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

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

Launch of Wool to Weta
Transforming New Zealand’s Culture & Economy
 
6.00PM Tuesday, 10 March 2009
 
 
I would like to start out by congratulating Professor Callaghan on this book and on promoting the topic of economic development.

This week I saw a comment from Paul. He was responding to a reporter who asked him whether he would want to be called Sir Paul. The question raises some issues similar to those in this book:

The way we honour success and the way we create it are on the move.

We used to be a country that styled itself as a colony of Britain. We sold almost all of our commodity products to one country. Most of our exports came from a single product: Wool.

We are changing.

We are becoming a modern vibrant country proud of our own creativity and talent.

Today, wool exports no longer comprise half our export eanrings.

Today, wool’s proportion of everything we earn overseas has fallen to just two per cent.

And though there are some in New Zealand who are clinging to the vestiges of our ancient british past, we are becoming a different a culture too.

We are more integrated with the rest of the world.

We are creating value more by ideas than by bulk.

But this is a process of transformational change.

Change seems always to come with a couple of steps forward and one or two back.

So I want to suggest to you, that just as the decision about whether to be Professor Callaghan or Sir Paul is a choice we have to make...we also have economic choices to make.

One such choice is whether we want to make more progress toward a more science-based economy, more use of ideas and a more modern way of celebrating success.

I congratulate Professor Callaghan for putting these issues on the table.

This book makes a contribution to our awareness and understanding of what’s at stake.

It is no small coincidence that Paul is the Alan MacDiarmid professor of Physical Sciences at Victoria.

I knew Alan MacDiarmid. His brother, Rod, was a political colleague of mine for many years, and he introduced us when Alan came back to New Zealand for a visit.

Alan MacDiarmid was a passionate and persuasive advocate for the ideas behind this book.

He believed in the power of science to transform our economy.

He believed in the power of ideas, knowledge and research to improve the lives and wellbeing of New Zealanders.

And he understood that it takes a policy commitment to bring science and business together.

It doesn’t ‘just happen’ on its own.

If it did, it would have happened by now.

But it has happened yet - at least, it hasn’t happened enough.

If you open this book and turn to the introduction, there are charts that put in stark perspective the performance of the New Zealand economy relative to other countries in our modern history:

They show we began a decline in the seventies.

We entered a precipitous decline through the late seventies, and all of the eighties, and much of the nineties.

We have never really closed the gap, even though for the last decade we stopped falling behind.

And this is not because we are lazy. It’s not because we don’t work hard.

We work as many hours as any country.

I find one thing very striking about these graphs: They are the same ones I have been using in speeches and presentations for a decade.

And the central point is the same - that we don’t have enough businesses in New Zealand that are making very large returns per employee.

In most developed countries, companies that can make net revenue of a million dollars per employee are common. In New Zealand those figures are virtually unknown.

We don’t have enough high value, high skill, high return companies because we don’t have enough science and innovation lifting the productivity of our economy.

Not enough of our economy is based on ideas and on research.

It’s easy for us to fall into the trap of thinking that this means there is a problem with our existing industries.

I don’t share that view.

Our agriculture, for example, is probably the most scientifically advanced of all our industries.

Many New Zealanders wrongly believe our competitive advantage in agriculture is our climate. But there are many countries with a temperate climate like ours.

Our agricultural excellence lies in our decades upon decades of investment in science.

Over the years we have spent billions - probably tens of billions of dollars - on agricultural science.

This has led to products that are of immensely high value.
I have been to a business where they extract a medical supplement from milk and sell small vials of the extract for thousands of dollars each.

The value is in the science. In the Knowledge. In the Understanding.

Compare the value of that vial to the value of the same weight of dairy produce from New Zealand a few decades ago.

One of the lessons from this example is that our economy can change far more rapidly than we sometimes realise. Another lesson is that science is behind many of the changes.

The decline in the dominance of wool among our export industries is one example.

At the turn of the century, economists pointed out that the United States exported the same weight of goods in 2000 as it had exported in 1900.

The value, however, had increased thousands of times.

