WELLINGTON, Feb 12 (Reuters) - New Zealand has declared a drought in parts of the country's South Island, offering financial assistance and tax relief to farmers after dry conditions have cut dairy production and increased sheep and beef slaughter rates.
The government on Thursday said medium-scale drought conditions were affecting the east coast of the South Island, which includes a major dairy region, adding that it would offer extra funding immediately through rural trusts.
"It's clear that conditions are only going to get tougher as the seasons change and we need to prepare now," Primary Industries Minister Nathan Guy said in a statement, adding that he was also monitoring parched regions in the North Island.
The announcement comes after a drier than average summer.
Drought was last declared in 2013, when it shaved about 0.3 percent from real GDP in a country where farmers account for more than 55 percent of exports.
Some analysts said the economic impact from the latest drought was likely to be smaller, given that fewer regions had so far been affected.
"It's not clear where we're going to finish up. Does it take 0.1 percent off GDP? I don't think it will be bigger than that at this point," Deutsche Bank economist Darren Gibbs said.
However, industry experts said dairy farmers faced a bigger challenge in recovering from the current drought compared with 2013, as plunging global prices have cut cashflows.
Facing a benchmark payout of NZ$4.70 per kilogram ($3.45 per kg) of milk solids this year, the lowest since 2008, farmers have already have cut back on milk production and sent cattle to the slaughterhouse.
This is in stark contrast with 2013, when a record-high dairy payout in the following season enabled farmers to lift milk production to an all-time high.
"It's a perfect storm with dry conditions and the lower payout," said Virginia Serra, an advisor at industry body DairyNZ which represents farmers in the drought-affected Canterbury-North Otago region.
"With last year's NZ$8.40 payout, farmers had tools to deal with the previous season's drought. But now, those tools are reduced. The margin to spend on expensive feed supplements and things like that just aren't there this season."
Dry conditions have spread throughout the Southern Hemisphere. Australian farmers have struggled with lower rainfall for more than two years, although favourable weather in recent weeks has eased some of the pain. ($1 = 1.3607 New Zealand dollars) (Additional reporting by Colin Packham in Sydney; Editing by Richard Pullin)