Common sense on emissions?

November 17, 2014

Dare we hope for some common sense on emission targets?

Prime Minister John Key says New Zealand may get a dispensation on climate change targets because we produce dairy.

“I think everyone pretty much universally accepts we need to deal with the issue of climate change. On the other hand, globally 14% of the emissions come from agriculture, and no one wants to see a reduction in the volume of food. In fact they want to see an increase. And I think what leaders are practically saying is let’s be a bit pragmatic about this. Let’s find a technological solution for agriculture, absolutely let’s try and find what emissions are about,” the PM says.

New Zealand can’t “force the pace” on reducing emissions, Mr Key says.

“When India and or say America and China sit down and genuinely say we are going to reduce our emissions as they did the other day off the 2005 target by 26 to 28%, that matters because they’re massive emitters, and they also force everybody else along. I don’t think New Zealand can force the pace. I agree with the view that says we have to do our share. We have to be seen as responsible in this area, and I genuinely believe we are.” . . . 

 Rabobank’s F20, an international agribusiness forum held in Sydney last week, focussed on food security and the need to double food supply by 2050 if we’re to feed the world.

That won’t be achieved by handicapping efficient producers. It would result in a huge economic loss with no global environmental gain as production loss from New Zealand would be replaced by less efficient production in other countries.

New Zealand’s carbon emissions are tiny on a global scale but the country is playing its part.

The Greenhouse Gas coalition, which was instigated by New Zealand is getting international collaboration on research which will reduce emissions without threatening food security or damaging our economy.

 

 


On the cusp

November 14, 2014

Transfer Tasman asks is economic transformation finally being delivered?

During the election campaign John Key said he believes “NZ is on the cusp of something special” (as Trans-Tasman reported September 18). He was ridiculed by Labour (look what happened to them), by NZ First leader Winston Peters (who was predicting to his suck-it-up audiences the economy would crash in November) and by various “woe-is-me” pundits like Rod Oram. But now some hard data is emerging to suggest Key has a better sense of the way the economy is moving than his critics. Job statistics last week showed NZ’s unemployment rate is now lower than Aust’s, despite inwards migration reaching new highs. Canterbury is driving jobs growth, up 11% over the past year, and reporting the lowest unemployment across the regions at 3.2%.

This week the share market NZX top 50 index punched up to the 5500-mark, a new record high. Investors are chasing high dividend yields, and some of the big companies sitting on cash mountains are obliging them: witness Wellington-based Infratil this week paying a special dividend of 15c a share worth $84m on top of its interim dividend of 4.5c. Other evidence came from the ANZ Bank which headed up its latest Truckometer readings “High speed zone.” The two traffic indices, one concurrent with GDP, and the other providing a 6-month lead on GDP growth, both rose strongly in October, suggesting solid momentum over the second half of the year and into next.

ANZ economist Sharon Zollner in her commentary says “it is going to take more than a halving in global dairy prices to stop this juggernaut.” She sees the NZ economy continuing to vie for the lead in the OECD growth race. But the real kicker in all this is with annual CPI inflation running at just 1%, there is no sign of the engine overheating. This is why NZ might be on the cusp of something special – sustainable growth over the cycle above the long-term trend, without the Governor of the Reserve Bank having to slam on the brakes, and bring the economy to a shuddering halt. So this may be the economic transformation, long heralded, but at last being delivered.

The cycle of boom and bust is all too familiar in New Zealand.

The challenge of sustainable growth without inflation has proved too difficult in the past.

This time there are encouraging signs it could be achieved.

 


Farming business not bet

November 13, 2014

Dairy farming is ‘no bet’:

Federated Farmers says it’s not the government betting on the farm, but instead farmers making sound market decisions. This comes after Green Party co-leader, Dr Russel Norman, said the government has ‘bet on the farm’ with dairying being a ‘one trick pony,’ which is producing a lower tax take and jeopardising a budget surplus.

“Dr Norman is ill-advisedly attacking New Zealand’s most successful export industry,” says Andrew Hoggard, Federated Farmers Dairy chairperson.

“Primary exports are an increasingly large share of our merchandise export returns and dairy an increasingly large share of farm production.