The difference in value was created by science and ideas.

I’ve asked Paul Callaghan why he thinks we aren’t better at using science in our economy. I’ve put the same question to dozens of business people whom I have met around New Zealand.

No one says it’s because we aren’t smart enough - Kiwis are enormously creative and talented.

I often tell the story of visiting Singapore and meeting the economic development minister there. He said to me, ‘you are lucky in New Zealand because you have so much creative talent. When we want that creativity, we have to import it for you.’

We are remote and isolated in New Zealand and that has meant we have the freedom to try things out. Necessity has driven a lot of innovation.

Lord Rutherford said, ‘in New Zealand, we don’t have much money so we have to think.’

So its not lack of talent.

If we want more innovation and science in our industry then we need the leadership and co-ordination that will create it.

Everywhere you go around New Zealand and put the ideas in this book to businesspeople, and to scientists, they will agree with you.

They will say, ‘yes we need more of this.’

But we don’t see more of it.

The vision of more innovation and a vision for the leadership to create more innovative companies is not universally shared.

It is a choice.

Uncomfortable as it is for many people - especially in business - Support for science has become a fault line between differing political philosophies.

There was a very public example of this divide between pro- and anti-science politics only this morning in the United States.

President Obama this morning signed a law allowing stem cell research to proceed in the US. At his press conference he repudiated the previous President’s opposition to stem cell research in the US, saying the distinction between science and morality in this case was false.

Politicians should never get into the position of being anti-science.

We have to harness science, harness research and harness ideas if we are going to improve our living standards and those of our children and future generations.

Supporting more innovation in our businesses is a matter of making some hard choices.

In the last three months in this country, those choices have been made and they have been made against science.

A two billion public-private partnership in scientific research called New Zealand Fast Forward has been cancelled.

That wiped out the largest single investment in science ever made in this country.

A tax credit for research and development worth a billion dollars over three years was canceled.

That was the largest business tax increase in our history.

All this took place without much of a squeak - specifically from the business community itself.

So, as I said at the outset, the forward progress of the New Zealand economy inevitably involves taking steps backwards as well as forwards.

People are entitled to make choices.

And it is up to those of us with a passion and commitment to the power of ideas, to advocate for our vision of a more dynamic and vibrant economy.

I will give you one example that inspires me, and that is relevant to the concerns we all share about the drain from New Zealand of our best and brightest.

It was at the launch of New Zealand Fast Forward here in Wellington about a year ago, when we invited some graduate students from Massey University.

One of the science postgrads who spoke that day was off to the UK to take up a scholarship, and he made an announcement that no one present knew he was going to make: he said the launch of that fund and its potential to finance brilliant, game-changing science in New Zealand had made him change his mind.

He said that when he finished his course in the UK he no longer believed his only chance for a science career would be overseas; He would come back to New Zealand to give it a go. The long term investment we made gave him confidence about a future here, he said.

There will always be brilliant young New Zealanders who go overseas to develop their skills. Alan MacDiarmid was one; Lord Rutherford was another.

Our problem is that we haven’t been able to offer enough of a choice back here. We haven’t been able to use enough of our connections to the world, and of the trails blazed by our best.

And we haven’t brought enough of their innovation into the boardroom, and into the soul of innovative, large scale companies based here.

This book we are launching today has many examples of the brilliance we have available to us.

It has many insights into how we can do better.

It is crucial for us to have this conversation, and I congratulate Paul and the people he spoke to on playing their part in this conversation.

I wish you all the very best in continuing this conversation and in making a real difference to the transformation of New Zealand’s industry.

Tags: Agriculture, Economy

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

Taxing rural communities more to pay for Auckland’s roads shows that National doesn’t understand the importance of agriculture for New Zealand’s economy, Opposition agriculture spokesperson Jim Anderton says.
 
“The whole country can benefit from roads that boost Auckland’s economy; But Auckland can benefit from the economic activity of the rest of the country too. How many farms are in Queen Street? When rural communities have to pay for roads they don’t use, it is a drag on them.
 
