Tuesday, December 5, 2023

Gabrielle on course to smash damage records

Neal Wallace
Early estimates are that it will be NZ’s costliest non-earthquake disaster to date.
Economically, apples bore the brunt of the storm, given that Hawke’s Bay accounts for 70% of NZ’s $900 million annual apple exports.
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Early estimates are that Cyclone Gabrielle wiped-out up to $1 billion in farm revenue and caused a further $1bn in damage, although final costs are likely to be much higher.

An initial report by the Ministry of Foreign Affairs and Trade (MFAT) says the economic impact is likely to exceed the $2bn-$4bn of the 2016 Kaikōura earthquake, making the cyclone New Zealand’s costliest non-earthquake natural disaster.

The report notes that Westpac has revised down by 1.7% or $1.2bn its export forecast for the current year to account for the cyclone.

MFAT describes this as “a non-trivial loss of export income for NZ, but not catastrophic”.

Apples, wine grapes, kiwifruit and forestry were all hit hard, accentuated by the cyclone coinciding with the start of harvesting.

The report notes that, economically apples bore the brunt of the storm, given that Hawke’s Bay accounts for 70% of NZ’s $900 million annual apple exports.

It estimates 20%-30% of NZ’s total pipfruit production could be at risk given the impact was to pockets of orchards as opposed to the region overall.

“Around 25% of the region’s orchards were severely damaged or were at risk of tree loss due to extensive silt coverage, according to NZ Apples and Pears,” the report says.

Losses for growers of wine grapes and kiwifruit, while material to individuals, make up a small share of national production so the export impact will be lower.

The report notes the cyclone’s impact on dairy was mostly felt in Northland, leading to some loss of production and the early drying-off of herds.

Together with drought conditions in the south of the South Island, the cyclone damage has caused Fonterra to signal an expected 1% fall in expected production in the 2022/23 season, shaving almost $130m in income off suppliers.

The $1bn estimate in damage is to fencing, machinery, buildings, orchards and vines.

“While replacement of some items may take only weeks or months, re-establishing orchards and vineyards, and remediation of damaged land, can take years.”

The event was a drag on economic growth for the first quarter of the year, but MFAT believes recovery and rebuilding from the cyclone will boost NZ’s economic growth over the medium term.

In its February Monetary Policy Statement (MPS), published not long after Cyclone Gabrielle, the Reserve Bank of NZ (RBNZ) tentatively estimated economic recovery from the recent storms would add around 1% to annual GDP, albeit spread over multiple years.

The RBNZ also forecasts a lift in prices for some goods and services in the near term, which will add 0.3% to headline inflation in both the March and June 2023 quarters.

This could mean that inflation remains above 7% for a longer than expected.

It will be driven by demand for new and used vehicles, household furnishings, accommodation for those displaced, and construction.

Meanwhile, BusinessDesk reports the government’s latest accounts show early estimates of the recovery cost from the cyclone and flooding have already added about $160m to the Earthquake Commission’s (EQC) insurance provisions and about $150m to the agency’s insurance expenses.

The Crown’s accounts for the eight months ended February 28 show EQC’s insurance expenses in the period were $359m, up from $235m a year earlier, and almost $150m more than forecast, having tracked $20m below forecast in the month before. 

On top of that, the government’s EQC property damage liabilities stood at $968m at that balance date, $194m more than forecast and up from $799m at the end of January.

Total government insurance expenses of $4.35bn were up from $3.07bn a year earlier, and about $61m more than forecast.

Flood and storm insurance claims already passed $1bn in March, with the Insurance Council acknowledging tens of thousands of claims were lodged for the events. 

Additional reporting by BusinessDesk.