Farmers on top in two-tier economy

Brian Gaynor thinks the rural sector is showing city slickers the way:

A trip to Dunedin for the South African rugby test last weekend has reinforced the view that New Zealand is rapidly developing a two-tier economy.

On one hand is the rural community which is increasingly inhabited by energetic and entrepreneurial farmers with a long-term perspective.

At the other end of the scale are far too many lethargic and conservative city dwellers who are more interested in trim lattes and recent house price movement. . . 

Unfortunately the country’s rural enterprise has bypassed the NZX because farmers are not convinced of the opportunities offered by our capital markets.

There were a large number of energetic Waikato dairy farmers on the late evening flight to Dunedin for the test match. They talked about their farming operations and the many opportunities they had. A number of them were considering purchasing or leasing additional farms.

They also commented that, in contrast to their parents, they were businessmen rather than farmers and this allowed them to get away for a long weekend.

Farming has always been a business and good farmers have always been good business people. These days the sensible ones realise that doesn’t mean being tied to the farm all day, every day, all year.

Last weekend was in stark contrast to the first weekend in July 1983, when the All Blacks played the British Lions in Dunedin.

The domestic sharemarket, which had surged 39.1 per cent since the end of 1982, had begun its long upward momentum and the urban business community was optimistic and expanding.

The flight to Dunedin 29 years ago was dominated by people from the business, investment, finance and legal sectors.

Few North Island farmers flew to Dunedin in 1983 because the sector was being propped up by Prime Minister Robert Muldoon’s supplementary minimum price scheme and was not in good shape.

In addition, the traditional family farm structure did not allow many farmers to get away for long weekends.

This year, Dunedin seemed to be full of prosperous farmers even though the high New Zealand dollar is supposed to have had a major negative impact on exporters.

By chance I played golf with a Central Otago merino stud and station owner and his son-in-law who had recently returned to New Zealand after a number of years overseas.

The merino farmer was engaging, ambitious, entrepreneurial and the sort of person needed in the urban business community. New irrigation schemes are being developed on his property and a large proportion of its wool is sold directly to Japan, bypassing the traditional auction system.

My golfing opponent sees plenty of opportunities for his business and is not concerned about the high NZ dollar.

He believes that businesses face adverse conditions, whether it is bad weather or a high dollar, and they have to deal with these problems rather than moan about them.

Exactly – in business and in life there are always factors beyond your control. Successful people concentrate on what they can do and influence rather than wasting energy on things over which they have little or no control.

The farmer, or more appropriately businessman, is a man of action. He hits a mean golf ball, was in Auckland last month for the Wallabies test and is off to South Africa for the All Blacks game in Soweto on October 6.

He was quick to note that he will get in some hunting and fishing while in South Africa.

His son-in-law has returned from London where he was employed in the equities division of a large international bank. There are almost no opportunities for his skills in New Zealand, particularly in the South Island, so he is looking for openings in the rural sector.

How many young investment industry people would have been happy to look for employment in the depressed rural sector thirty years ago?

Very few. We lost a generation of young people who thought there weren’t opportunities on farms and in farm support.

They might have been right then, but that isn’t the case now. With farming’s return to prosperity have come new opportunities on farms and in farm support and servicing. That is bringing young people back to rural communities with social and economic benefits for them and the towns which service and supply them.

The new Dunedin indoor stadium, which is a fantastic facility, also seemed to be full of season-ticket holding farmers.

We got a hard time when they discovered we were from Auckland.

They wanted to know why we didn’t build a new stadium on the city’s waterfront when we had the chance. They also wanted to know what Auckland did with all the money it sucked out of the South Island.

The banter was friendly but there is a clear difference between the progressiveness of the rural community and the conservatism of the cities.

Farmers argue that Auckland would never approve a new modern indoor football stadium and it is urban dwellers who are mainly opposed to the Government’s proposed partial privatisation programme.

The rural sector largely supports partial privatisation as long as the Government maintains 51 per cent control.

I’m not sure if there is a rural-urban split on the sale of assets, but farmers know that one way to get through droughts or other tough times is to cash-up non-core investments.

At a post-match function I was approached by two New Zealanders in their early 30s who have lived in the United Kingdom for the past few years.

One of them, who had worked for a large investment bank in London, had returned permanently to New Zealand but was finding it difficult to get a job.

The other said he could never come home because there are no openings for his expertise in the New Zealand finance sector.

The clear message is that the rural economy is confident and on a roll whereas the urban business community is finding it difficult to gain momentum in the more competitive world.

The world needs protein and that’s what New Zealand is very good at producing.

New Zealand’s total exports have increased nearly six fold since 1983, from $7.9 billion to $46.7 billion, while the contribution of meat, dairy and wool has fallen from 53.8 per cent to 37.3 per cent.

This gives the impression that the urban economy is making a greater contribution to exports than it did 30 years ago.

However, the following points should be noted about these figures:

Meat, dairy and wool’s contribution has increased from 34.5 per cent to 37.5 per cent of total exports over the past decade as the dairy industry has gained huge momentum.

If we add logs, Taranaki oil, fruit, wine, fish, casein and Tiwai Point’s aluminium then major exports from the non-urban economy represent 60 per cent of the country’s total exports.

The rural sector has a large trade surplus with the rest of the world while the country’s urban economy runs a substantial overseas trade deficit.

Meanwhile, residential house prices have soared nearly eight fold since 1983, compared with a six fold rise in exports, and that is the most important development as far as many city inhabitants are concerned.

The problem with the housing market is we mainly borrow offshore, through the banks, to inflate house prices and we have to export more and more rural products just to pay the interest on these overseas loans.

In addition, we are making residential property more unaffordable for first home buyers.

Council zoning is at least partially responsible for that though I do have sympathy for the argument against putting houses on productive land.

The final chapter in the Dunedin story is that a number of us stayed on after the British Lions test in 1983 to visit listed companies based in the southern city. In those days Dunedin had its own stock exchange and fifteen listed companies including Alliance Textiles, Arthur Barnett, D.I.C., Doneghys, Hallenstein Bros., National Insurance and Wilson Neil.

The stock exchange is gone and the city now has only BLISS Technologies, Pacific Edge and Scott Technology listed on the NZX.

Businesses and stock exchanges are migrating from smaller to larger urban areas throughout the world but the issue in New Zealand is that business enterprise is moving from the cities to the rural sector and it is not interested in stock exchange listings.

One Waikato dairy farmer remarked on the flight to Dunedin that farmers had a long-term perspective and there was no way that they would allow outsiders to buy Fonterra shares because these non-farmer shareholders would accept the first offer from Chinese interests, just as they will with Fisher & Paykel Appliances.

Who can blame him for taking this point of view?

One reason dairy farmers in New Zealand are doing so well is that most supply a co-operative which means the return to the supplier is of more importance than in companies whose concern is more with shareholders.

We were also in Dunedin for that rugby match with several other farmers as guests of Ravensdown.

In spite of the lower payout and higher dollar, all were positive about farming and many were open to further development and new opportunities.

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