Sunset, sunrise

David Lange wasn’t popular with farmers struggling with the ag-sag and did nothing to improve their opinion when he described farming as a sunset industry.

Fortunately he was wrong, the sun is rising again:

Despite one of the toughest seasons in memory, the agricultural sector’s contribution to the export economy has maintained its high, according to the latest Statistics New Zealand Overseas Merchandise Trade statistics.

“Every New Zealander can be happy with this result, which follows December’s positive figures,” says Philip York, Federated Farmers economics and commerce spokesperson.

“Merchandise exports for the year to December 2010 were up 9.6 percent to $43.5 billion overall. This boost was led by dairy and forestry which were up 29 percent and 27 percent respectively, great numbers in these tough economic times. . .

In spite of drought, floods and snow in 2010:

“More than half of the total exports for the year came from agricultural exports. Out of the top ten exports, agriculture accounts for an astonishing 74 percent, or $20.9 billion out of $28.1 billion, underlining the sectors importance to the national economy. . .

However, higher prices for exports follow through to the domestic market and the NZIER says higher food prices will harm the economy.

There are winners and losers on the back of high food prices. One view is that high food prices are great news for New Zealand, as it is primarily a food exporter. Higher prices increase the revenue generated from our agricultural products, which flows through the rest of the economy. The flip-side of high prices is that we, as consumers, must also pay them. High prices mean households can buy less with their income, which is bad news for New Zealand.

The NZIER says there are solutions:

    • productive agricultural investment – especially in developing countries
    • trade policy – concluding the Doha round of the World Trade Organisation trade talks will remove trade distorting subsidies and generally lower barriers to food trade
    • reform of grain-based biofuel policies – a number of biofuels are created from food products, such as corn. Policies that subsidise these bio-fuels encourage farmers to switch from supplying food markets to bio-fuel markets. These support policies should be reviewed to consider their impact on food security.

It is also opposed to domestic band-aid solutions:

New Zealand policies should, where practicable, work to support the agenda of the international organisations that specialise in this area.

Trade policy is where this makes the most sense. Actively working to conclude the WTO’s Doha round will, amongst other things, remove the ability of the US and the EU to implement export subsidies. The conclusion of the round will also reduce trade barriers in the world’s protected markets. These reductions will provide opportunities for New Zealand, but they will also benefit producers in developing countries through both increased trade, and increased access to productive investment.

The report also highlights the problems with removing GST from food and says knee jerk reactions should be avoided.

High food prices should be seen as more than just a bonanza for New Zealand exporters. The effect on all New Zealanders needs to be considered. Our modelling shows that the negative impact on households outweighs the benefits to exporters causing a net welfare loss for New Zealand.

Our modelling also shows that no one in the world wins from higher food prices. While the prices may induce more investment in food production, a number of international organisations will also focus on the need to increase productive agricultural investment and remove barriers to food trade.

The experience of other countries during the 2008 food crisis suggests that short-term fixes can be self-defeating. This implies that New Zealand may have to ride out these higher prices, which places further pressure on our shallow and jagged economic recovery.

I might be missing something here, but  isn’t the solution for our, and global wellbeing, not lower prices for food but growing economies that lift incomes?

Hat Tip: rivettingKate Taylor.

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