Any nation which earns its living as an international commodities trader is going to be affected by what happens to purchasing power in our major markets.

It is true that that the New Zealand banking and finance sectors have not been in the business of offering ‘toxic loans’ like United States and European banks, but we have nevertheless experienced an overheated speculative housing boom. 

That helps to put pressure on the productive sector. When speculators force up housing prices, interest rates go up, and then our dollar gets over-valued too. And no one is helped when a boom turns into a bust.

There are a couple of things we can do.

We can run the government’s finances in a way that smoothes the business cycle better. For example, the last government refused to over heat the economy by turning surpluses into deficits in the good times. This left us with one of the strongest sets of government accounts in the developed world. The other side of the coin is that we need to be ready to give the economy a push when international financial waves crash on our shores.

The worst thing we can do is make the crisis worse by tightening the government’s belt when private spending is already falling.

There is more we can do to help our selves. A backstop of local financial institutions, including Kiwibank, can pick up some slack.

And the other thing we have to do is invest in regional development and the strength of our most productive parts of the economy. In New Zealand, this means our primary sector.

When I was minister of economic development and then agriculture I saw regions that had been hammered by years of low or even negative growth. We got stuck in and within three years every region in New Zealand was in positive growth mode. As they grew, the jobs came back quickly, and communities grew far stronger.

It will be interesting to see if the current government can maintain that record.  I do know however that they will not do it by building a bicycle lane or by cutting back on the working fortnight which are measures which cannot or will not increase either production or productivity.

I have been saying since National cancelled the two billion dollar NZ Fast Forward fund that I was looking forward to seeing how they replaced it. Unfortunately, they have replaced it with the largest cuts in science and research in New Zealand’s history.

While governments around the world are investing to make sure their economies come out of recession stronger, in this year’s Budget the National-led government cut as much out of science and research in the primary sector as it is investing in infrastructure.

The total value of primary sector science investment falls from $2 billion in the NZ Fast Forward Fund under the last government, to as little as $1.2 billion now. With matching private sector funding, the total investment in primary sector research and development is going to fall by $800 million, or about 0.4 per cent of GDP.

The government has not replaced a cent of the cancelled research and development tax credits and has cut innovation spending by more than the value of the personal tax cuts. This huge cut in science and research spells disaster for the future of New Zealand’s economy, especially in our highest export earner, the primary industries sector.

Tags: Agriculture

The recent controversy over the appointment of Christine Rankin to the Families Commission has revealed the extent of an unwelcome intrusion of tabloid journalism into our media.  But it has also failed to lead to the canvassing of significant issues which have nothing to do with Ms Rankin’s private life (which is her business) and which are to do with the whole subject of Crown entity appointment.

Most New Zealanders are blithely unaware that behind the structures of formal parliamentary democracy in New Zealand lies a comprehensive structure of Crown patronage under which literally thousands of appointments are made to statutory bodies each year.  Ms Rankin’s appointment is just one of such, and a fairly minor one at that when compared to appointments to bodies such as SOEs and a wide range of Crown companies in fields such as energy and finance (Transpower, for example, or the Commerce Commission).  These entities can and do make decisions daily affecting the lives of all New Zealanders but those making the decisions are virtually unknown to most New Zealanders.

The complexities of any modern state mean that no Minister can be expected to keep their finger on everything that happens within their portfolio, however constitutionally accountable they may be in theory, and require delegation, in some cases to specialists whose expertise is crucial to the continued operations of the government.  But as the case of Ms Rankin shows the government of the day has more or less carte blanche to appoint whoever they want to many of the controlling boards involved without any structures for ensuring suitability or accountability.  The surprising things is that, despite accusations to the contrary made from time to time, the Cabinet Committee members and officials involved do try to ensure as far as possible that politics does not enter into the matter and that those appointed are full credentialed for the job in hand. 

It is only when an appointment is made to a body such as Families Commission – essentially a political creation for political reasons and thus open to potential for appointment for political reasons (this is sometimes referred to as ‘cronyism’ although there is no evidence of this in Ms Rankin’s case) that the danger of outright political appointments arises. 

In theory there is an independent body which oversees many of these appointments, the Crown Company Appointments Advisory Unit (known to government insiders by its acronym CCMAU) but this unit is buried deep in the bowels of Treasury, is as unknown to most New Zealanders as the bodies it oversees, and is in any event well known in the same insider circles for its conservatism in the appointments it recommends.

Thanks to a review carried out partly at my instigation under the Clark government the criteria used by CCMAU in the recommendation of appointments were broadened to try and bring more on board of those from ethnic minorities, a broader geographical area, and in particular women, provided they also have the necessary credentials.  This has made some difference but not enough.  Ironically Ms Rankin’s appointment contributes to that outcome.