“The decision to make farmers pay more for Auckland roads is a decision by Auckland money market dealers who don’t understand our primary industry.
 
“It’s fairer to pay for extra projects locally, because local communities can best decide their top priorities and also decide whether the extra cost is worth it.
 
“The National Government has no new ideas so it’s going back to its old form in government – asking farmers and rural communities to pay more and more, while providing less and less services.”

Tags: Agriculture, Transport, Economy

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

This is a budget that has all the competence that you would expect from the people responsible for Melissa Lee’s Mt Albert by-election campaign.

The good news: Inflation is no longer a problem. We have finally got the low inflation economy the National Party always said would deliver us its dream economy. How’s that working out now?

National has produced a lacklustre budget that Bill Birch would have been proud of.

In troubled times, when the economy is rocking on the waves of global economic storms, the government has responded weakly.

Not with a vision for the future.

Not with bold steps that will lead New Zealand on a developmental path.

But with a weak, uncertain, sitting on their hands response.

Governments around the world are investing in the future.

This one has slashed the future.

This one is the Broken Promise budget.

The total value of primary sector science investment falls from $2 billion in NZ Fast Forward under the last government to as little as $1.2 billion now.

It is cutting nearly as much out of science and research in the primary sector as it is investing in infrastructure.

Government spending on science and research, on a like for like basis, falls from around a billion government dollars in the NZ Fast Forward Fund, to $610 million in National’s replacement.

With matching private sector funding, the total investment in primary sector research and development falls by $800 million, or about 0.4 per cent of GDP.

In addition, the government has not replaced a cent of the cancelled research and development tax credit.

This is huge cut in science and research.

It is a disaster for the future of New Zealand’s economy.

It is a disaster for the future of our most important economic sector.

Other developed countries are preparing themselves to come out of this recession stronger.

New Zealand is preparing by switching from science and research to poltergeists and UFOs.

The government promised the primary sector it would spend more on science and research.

That is what David Carter repeatedly promised.

He promised it as recently as this year.

Farmers  and our agri businesses will be looking it up.

And they will find not increases, but cuts.

It has broken that promise as surely as if it has broken its promise on personal taxes.

I want to turn to some other features of this disappointing budget.

I want to draw the House’s attention to the table on Page 55 of the fiscal strategy report.

In there the government points to its expected increases in nominal average wages over the next four years.

If you deduct those from the CPI – the cost of living index - there will be no increases in real wages for four years.

No increase in real wages for four years!

This is the curious branch of economics that says the way to make New Zealand better off is to make everyone worse off.

Not since the eighties have we had an economy that didn’t increase real wages for four consecutive years.

It’s hardly conducive to keeping working New Zealanders here.

If they were leaving before, wait until John Key’s policies result in no increase in real wages for four years.

I have to give the National party credit for one thing.

There was a time in the past when National would have said the way to fix that would be to spend up on tax cuts.

At least Bill English and John key have now accepted that tax cuts do not stimulate the economy.

But that is not what they said when they wanted to get elected.

They promised New Zealanders tax cuts.

They now say they can’t afford them. Fair enough. But that’s not what they said when they wanted a vote.

Back then they said their promises took into account the worsening economic climate.

Back then they said
“National has structured its economic package to take account of the changing international climate.”

They weren’t telling the truth when they made the promises that got them elected.

They said: “Our tax cut programme will not require any additional borrowing”.

They weren’t telling the truth when they made the promises that got them elected.

The only way that promise could have been true is if his tax policy wouldn’t require borrowing because it was never going to go ahead anyway - and John Key knew that even before the election

Last year John Key said his tax policy was  "appropriate for the current conditions" and would require "no additional borrowing.”

There is no excuse for this.

John Key was here in the eighties and he was here in the nineties when governments got elected and immediately tossed out the promises they got elected on.

I was in here in 1991.

I remember the Bolger government got away with the 1991 budget to begin with.

People gave them the benefit of the doubt that the economy had been wrecked by Roger Douglas and needed hard measures.

But over time it was a disaster.

This one will be too.

Those tax cuts needed to be cancelled.

