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Talking business

by Anthony Haas

 

External constraints influence Marlborough’s outlook

 

Wed Feb 11, 2009

The Marlborough Regional Development Trust (MRDT) is keenly awaiting the opportunity to engage with the minister of economic development, Gerry Brownlee and his associates, in order to understand the new government priorities for regional economic development.

Graham Lindsay, MDRT executive chair, wants the opportunity to discuss its recently completed Progress Marlborough economic development strategy, which not only looks ahead to 2016. It also includes impacts - and recommendation.

MDRT’s advisers predict winegrowing production will grow by up to 100% by 2016, as recent vine plantings reach maturity. The emerging and developing sectors of engineering, natural products and information technology are projected to exceed 50% growth.

Tourism’s growth of between 20 to 50% is predicted to be similar to aquaculture/seafood, aviation and forestry for the period to 2016.

Pastoral, other horticulture and fishing are projected to grow ten to 20% over the decade.

The economic downturn will affect activity and employment in the short term but in the longer term, over the coming decade, sector growth trends are anticipated to be re-established, predicts MRDT adviser Nelson based economist John Cook.

MRDT outlines the anticipated impact on the region’s key economic drivers from the global credit crunch and looming economic downturn.

Winegrowing Sector
• A halt to expansion in the hectarage under grapes, but replacement of older vines is expected to proceed (20 year vine life)
• Reduction in vineyard contract services – demand for posts, wires, laid irrigation, etc
• Possible reduction in grape prices as harvest volumes increase from good sets and recent plantings (7000 hectares) coming on stream
• Consolidation of vineyard holdings as smaller operators quit the industry
• Increased storage capacity will be for grape juice (tanks) and bottling (aging of aromatics and reds)
• An increase in the workforce will be required to harvest and prune the already planted vineyard hectarage that will be coming on stream.

Aquaculture
• Little increase in marine farm production anticipated
• Improved productivity at processing stage
• Move to ready-to-eat consumer products enhancing value and margins.

Forestry
• Increased plantation forest planting from Emission Trading Scheme policy, particularly on pastoral holdings. (This outcome is dependent on the review of the evolving ETS policy)
• Small-scale saw millers under threat

Construction
• Residential construction likely to reduce substantially
• The focus on affordable housing will intensify
• Public and private commercial construction anticipated to be maintained with on-going work in the pipeline in the short term
• Some cancellations in private sector investment projects anticipated
• Public sector construction projects anticipated to be increased as a result of counter-cyclical investment spending by government

Engineering
• Continued activity in agricultural and commercial construction should provide an ongoing base of work.
• Expansion in wine volumes from increased harvests from 7,000 hectares of vines coming on stream will maintain demand for storage tank capacity
• Establishing an Engineering Technologies Cluster group could provide a useful base for tendering for work outside the region (aquaculture, irrigation, etc)

Retail
• Downturn in car sales, appliances and big ticket items, and discretionary spending on hospitality/recreation

Finance and Investment
• Credit conditions to become more stringent
• Key industries could be affected by credit crunch
• Winemakers likely to experience difficulty in maintaining high debt/equity ratios.

External constraints
External constraints that are impacting the regional economy are changing as the New Zealand dollar depreciates. Factors such as the drop in global demand and reduced prices for the region’s exports may become a greater constrain.

External constraints such as the exchange rate, shipping costs, climate change and oil, minerals and commodity pricing that have had an impact on the region’s economic development are abating.

Among those external factors that have had a significant impact on the region’s export and domestic market businesses, the most influential is currency fluctuation says John Cook.

New Zealand’s exchange rate with its trading partners is cyclical and subject to substantial fluctuation during those cycles. The majority of the Seafood sector production is denominated in US$. Pipfruit exports principally to Europe and the USA, had been hard hit with the appreciation of the NZ$ against these currencies. Wine exports, which are able to be differentiated by brand and district and maintain a premium market price, have been less affected by currency appreciation than commodity products.

MRDT’s report outlines feedback from industry in what they consider is the likely/potential increase in production.

Forecasting future returns to a sector were, in the current situation, at best, fraught, Graham Lindsay and John Cook say.


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