False friends to farmers

In the bad old days a downturn in dairy prices would have led to government “doing something”.

Whether that something would be the right thing is moot.

Thanks to the “failed” policies of the 80s and 90s, the economy adjusts without intervention as Finance Minister Bill English pointed out in Question Time yesterday.

A drop in revenue of this magnitude in the dairy sector will have flow-on effects to the wider economy because the dairy sector makes up about 20 percent of New Zealand’s exports and around 5 to 6 percent of the total economy. The automatic stabilisers, though, are providing support to the dairy industry and to the benefit of other industries. For instance, the New Zealand dollar is down 25c against the US dollar for the last 12 months, and this underpins the returns of all exporters, not just those dealing with low prices. The Reserve Bank has cut interest rates, the overnight cash rate, to 3 percent and indicated this may fall further. The Reserve Bank’s most recent forecasts of the economy show that the economy is growing around 2.5 percent a year, which is solid, sustainable growth. . .

During the ag-sag of the 1980s, when all farming was really in crisis, we were paying more than 25% for seasonal finance and mortgage rates weren’t much lower.

The wider economy was doing badly too, with inflation raging.

James Shaw : Has the Minister of Finance received any reports that show that the New Zealand economy will face a $7 billion hole as a result of low dairy prices, and what specific measures is he putting in place to ensure that distressed dairy farmers are supported through this commodity price crash?

Hon BILL ENGLISH : Yes, I have seen those reports and I am pleased the member asked about them. In order to understand the context of this, that $7 billion reduction is a reduction on nominal GDP of over $220 billion. When you look at it that way, you can see that it is going to have a negative effect on the economy, but a containable effect, and we can continue to grow at moderate rates. In respect of dairy farmers in distress, Governments have had in place for some time measures for those families that are in severe financial distress, but generally the Government would not be looking to financially support dairy farmers because of low prices.

James Shaw : Does he regret telling Radio New Zealand in March that the concentration of capital in dairying was “not a bad thing”, and how will he now ensure that this over-allocation of resources into one sector does not now put out of work thousands of farm labourers, retailers, contractors, and suppliers who all rely on dairy farms?

Hon BILL ENGLISH : The flow of capital into the dairy industry has been based on a longer-term confidence that across the Asia-Pacific region the fast-growing class of middle-income consumers will show more demand for dairy and other protein products. That is a view of the world that is not really disputed by anyone in particular. In the short term, however, the reduction in income will of course have an impact on employment directly on dairy farms, but also in the supporting towns and services. The measures announced by Fonterra last week and the positive indications from the banks that they will finance cash flow for dairy farmers over the next 12 months mean that it will not be as bad as the straight drop in income indicates, because dairy farmers have to spend $4.50 a kilo just to get the milk on the truck.

Tim Macindoe : What implications do recent developments in the international economy have for New Zealand’s economy?

Hon BILL ENGLISH : Although there are risks in the global economy, it is evident that growth in our trading partners is holding up reasonably well—in the range of 3 percent to 4 percent. When we look back through the history of New Zealand’s growth patterns, it is reasonably clear that when our trading partners are growing at that kind of rate—3 to 4 percent—that is a positive indicator for sustainable, moderate growth in New Zealand of around 2 percent to 2.5 percent, which is our long-term trend growth rate.

James Shaw : Given his previous answer that investment in dairying was based on a long-range view of the sector, what work has he done to understand whether the dairy price collapse is actually a structural long-term change in the market rather than a cyclical short-term change?

Hon BILL ENGLISH : We try to make an assessment about that, the same as everyone else. It is pretty evident, though, that no one is quite sure. It is likely that dairy prices will not go back to $8 a kilo. In fact, it may well be not a bad thing because what is evident is that the price going that high has stimulated not just positive supply but probably excess supply. No one quite knows the answer to that question, but talking to the people whose capital investment is at stake and whose livelihoods are at stake, they maintain confidence that prices will rise from where they are—in fact, they have to, because they are below the cost of production—and they maintain a positive view about where they put their investment.

Grant Robertson : Has the Minister of Finance seen this report about the economy under his watch, which features a boat that has run aground?

Hon BILL ENGLISH : Yes, I have, and I thought how similar it is to the fate of the Labour Party. [Interruption] . . .

Hon BILL ENGLISH : In the interest of assisting the vice-great helmsman, as I understand it, that is the Westpac Economic Overview, and I note that its forecasts are for between 2 percent and 2.5 percent growth over the next 3 years, despite the fact that it says there is going to be a recession. .

But the Green co-leader still thinks it’s up to the government to do something.

James Shaw : Is he aware that organic milk powder commands up to six times the price premium of conventional milk powder on international markets, and will he turn this crisis into an opportunity by helping move more dairy farmers into organic milk production?

Hon BILL ENGLISH : If the member is correct that farmers can earn six times as much by selling their milk as they earn from organic milk, then I am quite sure they will.

So far organic milk hasn’t got much traction, but if there really is that sort of opportunity it’s up to farmers and processors to make the most of it without interference from politicians.

James Shaw : When he says that this is not a crisis and that dairy is just 5 percent of the economy, is he saying that when the All Blacks lose it just does not matter because they are one of thousands of sports teams playing over the weekend, many of which are winning?

Mr SPEAKER : In so far as there is ministerial responsibility, the Hon Bill English.