But they should never have been promised in the first place.

John Key owes New Zealand an apology for getting himself elected on a promise that could never have been kept.

Did he know before the election that the international economic situation was deteriorating, or did he only find out when the Treasury told him?

Neither possible answer reflects well on his fitness to lead a country through a crisis.

I want to turn in the time left to the cuts to the Super Fund.

This is very sneaky politics.

Cutting the Super Fund now reduces the ability of any government in the future to provide for super at anything like existing rates or retirement age.

So what Bill English is doing is pushing out by ten years the hard decisions about the huge tax increases or cuts to super that will be needed to make super affordable.

He has calculated he won’t be finance minister in  ten years.

He is right about that!

After this budget he won’t be finance minister in three years.

But he has delivered an enormous burden to future taxpayers.

The affordability of superannuation in the future must decline because we are no longer putting aside something now to pay for some of it in the future.

It was going to pay for around fifteen percent of the future cost.

Now it will pay for less than seven per cent.

That means the age of eligibility for superannuation will be increased to around 67; or else there will be huge tax increases required to pay for it.

That is the doozy the government has announced today.

This is not a budget that prepares New Zealand for the challenges of the future.

There is not a word in here about preparing New Zealand for the effects of climate change.

The Green party will be disappointed that the sum put aside for home insulation has been slashed from a billion dollars to $244 million.

Then we look over at the infrastructure spend, and we can see that the government is shifting $258 million of spending from rail to roads.

So this is what the Greens have got for their cooperation deal with the National party.

They have actually lost money!

They have lost $14 million!

Then what about the Maori party?

Who do they think is going to be hardest hit by this recession?

The National party is not doing anything for new jobs, and the Maori Party is voting for that!

At least Pita Sharples can wave at the unemployed as he drives by in his new car.

Tags: Budget, Economy, Agriculture, Research & Development, Jobs, Superannuation

Nearly as much is being cut out of science and research in the primary sector as the government is investing in infrastructure, Opposition agriculture spokesperson Jim Anderton says.

The total value of primary sector science investment falls from $2 billion in NZ Fast Forward under the last government to as little as $1.2 billion now.

Like for like government spending over ten years falls from around a billion dollars in the NZ Fast Forward Fund, to $610 million in the government’s replacement.

“With matching private sector funding, the total investment in primary sector research and development falls by $800 million, or about 0.4 per cent of GDP.

In addition, the government has not replaced a cent of the cancelled research and development tax credit. Overall, the government is cutting innovation spending by more than the value of the personal tax cuts.

“This is huge cut in science and research. It is a disaster for the future of New Zealand’s economy,” Jim Anderton says.

“Other developed countries are preparing themselves to come out of recession stronger. New Zealand is preparing by switching from science and research to poltergeists and UFOs.

“The government promised the primary sector it would spend more on science and research. It has broken that promise as surely as if it has broken its promise on personal taxes.”

Tags: Science, Research & Development, Budget, Agriculture

Banks repatriating ‘enormous amounts’
 
New Zealand bank branches paid their overseas owners $11.7 billion in interest and profit last year.
 
Progressive Wigram MP Jim Anderton told a Federated Farmers conference today that the situation poses a risk for the agriculture sector, which is facing a ‘perfect storm’ of input price rises, threats to demand and now finance risks.
 
Total bank lending to agriculture in April this year was $43.7 billion, or 13.8 per cent of the total lent to New Zealand.
 
“Two thirds of that is lending to the dairy industry - at a time when one estimate says Fonterra could be forced to cut its payout from the current $4.55 if our dollar stays over sixty US cents. This would be very hard on some farming businesses that thought the last couple of years’ high prices would last longer. If interest rates came down just one per cent, farmers would save $450 million,” Jim Anderton said.
 
“The banking system has begun repatriating enormous amounts of New Zealand money.”
 
Remittances by banks in New Zealand to their overseas owners climbed from $3.8 billion in 2000, to 4.6 billion in 2004, and then began climbing steeply: $6 billion in 2005; $7.8 billion in 2006; $9.1 billion in 2007 and $11.7 billion last year.
 