It seems to me that it is time that this was brought more fully into the open and a transparent and public system of nominations introduced.  What a pity it was that the opportunity provided to do so by the Rankin and other appointments e.g. to the ACC, was stymied by the failure of our media to pursue the real issue.

Response to Daniel Silva's comments for Country-wide magazine

So Daniel Silva thinks that the current international recession isn’t going to affect New Zealand much.  Well that’s all right then?  Actually – no.  He’s quite wrong to think so for two significant reasons quite aside from the fact that any nation which earns its living as an international commodities trader is going to be affected by what happens to purchasing power in our major markets.

The first of these reasons is that it’s perfectly true that the New Zealand banking and finance sectors have not to anything like the same extent been in the business of offering the sorts of ‘toxic loans’ that banks in the United States and Europe have been.  That’s to say they have not been lending large sums of money on securities which are wholly inadequate to cover the loans, to people who can’t afford the repayments and then packaging the loans in ways that make it almost impossible to untangle the debt and which spread it far beyond the originating banks. 

But we have nevertheless experienced an overheated speculative housing boom which has now come to an end.  At the same time our financial securities market which, although it was re-regulated to an extent following the excesses of the nineteen eighties and nineties remains significantly less regulated than others in the OECD, has paid the price in an unprecedented series of finance company crashes.

All of this exacts a toll that leads to recessionary pressures which when coupled with the impact of the international recession means a significant downturn in our economic growth.  Fortunately for the incoming government they have two major advantages to assist them in responding to this situation.  The first is the healthy state of the New Zealand economy because of the prudent, some thought over conservative management, of the economy over the last nine years by Finance Minister Michael Cullen. 

The irony of that is that had he followed the then advice of his successor Bill English and engaged in significant tax cutting three or four years ago the current Minister of Finance would be far less well placed to cope with recessionary pressures than he actually is.  No doubt that irony is lost on Mr Silva. 

The second is that there is the backstop of local financial institutions, including the Kiwibank, which are able to pick up a certain amount of the slack although they obviously don’t have the capacity of the major Australian banks which do business here and which we know are more significantly affected by the international downturn.

The second reason why Mr Silva is wrong is that we are already feeling the negative effects.  It may be, of course, that he leads a very cloistered life and has not picked up on the reports of job losses which are beginning to come with increasing rapidity. 

The unemployed stand at 115,000 for the quarter to March or 5% with more job losses reported daily and the Treasury reporting a possible high of more than 8%. 

This compares very unfavourably with the figures for the past nine years which reached lows of just over 3%, a figure not seen for over two decades.

In another of life’s little ironies these unemployment rates were largely the result of the Labour-Progressive government’s emphasis on regional growth and development.  Both as Minister of Economic Development and Agriculture I was intent on placing considerable emphasis on regional development to the extent that we inherited an economy in which many regions were in negative growth mode and within three years we had all regions growing at rates which had not been seen for decades in some cases. 

We maintained this throughout our nine years in office and thereby provided a cushion against subsequent unemployment.  It will be interesting to see if the current government can maintain that record.  I do know however that they will not do it by building bicycle tracks or by cutting back on the working fortnight which are measures which are no more likely to resolve unemployment than similar schemes did in the Depression of the thirties.  Nor will they do it by cutting public expenditure which didn’t work in the thirties either.

The other area in which the impact is being felt, but which is possibly outside the ken of Mr Silva, is in the voluntary sector in which many organisations rely upon charitable and community trusts and similar bodies to underwrite their activities, many of which are vital to the well being of our communities.  These trusts, for very good reasons, have traditionally diversified their investments and in some cases had significant sums invested in overseas securities. 

The Auckland Community Trust alone is reported as having suffered losses amounting to two billion dollars and has had to regretfully tell some of its long term beneficiaries that they can no longer be supported.  The potential ripple effect of that sort of loss may be incalculable.

Mr Silva is, however, right about one thing.  We won’t get through the current downturn by panicking.  We need to keep our nerve and mange our way through the recession by continuing to invest in our future as an exporting nation.  But hiding our head under the blankets and pretending it isn’t happening is not going to get us there.

Tags: Economy, Jobs, Regional Development

In Parliament this month hours and hours will be spent debating the future of Auckland. There are several bills going through – some under urgency, some going to select committee for hearing. My side of the House is arguing for a referendum on the final decision.

All this because the Auckland region is critically important to New Zealand’s future.

It says something about our priorities, though: As important as Auckland is, nothing that happens in the next twenty years is likely to make Auckland as important to our economic future as our primary industries are and have been for over 130 years.

Of course, our primary industries are in much better shape than Auckland – that’s one reason why they’re more important to New Zealand’s future

But we do need careful thought about where our farming is going, and how we need to prepare and to change.

