Market Economics - Memo

Latest news & views from market economics / October 2013

Sale & Supply of Alcohol Act 2012 
District Councils are in the process of considering local policy options in response to the changes introduced to the way that liquor licences are to be issued. The Act has set defaults for the maximum opening hours for on and off licence premises as well as a new fee structure for licences. M.E has been engaged to review the economic and social implications of various local policy responses in a number of districts around the country. This work is on-going.

Proposed Northland Marine Park 
M.E has recently lead a multi-disciplinary team of consultants in an initial scoping study of a proposed Northland Marine Park. The project team were tasked with reporting to Northland Regional Council on the proposal concept in terms of pros, cons and relevant issues from an economic, legislative, regulatory, fisheries and ecological perspective. The Council is expected to make a decision on whether to proceed with a business case for a Marine Park in November.

Auckland Arts Festival 2013 
Earlier this year M.E completed its 6th evaluation of the Auckland Arts Festival for the Auckland Festival Trust. The report for the 2013 event addressed audience participation and satisfaction trends, the economic impact on the Auckland and national economy and the costs and benefits to New Zealand overall. The event has continued to grow in size and popularity and the contribution from international performers and domestic and international visitors sustains activity in a range of sectors in the Auckland economy.

Massey University Campus Consolidation  
M.E has been advising Massey University on its submission to the Palmerston North City Council’s proposed plan change to limit the nature of activity that can occur in the City’s Institutional Zone. With Massey consolidating activity around the larger of their two campuses, M.E has assessed the economic implications and opportunity costs arising from proposed activity rules on their land holdings.

Horizons Plan Change  
M.E has recently carried out work in conjunction with Nimmo-Bell for Dairy NZ and in collaboration with Horizons on the Horizons One Plan Change which seeks to reduce Nitrogen leaching from dairy farming. The study quantified the economic impacts directly on the Dairy Sector and the broader rural community.

Aquaculture Growth Model 
Drawing on our expertise in developing customised and user friendly models and our knowledge of the New Zealand aquaculture sector, M.E has recently delivered a new growth projection tool to help MPI’s Aquaculture Unit examine different supply and demand growth scenarios for the marine aquaculture sector. The Model will assist MPI in understanding potential future obligations for Treaty Settlement Space across the regions.

Christchurch Integrated Model  
M.E has been working on a major update for MBIE of the Integrated Model for Christchurch. The Model draws together the latest data on dwelling repairs and rebuild progress post-quake as well as infrastructure and commercial rebuild activity. The Model combines progress monitoring and projections of future activity.

Resource Recovery Centre  
M.E and Envision Ltd are currently underway on a project for Auckland Council on a business case for a proposed resource recovery centre. The study will deliver a development concept, assess market conditions and develop a pro-forma financial strategy for the centre.


 

Bring on summer!

The year is flying by!  M.E has been busy on a diverse portfolio of projects for new and existing public and private sector clients.  Since our last newsletter, we have been fortunate to work on a number of collaborative team projects; further extending our professional relationships.  We have also been busy developing two new business products, one of which - Spatial Time Series - is introduced in this edition.  Over the winter months, a number of staff have volunteered their time to share their knowledge through guest lectures at both the University of Auckland and AUT.  We value the opportunity to demonstrate to students how spatial, economic and environmental analysis can be be combined and applied in the marketplace and enjoy the interest and positive feedback we get from the students.  Now summer is just around the corner!  This edition of m.emo provides insight into some topical issues currently facing New Zealand. 

Where's the growth? View 2013 Census

Market Economics presents Spatial Time Series: online decision support for spatial planning. Spatial Time Series combines award-winning, web-based software with the most recent and relevant spatial data, to deliver enlightening comparisons of communities and economies across time and space.  Designed to promote data visualisation, the tool employs interactive maps, graphs and charts to highlight the defining features of a given time or place.

The aim of Spatial Time Series is to promote evidence-based decision making in spatial planning by facilitating the accessibility, interpretation and dissemination of spatial statistics in New Zealand. Spatial Times Series enables non-technical users to explore informative spatial statistics through a user-friendly interface. The software automates the normally complex processes of converting raw data into interactive maps and charts, allowing users to create and share attractive data visualisations with relative ease.

Follow the link to visualise benchmark statistics for councils, including newly released 2013 Census population counts, and annual employment statistics by industry.  Here are a few tips to get you started:

Want to compare your council to those on the same island? Select north/south island from the region selection panel (top right) to restrict maps, charts and tables to councils on the same island.