“The signals from the market are that growing middle classes, especially in South Asia, are developing a sustained taste for dairy products, and New Zealand is a respected source of those dairy products.

“Our dairy farmers are rationally taking these market signals on board and not being diverted by the inevitable short term fluctuations, or in Dr Norman’s terms, ‘a bet’

“The reasons for the present market slippage are clear.

“We didn’t cause Ebola in West Africa and our dairy farmers didn’t invade Eastern Ukraine either, but these two disparate events have cost us hundreds of millions of dollars. That same risk would exist if we exported mobile phones or software.

“Yes, the world produced seven billion litres more milk last season in an exceptional run the world-over. While that put a lid on dairy price growth, sanctions following events in the Eastern Ukraine released some three billion more litres and now you’ve got Ebola too.

“No question this season is a poor one. It ranks down there with 2005/6 but that also means the many seasons around them weren’t too shabby. Seasons that have helped to make this country the third most prosperous on earth according to Legatum.

“Unlike the past, our guys have been saving the gains while investing into productivity and environmental improvements. The ASB reckons, according to NZ Farmer, that agricultural bank deposits over the year to the end of September totalled $7.2 billion.

“Within the past few weeks RadioLive’s Duncan Garner has been on-farm and said this after visiting one; “So a bit of a message to the Greens, this guy wanted to pass on a message to the Green Party that they spend hundreds of thousands of dollars on what they do with their waste, and I thought it was quite brilliant, actually”.

Andrew Hoggard however doesn’t take too much issue with Russel Norman that the dairy industry might to likened to a pony.

“If he insists that it is a pony he should acknowledge that it is a very strong pony, it’s a stayer and it can perform economic miracles for our nation that Dr Norman would do well to get acquainted with,” Mr Hoggard concluded.

Season Average Dairy Company total payout ($/kg milksolids) Dairy Company payout (inflation adjusted)a
2003/04 $ 4.25 $ 5.34
2004/05 $ 4.58 $ 5.60
2005/06 $ 4.10 $ 4.83
2006/07 $ 4.46 $ 5.14
2007/08 $ 7.67 $ 8.51
2008/09 $ 5.14 $ 5.59
2009/10b $ 6.37 $ 6.82
2010/11b $ 7.89 $ 8.02
2011/12b $ 6.40 $ 6.44
2012/13b $ 6.18 $ 6.18

Fonterra’s milk price payout for the immediate past (2013/14) season is $8.40 kg/MS.
Source: DairyNZ Dairy Statistics for 2012/13
a Weighted to give real dollar values using the Consumers Price Index for the end of the June quarter. Sourced from Statistics New Zealand; Excludes dairy company retentions and deduction for DairyNZ Levy.
b Average dairy co-operative payout (Fonterra, Tatua, Westland)

 The Green Party doesn’t like dairying and it doesn’t like the government.

But neither farmers nor the government are betting on the industry.

Since National came to power in 2008 it’s introduced several measures to help business, foster trade and lower the burden of government.

Meanwhile farmers have got on with farming, accepting the reality that markets, the weather and various other factors beyond their control will affect the payout.

Last season we got a record high payout, this season will be much more modest but the medium to longer term outlook is still bright for dairying and the export income it earns for New Zealand.

 


Challenge is trade

October 18, 2014

Prime Minister John Key was asked about advice for other leaders and said:

I think the big challenge for everybody is international trade,&rdquo he says. If you want to look at what drives economic outcomes, it is access to markets, it is education – the skill base of your people – and flexibility of your labour markets. All the other factors will take care of themselves.” . . .

This explains the government’s prioritising free trade agreements, education and labour law reform.

The quote is a small part of an interview in The Telegraph headlined: John Key: the poor boy who saved New Zealand’s economy.

I recommend reading it in full.

 

 


The sky isn’t falling

September 25, 2014

The cut in Fonterra’s payout isn’t good news but it isn’t the disaster that many are proclaiming.

Nor was the timing the political conspiracy that Winston Peters suspects:

Just four days after the General Election the true state of the dairy industry is revealed – returns for milk that the New Zealand economy is reliant on have slumped.