The future is already here.

In developed countries, demand for our produce is affected by consumer concern about environmental and health issues, by concern about animal welfare, and calls to ‘buy local food.’

For example, a letter to the editor of the Economist magazine this month said this, “Given the burden on health from an inordinately meat-based diet, the contribution that beef production makes to climate change, and the extraordinary toxic soup of pesticides, steroids and antibiotics that are increasingly used in the production of meat, one assumes that societies around the world will choose a different path to ‘affluence’.”

Just about every statement in that letter is wrong – but its publication in one of the world’s most respected publications tells us that there are plenty of influential people in our markets who are worrying about this stuff.

Here in New Zealand, I know of so-called farmers markets where customers are urged to ‘support local farmers by buying local.’ Actually, if the world starts buying local food, we will have a lot to eat and not much to sell. I can’t see that would support our local farmers at all.

We need our farmers to be good enough to go global. We need the world’s consumers to be interested in buying our produce.

And we need to deal with other threats, like rising competition from emerging economic powers like China, India and Brazil.

Of course, as those economies and others like them grow wealthier, demand for protein is growing too.

If we are going to seize this opportunity and stay ahead of our competitors, we have to keep changing.

Decisions about the right marketing strategy for each producer are going to be made by individual businesses. But New Zealand branded product generally occupies a valuable niche of its own – and the more we can exploit our strong positioning, the better we can prosper. Our niche is to be a highly eco-conscious producer of high quality products.

We cannot compete on price alone, but we must be price competitive. Our advantage is not on low cost of inputs – not in a first world country far from our markets. Our price advantage will only be achieved by efficiencies that come through science and research.

When the world looks at our products we want New Zealand farming to represent quality, environmentally responsible and unique. This applies whether we are marketing to a bulk commodity buyer, a purchaser of ingredients, or a consumer of our high value finished products in the supermarket.

But it also means we have to broaden our business base to leverage the strength of our primary sector. Just as a European or Japanese  company makes money when a New Zealander drinks New Zealand beer brewed and bottled in New Zealand, we need to own more businesses that clip the ticket in Europe and Asia when a consumer there tucks into locally manufactured meals.

That in turns means we have to adapt our industry structures. They have to be strong enough to thrive in the changing global market.

None of this is easy. All of it is crucial for New Zealand. It’s about time we spent as much energy working it out as we spend deciding on roads and councils in Auckland.

Tags: Agriculture

ACC costs are as significant for farmers as they are for any self-employed businessperson. Farming has its share of risk, so the premiums can be higher than in many industries.

I think ACC is far better for farmers than a personal liability scheme such as many overseas countries have. Imagine if farmers could be sued for personal injury to anyone who came on their land.

Currently the National government is getting ACC ready to be taken back to the failed system of the nineties, when businesspeople had to wade through bureaucracy to choose an ACC provider best suited to their needs.

Farmers should beware of a competitive ACC system. Costs are likely to rise far more for farmers than for others. It’s estimated that ACC levies for farmers would rise 250%. That’s three and a half times.

In 2004 the then-government of Australia got an independent report prepared on accident compensation costs over there. It found that levies in Australia’s competitive market were twice as expensive as those in New Zealand for the primary sector.

Not only that, but deadweight admin costs in New Zealand are about a third of the level in Australia.

There’s one thing even worse than higher levies – and that is not getting real coverage for your money.

When ACC is replaced by businesses competing with each other, one way they try to offer lower premiums is by reducing the amount they set aside to pay for claims that take a long time to show up.

This happened in Australia: when those claims finally started to come in, they didn’t have enough set aside. They couldn’t raise premiums to make up the shortfall because their customers would buy elsewhere. As a result, the business went under – and who was around to pick up the bill for the injured farmers who had paid their levies? Nobody. They had to pay all over again.

In the meantime, do you wonder what happened to the executives that ran the company into the ground? They probably got knighthoods. No wonder National wants to bring those back too.

A government that is fiddling around with taking ACC back to the failed policies of the nineties is a government that has its priorities wrong.

There is a global economic crisis underway. There is unprecedented risk and opportunity to our agricultural sector from the way our trading partners see climate change. Market opportunities and development of the rural economy at home are much more important than trying to find ways for insurance companies and money market dealers to make a dollar at the expense of farmers.

Tags: Agriculture, ACC

Response to Nelson-Marlborough Farming magazine

New Zealand exports around twenty billion dollars a year worth of food products. We import food products worth less than three billion dollars – a fraction of our exports.

That’s why I was disappointed to read a call in the February Nelson-Marlborough Farming for measures that would be seen in other countries as a form of protectionism against food imports. [“Kiwis are gobbling foreign food,” Page 6.]