Want to locate your council on the chart? Select your council from the list below the region selector or click on the relevant area of the map.

Want to know how a variable has changed over time? Drag the time slider (bottom middle) or click the play button beside it to update the map/chart for changes in time. Alternatively, change the graph panel to display a time series graph for selected councils.

Want another indication of scale on your maps? Click the proportional symbol button (bottom left).

Want to know more about your council area? Core spatial datasets that support planning for cities and districts (presented at meshblock, area unit or centre levels) are available in a cost-effective package for councils. Details and a demo are available on our website, or contact Dayne on (09) 915 5519, dayne@me.co.nz for more information.

 

Understanding Southland's water use

Water resources are critical to human health and the natural environment, and so are vital to the New Zealand economy. Water constitutes an important input into industrial processes such as agriculture, forestry, and food manufacturing, is used to produce energy, provides the basis for much of our outdoor recreation, serves as a vehicle for disposal and treatment of wastes, is a critical component of ecological systems from which other important ‘ecological goods and services’ are derived, and provides important cultural and amenity values. However, like many other forms of environmental resources, water possesses a number of features making it unique when it comes to managing its use. Freshwater is abstracted from either surface water or from ground water. It is also discharged back into the environment, which is problematic if it is modified or contaminated through its use. As a result, there is an important role for management intervention to ensure the efficient allocation and quality.

M.E was commissioned to undertake two separate pieces of work for the Ministry for the Environment in Southland region as part of the Economic Impact Joint Ventures Studies project. The objective was to inform policy scenarios on quality and quantity limits in freshwater. 

The first report identified the water values associated with industrial and municipal activities, in an urban and rural context. It explored the implications of changing freshwater quality limits, using a case study approach that covered the Invercargill City situation and also looked wider at rural settlements, large rurally located industrial activities and non-reticulated domestic systems. The report interrogated the financial implications of changes or ‘limit-setting’ currently being assessed by central government, to meet higher water quality standards. It was found that the costs are likely to be distributed in an uneven manner, depending on the status quo of standards in water supply plants, wastewater treatment (either on site or through storm water infrastructure). However, it was recognised that the timing of implementation of water quality limits impacts significantly on council and the private sectors’ ability to afford the infrastructure required to meet any new standards. 

The second report established the current situation of water use in the Southland economy. In particular, it developed an economic profile of the Southland economy identifying Southland’s key sectors; calculated current water abstractions, discharge levels and nutrient loads by economic industry (producing a series of ecological water multipliers from this information); and used the ecological water multipliers to produce tentative estimates of future water use, nutrient loads, discharge levels.

The relationship between environment and economy is inherently complex, capturing the indirect and embodied use of water by many industries and businesses. To unpick this relationship, it was necessary to first assess what economic activities are undertaken in the Southland region/economy, to establish the interdependencies between the industries by exploring production chains (for example food processing requires inputs from agricultural, the electricity sector and the transport sector as well as the construction sector). The natural resources each industry uses in their production processes was then calculated, while recognising that water is critical for ecosystem services (natural processes that are both biological and chemical).

This study reports on these three elements of water usage in Southland: surface water take, ground water take and water discharge. Over the last decade, demand for water in Southland has increased, with dairy farming’s growing demand for water driving this growth. In terms of volume, dairy farming is one of the largest users of Southland’s groundwater, accounting for 55 per cent of groundwater extracted. Going forward the sector’s share is expected to increase. Together dairy farming and livestock and cropping are responsible for more than two thirds of ground water abstractions. From analysing Southland’s consents database, it was found that over time the difference between allowable abstraction (maximum consent) and water actually taken (abstracted) has decreased. In other words the ‘unused’ portion of the consent has been getting smaller. In Southland, most discharge consents are for dairy farming activities. In 2000/01 two out of three discharge consents were for dairy farming but by 2011/12 this has increased to approximately three out of four. The dairy farming discharge consents predominantly covers dairy shed effluent and the subsequent discharge to land via various sorts of irrigation systems. Meat and meat product manufacturing, and dairy product manufacturing – two key manufacturing sectors closely linked to Southland’s agriculture sector – had 21 and 9 discharge consents respectively (2011/12).   

A by-product of Southland’s economic activity, especially the agriculture and processing of agricultural goods, is nutrients which are discharged to the environment. These nutrients include different forms of nitrogen (N) and different forms of phosphorus (P). In addition sediment and e-coli levels are affected but data difficulties limited our ability to include these in the study.   

