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.
37 Comments
"catchily-named ‘Grow Back Better’ plan" Cute jingoism. After we experience the coming year or two of El Nino induced drought and ENSO swings back to La Nina and it's human juiced super rainfall events, catchily named plans will seem a bit wet.
We've got Air NZs plans to dramatically increase emissions to fall back on though. Perhaps airline travelers could fund the temporary horticulture rebuild with a levy?
Yip - who knew the costs of climate change would start to mount so quickly. It's almost as though we could save ourselves a packet by actually stopping it getting worse.....
The up-coming El Nino's are going to bust temperature records around the globe (I see Vietnam set a new record (+44.1C) even before their real hot season starts - agricultural workers could not go out in the fields after 10am according to reports. Might be a touch of food inflation once crops go untended because the wet bulb temperature permits no agricultural activity for extended periodsin the tropics........
Belle,
Attributing any weather event to climate change remains hard to impossible. What is possible now for climate scientists is to say with a hight degree of certainty that climate change is increasing the severity of those events.
Of course 'mother nature' as you put it plays a part-an important part- in our weather, but the growing role of climate change is clear and unambiguous.
Yes that is the issue with any kind of bailout. If they didn't interfere the land would become very cheap and then the next guy can buy the place and take the risk of setting up an orchard. Instead they will set an expectation that it will be bailed out after each flood, so land prices will remain elevated.
It might be harsh, but the best thing for the government to do is nothing.
Its a low profit industry. Insuring against every flood, frost, disease, etc is probably too expensive. If there is an insurance company prepared to insure it that is.
Of course in the real world we do need fruit, so maybe the govt needs to become the insurer of last resort at a reasonable price.
I haven't seen the full list and I'm not an NBR subscriber, but I've only seen mention of the Apatu family, who are far more than just orchardists, and weren't in the Top 10 last I checked.
There are far more struggling to get by than there are making shedloads of dosh. The average orchardist isn't making a ton of money, just the few at the top who have achieved economies of scale.
From a large grower - he was heading up to London to meet with underwriters, premiums were heading North of $3m a year. He had experienced a couple of glass house floods. You can kind of understand why "self insurance" goes on. But you do have to be prepared to take a hit if you are running that race.
But assuming global warming is going to cause many more of these events, the government need to be careful what expectations they set.
- Do we want insurance to become pointless as the govt will open its wallet?
- Do we want risky land to carry the same price tag as well located land because the government covers the cost of risk?
Best we have the flood plains as crops, but not houses, with the full understanding that the risk is on the land owner and set an example by NOT bailing them out. This will lower the land cost, and force future humans to carefully think about where they build and how they build. Behavioural change and business views will never change otherwise and we will always rinse and repeat (pun intended) with govt holding our hands forever.
Risk is real, we just haven't been shown this too often for the last 30 years (not including CHC quakes as insurance was relatively common there).
Unfortunately crops require infrastructure. Bores, pumps, fences, espalier structures, greenhouses, tracks, on-site sheds, tractors, harvesters...the list is huge. While sheds could be off-site, moving heavy machinery at least twice a day is not feasible. In a perfect world there'd be some kind of central raised areas where businesses could build machinery sheds so the equipment didn't have to be on public roads, but the entire Pakowhai area is like a bowling green, other than a small rise where the school is sited.
As an aside, the number of suicides by farmers and orchardists since the cyclone, of which I am personally aware, currently stands at 5, all men. The sense of helplessness in some areas is overpowering. We're doing what we can to help them but when men spend their lives being taught to harden up, provide for your family, and hold back the emotions, this kind of event can have devastating consequences.
I assume if this proposal is to be entertained, then all those people in rural hawkes bay and east coast etc who had no insurance cover on their personal property will also get bailed out in some respect right? Because they couldn't afford the insurance either...everyone was happy to say people who don't insure their house should suck it up...the same principle applies here, surely?
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