“That’s more than the entire GST revenue of New Zealand. It is more than the entire education budget. And in a single year it is far more than the entire proceeds of the asset sales programme that caused so much pain through the eighties and nineties.”
 
“The huge remittances to banks are the result of the Australian banks funding our balance of payments deficit, now at sixteen billion dollars a year. They are taking an enormous clip of the ticket for doing it. We need to rely more on our own savings, instead of spending the savings of others.
 
“Interest rates are too high at a time when banks should be reducing them. In a recession, while banks around the world have been under pressure, the big banks here have been smirking. In the current environment, a lot of farms are facing a squeeze and they will struggle to meet the payments on their debt.”

Tags: Banks, Interest rates, Economy, Agriculture

Speech to Federated Farmers conference, 12 Noon Wednesday, 1 July 2009
 
I would like to thank you for the opportunity to talk to you as the Opposition spokesperson on agriculture. Can I also acknowledge the generous comments I have received from many farmers in recent months.
 
I have always been confident in the future of New Zealand’s agricultural industries. You have to be, because agriculture is intrinsic to our economy’s strength and our success. And it has been the backbone of our economy for most of our economic history because of our competitive advantage as a farming nation.
 
But while I am confident, I am realistic as well. There are a number of issues we need to deal with:

• Farm profitability is uncertain in stormy international economic conditions.
• There are broad risks in the financial strength of the agricultural sector.
• Global awareness about environmental impacts and animal welfare are forcing change in our markets, and changing the business environment - as well as affecting the raw materials farming depends on, like climate and water.

 
I’m glad you’re meeting here in Auckland, because it emphasises that the prosperity even of our largest city is dependent on the performance of our farmers. Agriculture is as relevant to Queen Street as it is to Hokitika, to Matamata, to Geraldine or to Carterton.
 
For that matter, the services that cities can provide can be crucial to our primary industries, too. In my home town, Christchurch, some of the most innovative scientists in New Zealand are rivaled only by their contemporaries in cities like Palmerston North and Hamilton in their research contribution to New Zealand.
 
There is always a risk that our economic backbone will be ignored in public debate about our economy.
 
At the start of this year, when the then new government opened its year in parliament with the Speech from the Throne, the word ‘agriculture’ didn’t even get a mention. It was the first time in at least a decade that our farmers were ignored. There is not much chance of developing the right policy for the agricultural sector, when farming isn’t even being contemplated by the government.
 
The policy environment in Wellington today, like every capital around the world right now, is occupied with the difficult global economic environment. Many developed countries are in recession. Some of them are in deep recession. We can take some comfort that demand for food holds up better in a recession than demand for the cars of General Motors or Chrysler.
 
But we can’t be too comfortable.

Reduced demand around the world is likely to result in reduced prices for our exports. Ultimately that means incomes will fall. And because the same reduced prices affect farmers everywhere, we can expect farmers in every country to redouble efforts to increase productivity and production, because this lowers costs per unit of output.

And since every farmer around the world is in the same situation, total production will increase, with prices falling and demand increasing only slowly.
 
On top of that, there is input price pressure. One of the critical elements in soil fertility is nitrogen. Industrial fertiliser is produced from gas or coal, and the price of fossil fuels are high. Persistent increases in the price of oil and gas would lead to higher fertilizer costs, so you get higher input costs and reduced demand.
 
Hand in hand with that picture, we can expect to see rising protectionism in many markets, particularly in agriculture. So that makes market access more difficult.
 
This is a tough recipe for farms.
 
There are only two ways to increase farm profitability: reducing the costs of inputs, or increasing the value of production from given inputs. A combination of both strategies is inevitable.
 
The underlying trend in the export prices for our commodity agricultural products is down, over the long term.  With some medium term exceptions, such as China’s expansion and climate events, prices for agricultural exports have been under long-term downward pressure. The strong expansion of China in recent years has helped to push up the prices of many raw materials - including some that farmers compete for, such as energy - while also increasing the price for agricultural products.
 