The agriculture sectors included above produce approximately 90 per cent of Southland’s agricultural value added, and so are important in economic terms, considering that agriculture activity plays a substantial role in Southland’s economy. Overall the report found that the Southland economy is not decoupling water use from economic activity, which will impinge on plans for economic growth and development in the region in the future.

Economic and Ecological Multipliers
The idea behind the derivation of ecological multipliers is to demonstrate the extent to which production and consumption of economic goods and services depends on the provision of different types of ecological goods and services, both directly and indirectly. Essentially the multipliers measure all of the downstream or upstream ecological impacts that are ‘embodied’ in the production of a particular economic good or service. Our results represent an analysis of impacts associated with each industry’s output (i.e. the backward linkages). We calculated water abstraction (m3), water discharge (m3), total nitrogen (kg) and total phosphorous (kg) ecological multipliers. The main observations from the report were:

• Using the production chains of manufacturing industries responsible for immediate processing of raw primary products (meat and meat product manufacturing and dairy product manufacturing) shows that these industries use and discharge significant quantities of water. This is because these industries are both significant direct users of water, and major purchasers of primary goods that are also produced with significant water inputs.   

• Once processed, much of Southland’s meat and dairy products leave the region as interregional and international exports, rather than being consumed by other local industries and sources of final demand. In this way Southland is an ‘exporter of embodied environmental goods’.

Overall these two reports, completed within a short timeframe, provided a good foundation for additional research. This was the first attempt to assess and quantify the economic, water and water related economic implications of changes in water quality while considering the interdependencies which exist in the Southland economy.

This work provides insight into the scale of issues that Southland region may face in water terms by looking at the economy-environment interface using abstraction, discharge and nutrient loading information. To expand and complete this picture it would be necessary to consider the dynamic feedbacks which exist between the economy and environment. These feedbacks are characterised by non-linearities, lags and complex cause-effect relationships which may produce emergent behaviour not captured in ‘business as usual’ trends.

Greg Akehurst, 09 915 5511 or greg@me.co.nz

Lawrence McIlrath, 09 915 5523 or lawrence@me.co.nz

 

Planning for growth in Auckland's schools

The Ministry of Education has responsibility for the planning, design, construction and management of the network of state schools to provide for the education of school-age students. To fulfil this responsibility, it is important for the Ministry to understand current and future population growth trends and how these will translate into changes in the school age population. 

To provide this understanding for some parts of Auckland that are of particular interest, the Ministry commissioned M.E to produce four area plans to review projected population growth for school and pre-school aged children. These plans are being used by the Ministry to enable them to plan for ways to accommodate that growth within the existing schooling network. 

Auckland Council has undertaken a significant amount of work to understand how Auckland is projected to grow in the future based on demographic trends, regional planning policy and land availability. The culmination of that work to date is Council’s “Auckland Residential Growth Model”, which represents the best current understanding of expected future growth in population and dwelling numbers in Auckland. Our work for the Ministry took these projections as a base, and reconfigured them by incorporating an age breakdown. The age breakdown was sourced from a customised single year of age population projections dataset created by Statistics NZ, which represents the finest resolution (age and geography) that is available. 

The culmination of the two core projection datasets was disaggregated in detail both spatially and by year of age of the expected future population resident in the areas of current interest to the Ministry, for three alternate growth scenarios.
From those detailed age projections we then derived school roll projections for each school in the study areas, based on the current roll and expected changes in the demography of each area over the next two decades. This output described the demand side of the current and future school capacity demand-supply equation.

The supply side of the equation was provided from the Ministry’s internal capacity models, output from which was integrated with the M.E demand modelling to quantify the expected current and future spare capacity of each school, annually for the next 20 years. That capacity may be in surplus or deficit at different times over the 20 year horizon of the study, and in many cases is projected to fluctuate between the two states. In addition, different roll projections and therefore capacity issues arise between the three growth scenarios assessed. These variances provide an indication of the sensitivity of the roll projections to the base growth rates assumed, and provide a basis for understanding the range of capacity issues the Ministry may be faced with in each area and for each school type. 

Presenting a large amount of data for many different schools and geographic areas was a key challenge of the assessment. The solution chosen was to provide the project’s key output in the form of a fully interactive spreadsheet-based model that was provided to the Ministry for its on-going in-house use. The Capacity Needs Model was developed in liaison with the Ministry to ensure it provided the information the Ministry required for its planning, and incorporated additional functionality to address questions that arose as the assessment progressed. 