“Questions need to be asked by New Zealand voters on why they were not informed about this serious decline before Election Day,” says New Zealand First Leader, Rt Hon Winston Peters.

“The drop in payout is a $5 billion hit to the New Zealand economy and 2 per cent off nominal GDP.

“It appears the government and Fonterra joined forces to keep the facts hidden from voters? . . .

Fonterra makes announcements on its previous season’s final payout and any revision to the current one at this time every year.

The record final payout for last season was no surprise. Nor was the cut in this season’s forecast.

Anyone with even cursory knowledge of the global milk market was expecting it after successive drops in the GlobalDairyTrade price index and with the knowledge that the milk supply here and around the world was outstripping demand.

Lower income will impact on farmers, those who service and supply them and the wider economy but the news isn’t all bad.

The value of our dollar fell after Fonterra’s announcement which will help all exporters.

And while dairy prices are falling, demand and prices for sheep meat and beef are improving:

Rabobank New Zealand CEO Ben Russell said the softening in overall rural confidence was clearly a reflection of the impact of the bearish global dairy outlook and lower milk prices on dairy farmer sentiment.

“Falling dairy commodity prices are the overwhelming factor at play here. At the time of the survey being taken, the globalDairyTrade auction prices fell six per cent, taking them down 45 per cent from their February peak,” Mr Russell said.

“And with global dairy supplies continuing to increase from all key exporting regions, a significant price recovery is not imminent.

“That said though, farm commodity prices move in cycles and, clearly, dairy commodity prices are entering a lower part of the cycle right now. While this is always a difficult time, the important thing to remember is the medium to long-term picture for the dairy industry is strong.”

Mr Russell said dairy farmers were also cautious with the dairy industry approaching a critical time in the year, with the peak production and selling period for New Zealand milk just weeks away.

The dampened confidence among dairy farmers was reflected in their business performance expectations in the coming 12 months.

Dairy farmers had the most pessimistic outlook of their own farm business performance. However, Mr Russell said, it should be noted this was coming off record highs for business performance expectations among dairy producers over the past 12 months.

The latest survey found almost half of dairy farmers surveyed (47 per cent) expect the performance of their own farm business to worsen in the coming 12 months, up from 30 per cent with that expectation in the previous quarter. Just 20 per cent expect an improvement in performance, compared with 27 per cent previously. A total of 32 per cent expected performance to remain stable.

While there was also a tempering in sentiment among beef and sheep farmers, after reaching three-year record highs in the previous survey, confidence in this sector remained at overall strong levels.

Mr Russell said lamb prices were up on the previous season and beef prices were currently hitting record highs due to tight global supply.

In terms of expectations of their own businesses, the number of beef and sheep farmers expecting improved performance declined from 57 per cent last quarter to 48 per cent this survey. However, the percentage expecting their farm business performance to worsen remained stable, at just seven per cent. A total of 42 per cent anticipated business performance would remain at the same level.

Despite the decline in overall confidence, New Zealand farmers’ investment intentions were overall stable, the Rabobank survey showed.

Sheep and beef farmers increased their investment appetite – with 43 per cent indicating they intend to increase investment in their farm businesses over the next 12 months, up from 37 per cent previously. Only six per cent intended to decrease investment (compared with four per cent in the past quarter).

For dairy however, investment appetite had waned, with 21 per cent intending to invest less in their businesses (up from just seven per cent with that view in the previous survey) and 20 per cent expecting to increase investment (down from 27 per cent). This was the lowest level of dairy farmer investment intentions in more than five years (since August 2009).

Mr Russell said this change in sector investment dynamics may be an early indication the decline in the national sheep flock and the rate of dairy farm conversions were slowing. . .

Federated Farmers says farmers will be down but far from out:

Fonterra Cooperative Group farmer shareholders will welcome confirmation that the 2013/14 season has ended exactly as promised with a total payout of $8.50 per kilogram of milksolids (kg/MS).  That good news is balanced by a sharp revision downwards in the 2014/15 forecast.

