WELLINGTON, March 6 The New Zealand government declared a drought in key farming areas on the North Island on Wednesday, with no significant rainfall in more than three months threatening to cost the economy NZ$1 billion ($828.35 million).
The affected areas include the major dairy producing Waikato, south of the country's biggest city Auckland, and horticultural regions Bay of Plenty and Hawkes Bay.
"This extended period of hot and dry weather over the last couple of months has left dairy and sheep and beef farmers alike with parched paddocks and burnt and stunted feed crops," said James Houghton, Waikato president of the Federated Farmers group.
The official drought declaration gives farmers access to financial and social support.
Some of the affected regions have had around a third of their average rainfall this year, and only light falls are expected for the rest of the month.
Agriculture accounts for around a half of the country's NZ$46 billion annual export earnings, with dairy produce the single biggest commodity.
The drought would likely weigh significantly on production and incomes, stretching out into next year, worth as much as NZ$1 billion ($830 million).
"The reduction in agricultural and primary production is likely to shave 0.5 percent off GDP by the end of the year," ANZ Bank rural economist Con Wilson said in a research note.
The dry conditions are forcing farmers to cut short milk production, cull animals, and buy in expensive supplement feeds.
New Zealand dairy co-operative Fonterra, the world's biggest dairy exporter, warned last week that dry weather was cutting into production, which had risen around 5 percent in the first half of the dairy season.
"The impacts of (a) prolonged period of dry weather are likely to be long-lasting, with agricultural and primary manufacturing production unlikely to recover to pre-drought peaks for at least 24 months," Wilson said.
The last significant drought in New Zealand occurred in 2007/08, wiping an estimated NZ$2.8 billion off GDP, and helping tip the economy into a year-long recession.
At this stage the South Island, which has significant dairy and meat raising regions, as well as much of the country's hydro-electricity generation, is not affected by drought.
However, the drought could help underpin prices for dairy products because of reduced supplies to meet demand.
Fonterra's latest on-line auction of products saw a 10.4 percent rise in average prices on reduced volumes. It was the biggest single auction rise in nearly two years and took the market to within 9 percent of its peak in May 2011. ($1=NZ$1.20) (Reporting by Gyles Beckford; Editing by Paul Tait)