The Capacity Needs Model is a synthesis of all the assessment undertaken, and presents demand and supply projections in tabular and graphical form. The Model allows for easy interrogation of outputs, and the user-definable capacity shortfall triggers provide an intuitive and highly visible indication of the timing, location and magnitude of likely future capacity shortfalls for individual schools, user-definable groups of schools or specific geographic areas.

The Model also provides the ability to track particular cohorts within any geographic area that may be of interest to the Ministry. Our assessment confirmed and quantified the Ministry’s observations relating to the existence of certain ‘bubbles’ of large age groups corresponding to mini-baby booms that have occurred in particular years. By incorporating pre-school age groups in its projections, the model provides forewarning of any large cohorts that are likely to enter the schooling network, when they will need to be catered for and how their effect will vary by location. Tracking bubbles through the schooling system allows the Ministry to understand which schools and which areas will need to be monitored.

By understanding the magnitude and duration of any capacity deficits, the Ministry can plan the appropriate manner in which to manage them, which will include considerations about the timing, magnitude and permanence of any response. The model incorporates variable triggers to flag when capacity shortfalls are expected to occur, and how sustained they will be under each alternate growth scenario.

On-going tracking of actual growth and updating of expectations as new planning policies and demographic data are released will allow growth expectations to be updated over time, and planning to be adjusted accordingly.

Derek Foy, 09 915 5518 or derek@me.co.nz

 

Cruise sector impacts continue to grow

The cruise industry has firmly established itself in New Zealand as a major component of the tourism sector and contributor of economic value. More than just floating hotels, cruise ships have the unique ability to provide a town, city or region with anything from 100 to over 3,500 new tourists for a day (or more) in one visit. Many of these visitors come ashore with the intent to explore and experience the attractions, shopping and culture of that town, city or region, and are prepared to pay well to do so. Understanding the impacts of this developing sector is imperative to helping New Zealand not only ensure the needs of the cruise industry are met, but also to maximise the value of this unique form of tourism. M.E was once again commissioned by Cruise New Zealand to complete an Economic Impact Assessment of the cruise industry for the recent 2012/13 season and forecast the impact of the 2013/14 season, which officially began this October with the arrival Radiance of the Seas.

For the upcoming season bookings indicate that 121 cruises will bring 200,000 passengers, who will spend a total of just over 1.1 million days in port. There is expected to be 81,900 passenger exchanges (passengers beginning or ending their cruise in New Zealand, not just sailing through the country) occurring, which is a high value activity. There will also be 79,100 crew who visit New Zealand during the season. Australia continues to be the largest source market for passengers, with USA and UK the next biggest markets.



Even though booking numbers are down slightly, compared to the previous season (129 cruises with 211,000 passengers in 2012/13), the total value added (contribution to GDP) of the industry is expected to rise by $1m to $311m for the season, primarily due to the increase in passenger exchanges (up 13,700) from last season. For this season Auckland will see the largest value added impact with an expected $115m (down only $1m from 2012-13). A decrease in vessel and crew related spend is likely to be almost completely offset by an increase in passenger related spend, particularly during exchanges. Wellington ($36.1m), Marlborough ($4.2m) and Canterbury ($29.9m) are all expected to see a slight decrease in activity of $2-3m each, although the value added from cruise remains significant. Bay of Plenty ($37.0m) and Otago ($32.0m) remain at similar levels to 2012-13. Northland is expected to see the biggest gain in value added, rising by $5m from last season to $17.1m for the upcoming season, with a large increase in cruise visits and passenger and crew port days contributing to this. Gisborne ($2.4m) and Southland ($14.2m) will also see a value added increase of approximately $2m each. The input from the cruise sector will also support 5,361 jobs nationally.



The slight downturn in passenger activity expected for this season is expected to only be temporary. With the Panama Canal expansion due to be completed in 2015 the industry’s largest ships, so far unseen in this part of the world, will have access through the canal to the Asia-Pacific region, boosting both the number of visitors and the economic value of the industry. To maximise this potential value adequate infrastructure around New Zealand is imperative as the New Zealand cruise industry looks to grow even further.

M.E has worked with Cruise New Zealand to produce a study on the economic impact of the cruise industry since 1996. For more information about the latest cruise study, please contact Tom Worley either by email tom@me.co.nz or phone (09) 915 5532.

 
   

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