“The 2014/15 season which offered so much has turned into a breakeven one for not just Fonterra suppliers but the entire industry,” says Andrew Hoggard, Federated Farmers Dairy chairperson.

“Like Synlait’s revision this week, there is a ‘good news and bad news’ dimension in this.   The good news is that we take the 2013/14 confirmed payout and the lowest revised forecast for 2014/15, we are talking an average total of $7kg/MS across the two seasons.

“A $5.30 kg/MS milkprice is also a lot higher than some commentators had expected if the forecast sticks.  If being a little word with a big meaning.

“Losing 70 cents kg/MS on the milkprice is really going to hurt.  Farmers will be kicking capital works into touch and will be pruning herds to rid themselves of any passengers.

“Speaking to DairyNZ, farm working expenses this season, before depreciation and interest payments, are expected to be around $4 kg/MS this season.  Feed, fertiliser as well as repairs and maintenance are going to be cut back.  We’ll only do what needs to be done.

“What we know from DairyNZ is that two-thirds of dairy farms have working expenses of between $3.25 and $4.75 kg/MS.  Of course when you start paying back the bank manager, the average cash costs on-farm head up to $5.40 kg/MS.

“As you can tell from what the forecast currently is, the current surplus is a wafer thin 15 to 25 cents kg/MS.  Expressed as retail milk, that’s about 1.25 to 2 cents a litre this season.

“It means that upwards of a quarter of our guys will be making a loss this season. 

“We also believe that unlike the Global Financial Crisis, dairy farmers have been listening and have focussed on building financial freeboard.  Sadly for some farmers, they’ll have to dip into that big time.

“Federated Farmers’ advice is to watch costs but to keep your bank, farm consultant, accountant and family fully in the loop.  Take a no surprises approach to get through.

“This season has been a perfect one for global milk with ideal conditions everywhere compounded by civil unrest in the Middle East and dislocation of European milk due to what is happening in Eastern Ukraine.

“We can only hope there is no more bad news but I am optimistic we may be back above $6 kg/MS for 2015/16,” Mr Hoggard concluded.

Agricultural prices are always cyclical.

Dairy farmers creamed it last season, now it’s sheep and beef farmers who have a brighter outlook. Both know that what goes up comes down and what comes down goes up again, sooner or later.


Highest annual GDP growth for 10 years

September 19, 2014

Another reason to vote National for strong, stable government and a growing economy:

New Zealand continues to enjoy one of the fastest-growing economies in the developed world, confirming that the Government’s sensible economic programme is taking New Zealand in the right direction, Finance Minister Bill English says.

“It’s only through a strong economy that we can provide New Zealanders with new jobs, higher incomes and opportunities to get ahead,” he says. “The Government’s economic programme is successfully delivering those things and families can now look forward to the future with some confidence if we stick with that programme.”

Statistics New Zealand today reported gross domestic product expanded by 0.7 per cent in the June quarter. This took annual growth – from the June quarter 2013 to the June quarter 2014 – to 3.9 per cent – the highest growth rate for 10 years and the highest so far reported by OECD countries. Average annual growth was 3.5 per cent.

Mr English says New Zealand’s challenge is to build on the solid foundations provided by the growing economy.

“It’s pleasing to see the good progress we have made as a country over the past few years. The economy is growing, the Government’s books are on track to surplus and another 83,000 jobs have been created in the past year. But one or two years of growth will not change New Zealand’s economic prosperity. We need to stay on course to really lift our long-term economic performance.”

Growth in the latest quarter was driven by construction activity, up 2.2 per cent, business services, up 4.2 per cent, and retail trade and accommodation, up 1.4 per cent.

New Zealand’s 3.9 per cent GDP growth in the year to June compares with 3.1 per cent in Australia, 3.2 per cent in the United Kingdom, 2.5 per cent in the United States, 2.5 per cent in Canada, no growth in Japan and 1.3 per cent in Germany. Average growth across the OECD was 1.9 per cent.

National is delivering one of the strongest growth rates in the developed world. Party Vote National to keep the economy strong. #Working4NZ ntnl.org.nz/1wtJgA2


Feds wary of Greens

September 10, 2014

I’d add Finance to that:


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