But relying on that to continue forever is not a prudent long-term strategy for New Zealand.
 
At the same time that we are confronting the difficult environment for farm prices, agricultural finance is under stress as well.
 
This is what I call a perfect storm: input price rises, threats to demand and now finance risks.
 
I’ve been looking at New Zealand’s accounts with the rest of the world. When you look at our merchandise trade - our exports against our imports, the deficit is large but manageable.  But we face a massive deficit in one crucial area - investment income.
 
We have been using the savings of people in other countries instead of our own earnings or our own savings to pay for our lifestyle. And the bill for that is starting to come in. The bill is coming in from banks.
 
How much do you think New Zealanders send overseas each year to the big Australian banks?
 
In the nineties we sent overseas about three billion dollars a year in profits and interest on loans extended to New Zealand banks. For the first half of this decade it was stable around about four billion dollars a year.
But something dramatic has happened. The banking system has begun repatriating enormous amounts of New Zealand money.
 
Last year, calendar 2008, the banks repatriated 11-point-7 billion dollars in profit and interest paid on loans.  That is, the New Zealand branches paid their overseas owners $11.7 billion in interest and profit.
 
The total has risen from $3.8 billion in 2000 to $11.7 billion last year.  That’s more than the entire GST revenue of New Zealand. It is more than the entire education budget. And in a single year it is far more than the entire proceeds of the asset sales programme that caused so much pain through the eighties and nineties.
 
Behind this enormous repatriation of New Zealanders’ money is a serious balance of payments deficit. It now stands at $16 billion - that’s about nine per cent of GDP.
 
In other words, our total overseas debt increased by sixteen billion dollars last year.  Debt like this is easy to run up and hard to pay back. It poses a risk for the agriculture sector specifically. Total bank lending to agriculture in April this year was $43.7 billion, or 13.8 per cent of the total lent to New Zealand.
 
Two thirds of that is lending to the dairy industry - at a time when one estimate says Fonterra could be forced to cut its payout from the current $4.55 if our dollar stays over sixty US cents. This would be very hard on some farming businesses that thought the last couple of years’ high prices would last longer.
 
Relief from interest rates would help. As Federated Farmers’ Lachlan McKenzie pointed out yesterday, every one per cent drop in interest you pay on that debt is worth $450 million. That’s a lot of money that comes straight off farmers’ bottom line.
 
How refreshing it is to hear the farming sector focussing on this issue.  In the nineties, some farming leaders used to applaud higher interest rates and the monetary policies that deliberately punished the productive sector.
 
Today, interest rates are too high at a time when banks should be reducing them.
In a recession, while banks around the world have been under pressure, the big banks here have been smirking.
 
In the current environment, a lot of farms are facing a squeeze and they will struggle to meet the payments on their debt.
 
This is serious, and it needs serious attention urgently. I’m not confident it will get it.
I’ll tell you what I would do if I were still the agriculture minister: I would immediately convene a taskforce of the best and brightest in the sector to develop a short-, medium-, and long-term strategy to the deal with the issue.
 
The huge remittances to banks are the result of the Australian banks funding our balance of payments deficit. They are taking an enormous clip of the ticket for doing it.
 
We need to rely more on our own savings, instead of spending the savings of others.
 
And we need some fresh thinking on the balance of payments problem too.

We need a broad-based focus to reduce our imports. We could make a start if we were able to reduce our dependence on imported oil.
 
If we could develop reasonably-priced biofuels and other forms of new energy, and reduce waste energy, we would score a huge opportunity for farming:

• Potentially a new source of revenue for farmers.
• Potential cost-savings.
• A contribution to a better climate and the natural resources our farms depend on.
• And a substantial reduction in our trading deficit with the rest of the world.

 
On top of all these advantages, it would help us to prosper in a world where consumers are becoming more demanding, and asking more searching questions about sustainability.
 
This is partly about how we manage our emissions - but it’s about a lot more than that as well.
 
If New Zealand is going to achieve a higher price for our production than our competitors, then quality and a perceived advantage as being more environmentally responsible will be part of our national brand.
 
