Most of New Zealand looks set to stay at alert level 2 after an outbreak of Covid-19 in Waikato was confirmed on Sunday.

The latest virus spread triggered stricter lockdown measures around Hamilton and makes it unlikely the Government will use Monday’s scheduled review to relax the rules elsewhere. However, at least one expert is calling for a more nuanced approach to ease restrictions in the South Island.

Any type of respite looms as crucial to Canterbury, where no community Covid-19 cases have been detected for nearly a year and business leaders say Cup and Show week – the region’s annual economic and cultural showcase – must go ahead.

It will be “the make or break of our industry”, said Peter Morrison, Canterbury branch president of Hospitality New Zealand.

With just over five weeks to go, ticket sales for this year's Cup racing events at both Addington and Riccarton have been suspended. Organisers of the 2021 New Zealand Agricultural Show say the event can only run under alert level 1 after being cancelled last year.

University of Otago professor of public health Michael Baker, said there was a case for minimising the controls in the South Island, including introducing different tiers within alert level 2.

“We may well see a three-tier system in New Zealand with alert levels, which I think is potentially justifiable, where the South Island is treated differently from the North Island outside of Auckland.

“Events in the Waikato haven't really changed that.

“I’ve felt for a long time that there was a case for the South Island being at a lower level. Not level 1, but the bottom of the level 2 range because there hasn’t been transmission.”

Baker said Alert level 1 was only suitable when there was no risk of transmission in New Zealand, which wasn’t the case. However, there were “real benefits in working through the scenario of transmission in the North Island and not the South Island”.

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A tiered level 2 system would require a strictly-controlled border between the North and South Islands, Baker said.

Canterbury Employers' Chamber of Commerce chief executive Leeann Watson held little hope the South Island would leave level 2 on Monday.

“I would have loved to see us move to level 1,” she said.

“[But] I think it's highly unlikely given the last few days.”

Cup and Show Week was “absolutely vital” for the region’s economy, she said, and would be a “massive boost” if it went ahead as hoped.

“We know it has a massive economic impact, right across the city, in particular all of our bars, restaurants, cafes, hotels and motels.”

The Waikato outbreak was a stark reminder of the challenges of operating with Covid-19, Watson said.

She and other Christchurch leaders are backing 90 For Canterbury, a new campaign to get 90 per cent of Cantabrians vaccinated by Labour Weekend.

“It really does reinforce and push for the strong need for us to increase our vaccination rates, and quickly.”

Peter Morrison said remaining in level 2 was “not good at all” for the sector.

“We haven't had anything in the South Island at all, so we won't be happy if they don't give us some more relief.

“A lot of businesses are only just breaking even because there are too many restrictions.”

There was good news for some Canterbury businesses over the weekend as Lyttelton Farmers’ Market ran with no cap on numbers. Previously, the market was classified as an event, rather than a retail business, which limited crowds to 100.

Stallholder Anita Pukeroa of Peninsula Flowers, said they “severely struggled through lockdown.”

“We move a lot of product through the farmers’ markets. Without them, we struggle.

“It’s still a bit weird having masks on and two metres between us, but it’s the new reality and that’s how we’re going to deal with it.”