Westpac Bank is warning developing El Niño conditions could impact badly on pasture-based agriculture, particularly dairy, sheep and beef.
El Niño increases the risk of drought in many parts of New Zealand - especially in eastern regions and the upper North Island - which can reduce pasture growth, lower production, lift costs and disrupt processing patterns across the season.
Senior Westpac economist Michael Gordon said previous drought impacts suggested it could potentially slow GDP growth by as much as one percentage point in a "worst-case scenario".
"There is still no certainty around how this big climate pattern translates into localised weather patterns in New Zealand, but certainly there are heightened risks there."
He said while the impacts were mostly concentrated to the primary industries it could have flow-on effects for other industries like transport and food processing.
For consumers, Gordon said there was a risk it could raise the price of some imported food products.
"It's perhaps more a question of what happens to prices of a lot of the foods that we import.
"Because this is an event that is affecting many parts of the world - it can affect crops in Australia and in Indonesia - it's difficult to trace all the effects of that but it generally means some upwards pressure on prices.
"And it can be things like quite subtle events like vegetable oil prices going up. There's a little bit of that in everything."
He said while more livestock flowing through to processors during drought will push meat prices down, the following year it would likely see prices up as herds rebuild.
One advantage is that in dairy and meat, much of the production occurs before drought becomes a major issue, which naturally limits the impact.
Gordon said New Zealand's farmers were fairly resilient, have already adapted many systems and had had an early warning about this event.
He said greater irrigation coverage, stronger drought preparedness and favourable soil moisture conditions now, mean the sector is better placed than it was ahead of the last El Niño-led drought almost 30 years ago.
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