As every responsible study shows, clean performance means we need to be responsible about our carbon emissions, too.
 
That’s why the Opposition is taking a constructive approach to working with the government on emissions trading. Only yesterday we voted with the government on a new climate change bill, in a spirit of working in the best interests of all our industry sectors.
 
Some conclusions are inescapable. As a general principle, polluters, one way or another, will have to bear the cost of their emissions.  There are developments on the table, such as Gordon Brown’s proposal yesterday for a global development fund to help poor countries replace their emissions with cleaner alternatives.
 
The world is also moving closer to a global carbon trading scheme. Once that happens, New Zealand taxpayers will not long pay to subsidise polluters, as we are now. Any government of New Zealand is going to have to deal with emissions if we are a prudent country. What won’t work is hoping that the problem goes away.
 
And I continue to believe environmental sustainability is a competitive advantage for New Zealand. When you see the ugly factory farms in many parts of the world, and you compare their practices to the clean and open countryside we farm in New Zealand, you can see we have a huge opportunity.
 
I know there are few New Zealanders as passionate about the land as our farmers.
And so as the world cares more about the good of our planet, this should be an enormous opportunity for us.
 
It will require care to seize the opportunity, though, because it is implicit in seizing the opportunity that we will live up to our promise.
 
We can’t just say we are cleaner and higher quality than our competitors. We have to BE it.
 
Consumers will not be impressed if we are seen to be dragged into better environmental performance kicking and screaming.
 
If you want to know what happens when change takes too long, ask the pork industry how its animal welfare standards are perceived by the public.
 
Now I support giving that sector time to change. I also hope that a review of the animal welfare code for pigs this year will impose higher standards. But none of us should be uncertain about the costs to the entire industry of the strategy it followed.
The public saw it as too slow to change, instead of adopting a strategy of having the highest quality.  The reputational damage has made the pork industry the subject of more letters to my office than anything else right now, including the smacking referendum.
 
If it can happen in that sector, it can happen in any other. We cannot be seen to be the source of dirty water or unsustainable users of resources.  We cannot be seen as polluters when our industry is based on healthy growth, on food and on good health.
 
So overall, we have an environmental challenge.  We have a challenge to the industry’s financial stability. We have a squeeze on its cost structure. We have a struggle in global markets.
 
The solutions will be discovered by science. Sustained, deep and ongoing investment in research and development in the industry is crucial - to identify cost-saving opportunities, and to identify new processes and new products that will extract more value.
 
As has been well rehearsed now - I put my stake in the ground for research and development in the primary industries sector.  The NZ Fast Forward Fund was a commitment of seven hundred million dollars, which would earn interest and private sector partnerships and grow to be worth two billion dollars over its lifetime.
It’s been replaced by a relatively puny seventy million dollar annual commitment - for just four years.
 
There is no guaranteed long term commitment. There is no chance to earn interest and fund very large projects from an annual appropriation when science has to compete with every other demand on taxpayers’ purses.
 
It would be unfortunate if the message that politicians drew from this episode is that there is no political problem with cutting r&d. I believe there is a huge divide over this issue between the different sides of politics. Our side says the way out of our problems is investment in r&d and people. Our side says the way out of our problems is investment in knowledge, training and skills.
 
This is an important debate, and it is crucial for farmers. But whatever choice government makes, it is now up to our agricultural industry to lead investment.
 
Investment in science and in research and development is the most significant commitment we can make across all of our agriculture, to determine our own future.
 
Investment in marketing, and in market-responsive structures. Investment in talent, in creativity and in the strong communities that attract people to rural lifestyles.
 
Our r&d, our talent, and the structures underpinning them give our agriculture a competitive advantage over competing countries with temperate climates. Our competitive advantage is our science and research. It is our people and our lifestyle.
 
Our competitive advantage in the future will be in our superior products. In costs driven down by innovation, not exploitation. In processes focused on delivering a better product to consumers. In environmental sustainability driven by science, not wishes.
 
And the agriculture sector is going to have to lead investment to keep us at the forefront in all these areas, because innovation is not going to come from anywhere else.
 