Hon BILL ENGLISH : Clearly, the Greens like New Zealanders being able to watch the All Blacks lose, but they do not them to be able to watch them win in the Rugby World Cup. I mean, when people use the word “crisis”, well, the Opposition should explain what that means. If those members think it means that dairy farmers are sitting around with their heads in their hands, paralysed by low prices, then they are wrong. Actually, they are getting up every morning, going out into the cold, wet weather, doing the calving, milking the cows, and spending the money they need to get their production moving and get their product to world markets. Calling it a crisis seems to me to be particularly useless. In fact, it downgrades the resilience and the responsiveness of not just the dairy sector but households right across New Zealand to a bit of economic pressure, which they can handle.

It’s the sad reality of Opposition to try to make the bad times worse. Thankfully most dairy farmers are too busy with calving to hear them.

3. ANDREW LITTLE (Leader of the Opposition) to the Prime Minister : Does he stand by his statement that New Zealand is on the “cusp of something special”; if so, was that “something special” rising unemployment along with plummeting dairy prices?

Rt Hon JOHN KEY (Prime Minister): Yes, I stand by that statement, for two reasons. The first is that I am positive and aspirational for New Zealand—

Hon Members : Ha, ha!

Rt Hon JOHN KEY : —unlike some people who are always talking the country down. But, actually, the second reason I stand by that statement is that I made that statement on a couple of occasions during debates in the 2014 general election, and we were on the cusp of something special: the worst pounding the Labour Party had ever had—

Mr SPEAKER : Order!

Andrew Little : Given that the number of people who are unemployed has risen by 13,000 and that unemployment in Taranaki alone is now at 7 percent, and there are hundreds set to join them due to major job cuts announced recently, is it not the truth of it that he is sending more and more families to the cusp of poverty?

Rt Hon JOHN KEY : Firstly, the Government has created—along with the people of New Zealand, of course—148,000 jobs over the last 2 years. But I note that the Labour Party has an interest all of a sudden, apparently, in farming. So when prices go up, it is nothing to do with the Government; when prices go down, it is everything to do with the Government! Those members are not asking: “Why are beef prices high? Is that the responsibility of the Government?”. But I make this simple point: the Labour Party wanted to put a huge number of costs on farmers. That was its policy during the election.

Andrew Little : Given that Westpac says that there will be no more job growth this year, and the economy has grown at just a quarter of the expected rate, has he not driven the economy to the cusp of a recession?

Rt Hon JOHN KEY : If the member goes and reads the Westpac report, the glimpse that I had a look through, it showed that growth will be between 2 percent and 2.5 percent over the next 3 years.

Andrew Little : Why has he failed to invest in diversifying the economy, neglected regional infrastructure, and turned a blind eye to the 35,000 jobs lost in manufacturing since 2008?

Rt Hon JOHN KEY : The member needs to get out a bit more—it is as simple as that. If you go around New Zealand and have a look at what is happening around New Zealand, you will see just how diversified the economy is. Tourism spending alone is up over 20 percent from last year, at over $8 billion. The information and communications technology sector is doing well. Kiwifruit growing is back from the lows of Psa. Beef farming is doing extremely well. Horticulture is doing well around New Zealand. Manufacturing—for 33 months in a row the performance of manufacturing index has been expanding. The services sector, export education—the only people who think the economy is solely dairy are in the Labour Party, and it wanted to tax those people— . . .

Little tried again.

Andrew Little : Given that dairy farm prices have already fallen by 18 percent since peaking last October, what preparations has his Government undertaken for dealing with increased sell-offs by insolvent farmers who cannot make ends meet with dairy prices so low?

Rt Hon JOHN KEY : What we have done over the course of the last 7 years, after straightening out the mess we inherited from Labour and with our very strong economic management, is to make the economy more efficient and more productive. Here is a bunch of things that we have not done: we have not brought the emissions trading scheme in straight away, we have not put a large tax on water irrigation, we have not put a capital gains tax on every farm, we have not increased the minimum wage to two-thirds of the average wage, and we have not taken money out of the Primary Growth Partnership. We are in favour of the Trans-Pacific Partnership. The Labour Party—

Mr SPEAKER : Order!

Rt Hon JOHN KEY : —is claiming it is the farmers’ friend. They were the policies it took to the election.

Andrew Little : What is the Government’s response to the reports that, contrary to Bill English’s claims, the banks are already forcing mortgagee sales on indebted farmers, and what is to stop more of these farms being bought by overseas investors?

Rt Hon JOHN KEY : Firstly, I am sure that the banks will work closely with farmers, as they typically do, because there is approximately $35 billion worth of debt, I think, sitting on dairy farms. One of the things the bankers will be sitting there and looking at is they will be looking at the policies of the National-led Government, which has supported the farmers; they will be looking at the proposed policies of Labour, which is anti-farmers; and they will be saying “Thank goodness National is in Government.”

The Opposition parties are trying to act like farmers’ friends but you don’t need a long memory to know they’d be false friends.

This time last year they were in campaign mode threatening to add all sorts of taxes, increase compliance costs and complexity and generally make farming less profitable, more difficult and less enjoyable.

And while they keep saying the government should do something about the payout  I haven’t heard  a single farmer echo them.

 

3 Responses to False friends to farmers

  1. Will Dwan says:

    And as far as I am aware, those taxes and compliance costs are still policy.

  2. Will Dwan says:

    Labour/Green policy I mean.

  3. tom hunter says:

    This time last year they were in campaign mode threatening to add all sorts of taxes, increase compliance costs and complexity and generally make farming less profitable, more difficult and less enjoyable.

    That’s because back then we were rick pricks who needed to be taken down a peg or two, and also because we had grown fat on the land by “externalising” the costs of our environmental destruction… yada, yada, yada.

    It’s like I keep saying to DK on this blog: who do they think they’re fooling?

    Pity that National is only a few steps behind them.

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