M) | 53.6 | 2,937.5 | 1.8 |
Local Authority District Impacts
Table 10 indicates the sub-regional breakdown of the Value-Added economic impacts of the drought over the 2006/07 to 2008/09 period, based on the estimated local authority district shares of total East Coast livestock numbers recorded by Statistics New Zealand’s Year 2002 Agricultural Census. The base Value-Added figures used for the analysis are in the Total Impact (line 6) of Table 7.
Table 10: East Coast Local Authority Regional Shares of Drought Value-Added Economic Impact 2005/06-2008/09
| Sub Region | % Share of East Coast Livestock Numbers 2002 | Value-Added ($M) June Years | Overall Value-Added Change 2005/06-2008/09 ($M) | |||
|---|---|---|---|---|---|---|
| 2006 | 2007 | 2008 | 2009 | |||
| Gisborne | 20.0 | 439 | 506 | 396 | 374 | -65 |
| Wairoa | 7.0 | 154 | 177 | 138 | 131 | -23 |
| Napier/Hastings | 18.0 | 395 | 455 | 357 | 336 | -59 |
| Central HB | 37.0 | 812 | 935 | 733 | 692 | -120 |
| Wairarapa/Tararua | 18.0 | 395 | 455 | 356 | 336 | -59 |
| Total | 100.0 | 2195 | 2528 | 1980 | 1869 | -326 |
The combined Hastings/Central Hawke's Bay districts, where were impacted most by the drought, account for 55% of the total Value-Added loss over the period, followed by Gisborne district 20%,, the combined Wairarapa/Tararua local authority districts 18% and Wairoa district 7%.
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Manager
North Island Regions
Sector Performance Policy
MAF Policy
Hamilton
NEW ZEALAND
Phone: +64 7 957 8313
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