It won’t happen on its own.
 
And it isn’t happening fast enough in other parts of the economy. When you look through our economy to where the wealth has been created, there are some pretty compelling facts to confront. One is that our corporate sector has spent most of the last twenty years - overall - destroying shareholder wealth.
 
When you compare stock market results to the performance of farms and agri-business, you get a clear picture of where the strength of our economy resides. I understand the stock exchange chief executive was invited along to Treasury recently to lecture State Owned Enterprises about behaving more like the corporate sector.
If they were to behave like our corporate sector, they would destroy value.
 
They would grow productivity more slowly than comparable overseas businesses.
They would focus not on doing a better job, but on sending more of New Zealanders’ cash to overseas owners.
 
The stock markets agenda is to lobby for more privatisation of our SOEs, rather than focusing on growing more successful New Zealand corporates that deliver returns to shareholders by doing well in global markets.
 
I would have more New Zealand corporates behave more like our most successful agri-businesses. Then they would grow productivity faster than the average of the New Zealand economy. They would focus on expanding their international connections. They would grow the scale and and expertise they need to be world class businesses. They would build on genuine, science-led innovation and send the returns back to creative and entrepreneurial businesspeople in the many communities around New Zealand that are at the heart of our agriculture.
 
As I started out saying - there is a lot to be confident about in our agriculture. But I am a realist too.
 
Realistic that we need to deal with the massive debt problem, and the too-high interest rates we are paying to Australian banks. $11.7 billion a year in profits and interest payments? That’s where earnings from agriculture are going.
 
Realistic that we need to invest in r&d and creativity to come out of tough global conditions stronger.
 
Realistic that we need to turn environmental challenges into an opportunity.
 
And realistic that we can do all of this.
 
But it will take a fierce commitment of energy and co-operation across the sector.

I saw a comment from Don Nicholson that New Zealand's best exporters are found out there, in the fields and paddocks of New Zealand under rain, sun or snow working every single day, to bring wealth to New Zealand. I agree with that, and it’s up to the rest of us to match that commitment and to add our work to their success.

Tags: Agriculture, Economy, Banks, Interest rates, Biofuels, Oil, Environment, Research & Development, Climate change

National is talking big about agriculture, but it’s running up a surrender flag with no new ideas, Opposition agriculture spokesperson Jim Anderton says.

“Today John Key billed his speech as a major statement on the economy, but he had no new ideas while unemployment is increasing.

“Unemployment in a region like Gisborne increased from 3.8% in 2006 to 7.8% in March this year and it will be inevitably higher now. Yet while unemployment is rising quickly in regional New Zealand, National has no ministry or policy for regional development or industry development. They never did and they don’t have now.

“National imposed a massive tax increase on research and development and it cancelled a two-billion dollar partnership between the government and private sector to invest in primary sector innovation.

“While John Key talks about the economic performance of agriculture, he has no idea about why our farms, businesses and homeowners are paying much higher interest rates than Australians, when the same banks are doing the lending.

“John Key is all talk and no jobs,” Jim Anderton said.

Tags: Agriculture, Jobs, Economy, Gisborne, Regional Development, Research & Development

Contact between Federated Farmers and banks over high interest rates for farm lending is welcome, and farmers should bring their concerns to the multi-party inquiry, Opposition agriculture spokesperson Jim Anderton says.
 
Federated farmers says its economists calculate that floating rates account for about $6.6 billion of the $45 billion of rural debt and “floating mortgage rates are higher than they could be.”
 
Three parliamentary parties, Labour, Greens and the progressives are holding an inquiry on the topic and Jim Anderton wants banks to front up and answer farmers’ concerns.
 
“Banks need to explain why their interest rates haven’t come down as fast as the Reserve Bank has been bringing down the official cash rate that banks pay the Reserve Bank for their deposits. Not even the Governor of the Reserve bank can understand why they are not reducing their rates.
 
“Farmers are the backbone of the economy, and the pressure high interest rates are causing farmers is pressure on New Zealand’s entire economic development.”

Tags: Agriculture, Banks

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