We can argue to and fro all we like about whether mandatory country of origin labelling really is protectionism. But what is indisputable is that other countries perceive mandatory labelling as a protectionist measure.

It’s true some major markets require mandatory labelling - but we oppose them doing so. They do it to keep our products out. If we then impose mandatory country of origin labelling on them, we will have to drop our opposition to those countries doing it.
That will hurt our exports. It will hurt New Zealand farmers.

Our horticulture industry earns about $2.2 billion a year from exports - around half of its total turnover. That is a lot to put at risk from mandatory labelling.

Nor is horticulture being increasingly hurt as we import more from overseas - our horticulture exports have grown ten fold - ten-fold! - in the last twenty years.

I agree with people who say we can achieve a premium price by labelling our products New Zealand made. And there is absolutely nothing to stop that happening now.  But we might risk that potential premium if we introduced a meaningless label like the one across the Tasman: “Made from Australian and imported products.” That is the labelling we would get if we brought in mandatory country of origin labelling for food.

I don’t share the aims of people who say we should be self-sufficient in our own food. We are good at growing dairy, meat and a huge range of horticultural products. We are not so good at growing rice and bananas. I cannot see the sense in shifting some of our farms from dairy to rice paddies. It makes much more sense to sell as much dairy as we can to the world and buy the rice we need with the proceeds - along with cars, fuel, computers and many other products that our food exports help us to buy.

Nor do I agree with those who say this policy amounts to the policy of the ‘hard capitalistic right,’ as I was accused of.

Agricultural protectionism punishes poor countries more than it punishes rich ones. If there is one thing I am against, it is poverty, and I support policies that reduce poverty. Opening up global agriculture will hugely benefit some of the world’s poorest people.

It so happens that promoting more trade in agriculture not only reduces poverty, it helps create a lot more jobs, higher incomes and more successful businesses here in New Zealand, too. I’m in favour of that as well.

A recent report showed trade barriers cost the average food grower in New Zealand $25,000 a year in income. Non-tariff trade barriers might cost even more. Once we start advocating for them here, we would be advocating for even greater penalties on our industry.

Market access is hard gained and easily lost. Our focus should be on growing ways to get our products into more countries - not on ways to keep other country’s products out.

Tags: Agriculture

One of the first effects has been to reduce the value of our dollar. Eventually that will increase New Zealand dollar incomes, but in the short term it pushes up the cost of fuel. Imports of capital equipment cost more. The lower dollar provides some relief – especially in some of our most squeezed industries – but over the long haul a lower currency is no basis to build genuine long term prosperity.

At the same time that the dollar has been falling, commodity prices have also fallen. Consumers everywhere are closing their wallets. Businesses are reducing inventory and holding back from introducing new product lines. So the prices we can achieve for some of our staple exports are falling. I’m confident about our primary exports in the long haul, but in the near future, times will still be tough.

Panicked politicians and activists in some areas are becoming more protectionist. Even the celebrity cook, Jamie Oliver, is calling on British consumers to boycott meat that isn’t “local”.

For producers like farmers and other agri-businesses, credit is tightening. Though interest rates are coming down, banks and other lenders are much more conservative. (Some of them needed to be.) I’ve read of businesses finding it hard to get letters of credit. Who is interested in letters of credit from banks that might be gone by the time products are landed on foreign wharves? So producers are faced with the grim risk of putting their goods on ships with no guarantee they will be paid.

We can’t change the world economy but we can support our own businesses to position themselves during this downturn and to emerge even stronger when world economic growth turns up again. For example, more government investment in research and development at this time would ensure we don’t lose ground when farmers themselves are under pressure over costs. The two billion dollar New Zealand Fast Forward fund to invest in the future of our primary industries would have helped strengthen the economy. But the National government has made a priority out of scrapping it.

When the National Government unveiled a business tax package recently, I looked closely to see what would be there for our farmers and to invest in the future. Unfortunately, against a backdrop of global cataclysm, there wasn’t much. For example, there was a small rule change to make Disputes Tribunal claims easier, but I wonder how many farms that is going to make a difference to.

The $120 million a year of new spending in the package gives back less than a third of the increased tax on innovation that the National Government introduced under urgency just before Christmas, when they cancelled the Labour-Progressive government’s tax rebate for spending on research and development.

Words like ‘farm’, agriculture’ or even ‘exports’ weren’t mentioned in the business tax package. Our primary industries make up two thirds of our export earnings, and they didn’t get anything in the business tax package. When John Key wrote the Speech from the Throne, agriculture didn’t get a mention then, either. I wonder if the money market dealers running the National Government even realise that farms are businesses.

If we are going to weather the global economic crisis we need to strengthen our agricultural sector.

Small policies that tinker round the edge won’t do it.

Tags: Agriculture