Very unlike Lotto

July 31, 2015

The NBR’s annual celebration of achievement will no doubt attract derision from the usual suspects who don’t understand wealth creation, what it takes and what it provides for others:

. . .  New riches have been amassed, much of it self-made from creating businesses that employ thousands of people here and overseas. . .

The list attempts to quantify the value of people’s assets. It doesn’t measure the value their success provides for those they employ,  for those who service and supply them and for the economic, environmental and social fabric of the country.

There might be an element of luck in any endeavour but the success this list celebrates owes far more to hard work, skill and the willingness to take risks.

Vicki Jayne, who led the team who put the list together, says:

“But in many ways the actual money is not that important. It’s the stories behind it and the fact that these people have achieved a high level of success. You don’t get the money unless you achieve at a high level in the area you are functioning. It’s very unlike winning Lotto.”

While we celebrate success in sport and the arts, the tall poppy choppers too often deride business success.

That’s a pity, not for the money made but for what it takes to make it and what the people who’ve got it do with it.

This year’s list includes farmers among the newcomers:

When it comes to promoting farming investment in New Zealand, Craigmore Sustainables chief executive Forbes Elworthy could hardly have a better pedigree.

Not only has his family farmed in the South Canterbury foothills for five generations but he can also boast a stellar career trajectory that suggests he knows a thing or two about business. . .

Craigmore Sustainables is now responsible for 40 New Zealand farms which, as the company name suggests, are being run according to a series of community, environmental and business principles that have sustainability at their core. . .

A regular speaker at global investment conferences, he champions New Zealand as a safe haven for farming investment and explains why his company emulates “family farmer behaviours” rather than being “too corporate” in its approach.

Three of Craigmore Sustainable’s farms are in our neighbourhood. They’ve made a big investment in improvements to the properties some of which have enhanced the part of the Alps to Ocean cycle way which goes through their land.

A little further north are the van Leeuwens:

Robots, rubber-floored stalls, cows that live indoors and choose when to be milked – South Canterbury farming couple Adriaan and Wilma van Leeuwen are busy pioneering new frontiers in New Zealand’s dairy industry.

Last year, they opened the world’s biggest ever robotic milking operation under one roof in the small settlement of Makikihi. They even have a plaque from global dairy solutions supplier DeLaval to commemorate the event – and it marks a step change in how farms in this country are managed.

A massive barn houses 1500 cows who decide for themselves when they will head off to one of the 24 robotic stalls for a quiet feed while their udders are automatically prepped and milked. No longer having to deal with inclement weather, the cows are more contented, production goes up and employment costs go down. It’s also easier on the environment – the effluent is collected and reapplied to the farm as fertiliser, thus helping to grow the crops needed to feed the herds and make the whole system self-sufficient. . .

Wilma was a finalist in this year’s Dairy Woman of the Year award.

 

 

 

 


Rock star economy will play encore

July 21, 2015

Opposition is a dark place where good is bad and bad is good.

While they’ll never admit it, oppositions can’t really enjoy good news for fear it’s good for the government and  threatens their relevance and they  take a perverse pleasure in bad news in the hope that it will be bad for government and good for them.

That’s why  opposition MPs have been doing their best to talk down the economy and doing a Chicken Little the-sky-is-falling as they over-emphasise the negative impact the sharp decline in dairy prices will have.

Only those who hate dairying and financial success will be happy about the price of milk and low payout, but while dairying is important, there is more to the economy than that and talk of recession is, thankfully, misplaced pessimism.

Growth is slowing but an HSBC economist says  New Zealand’s rock star economy will play an encore cheered on by Chinese consumers.

HSBC co-head of Asian economic research Frederic Neumann said while China’s economy was slowing, along with many other Asian nations, the outlook for New Zealand was still strong.

“The rock star economy will still keep on playing because you guys [New Zealand] are in a sweet spot in terms of having the products that China has an insatiable appetite for,” Neumann said.

In 2014 Neumann’s colleague HSBC chief economist for Australia and New Zealand Paul Bloxham referred to New Zealand as a rock star economy.

However the title has been brought into question recently as gross domestic product growth slows, dairy prices slump, business confidence slips, the dollar falls and Auckland’s heated housing market continues to set records.

But Neumann said New Zealand was simply going through a rebalancing phase, moving away from a commodity dependent economy.

“After years of an overvalued exchange rate you need to have a considerable period of an undervalued exchange rate to get that rebalancing process going.”

Neumann said even if New Zealand did remain reliant on soft commodities that was not a major concern because demand for high quality food from Chinese consumers would grow much faster than the Chinese economy.

“That should be a positive for New Zealand so I’m not terribly worried for the dairy sector or the meat sector over time.” . . .

It’s not hard to find examples of people in difficulty in the best of times and some people are struggling but New Zealand as a whole is not.


Slower growth still growth

July 10, 2015

Chicken Little would feel right at home with opposition politicians and media who are wanting us to believe the sky is falling.

This season’s dairy payout was low and next season’s might not be much better but banks aren’t going to be forcing farmers out of business.

Providing farmers are prudent and work with their banks they’ll get through.

Dairying is a large part of the economy and those who service and supply farmers will find business tougher as farmers spend less, but the impact of that still won’t push us into the recession some of the gloomier forecasters would have us believe is coming.

Trans Tasman puts it into perspective:

“Complacency” is what Labour finance spokesman Grant Robertson called John Key’s attitude to the economy this week. His leader Andrew Little went further, saying NZ faces a “perfect storm” of economic bad news. Both called for the Govt to do something, although just what remained a bit vague, apart from a generalised call for more spending to stimulate the economy. Key’s “What? Me Worry?” persona can grate at times, but this is all a bit over-egged.

Much of the egging came from the media, of course, with broadcasters being the worst. One has come to expect a certain amount of arm-wavy economic illiteracy from TV news, but what was more surprising was hearing Radio NZ follow suit, discussing the economy as if a recession 
is imminent.

Essentially there is a buy-in to the Green Party co-leader Metiria Turei’s claim the Govt needs to “start spending again” to avoid a recession. It’s a statement which appears oblivious to the Govt loosening the fiscal purse strings in the May budget, and also of the fact no reputable economist thinks a recession is imminent. Rather, it is a slowdown from a bit more than 3% to probably around 2% growth in GDP.

This means both Treasury and the Reserve Bank’s most recent forecasts are wrong, and not in a minor way. The presumption of 3% GDP growth this year, and for the next two years, now looks just that – highly presumptuous.

But it is not a recession. Growth is still happening. It is just considerably slower than expected. Interest rates and the NZ dollar are adjusting – finally – to take account of this.

Growth may be slowly, but slow growth is better than no growth and still, thankfully, there’s no imminent danger of the sky falling.


Really working for NZ

June 22, 2015

National’s campaign slogan was working for New Zealand and its policies really are:

New Zealand recorded another quarter of continued economic growth, confirming that the Government’s sensible economic programme is taking New Zealand in the right direction, Finance Minister Bill English says.

“A reduction in dairy production contributed to quarterly growth of 0.2 per cent coming in at the lower end of market expectations, but still resulted in annual growth of 2.6 per cent,” he said. “A strong economy provides Kiwi families with new jobs, higher incomes and opportunities to get ahead.

“We are seeing solid, sustainable economic growth that is giving businesses around the country the confidence to invest another dollar and hire another person.”

74,000 jobs have been created in the past year, and average annual wages have increased by $5,700 in the last four years. Treasury forecasts they will rise by a further $7,000 to around $63,000 by mid-2019, considerably faster than inflation.

“Sustained economic growth is translating into real benefits for New Zealand households. But we need to stay on course to really lift our long-term economic performance.”

The latest quarter was driven in part by the expected reduction in dairy production as a result of drought conditions, with agriculture down 2.3 per cent. Mining activity was down 7.8 per cent, whereas retail trade and accommodation increased 2.4 per cent and construction was up 2.5 per cent.

Average annual economic growth was 3.2 per cent.

“The lower dairy output was in line with Treasury’s forecasts, which see the economy continuing to grow at around 2.8 per cent on average over the next four years.

“This results highlights that New Zealand is closely tied to international markets, and risks are ever-present.”

New Zealand’s 2.6 per cent GDP growth in the year to March compares with 2.3 per cent in Australia, 2.4 per cent in the United Kingdom, 2.7 per cent in the United States, 2.1 per cent in Canada, negative 1 per cent in Japan and 1 per cent in Germany. Average growth across the OECD was 1.9 per cent.

Whether you’re an individual, family, business, other organisation or government, careful management of your finances matter not as an end in itself but as the means for doing what you need and want to do.
New Zealand National Party's photo.


‘Choice’ between sustainability and prosperity false dichotomy

June 12, 2015

The ‘choice’ between sustainability and prosperity is a false dichotomy, Treasury secretary Gabriel Makhlouf said in a speech at the Fieldays.

There is a lot more in the speech, entitled Making Informed Decisions about our Natural Resources, which I am reproducing in full:

Hello, it’s a pleasure to be here with so many people who help our primary sector to thrive.

We live in a remarkable country, one that’s rich in natural beauty and wealthy in natural resources. New Zealand has plentiful, fresh water; clean air; fertile soil and a climate well-suited to growing things. We have long coastlines and significant aquaculture resources; sizeable mineral and petroleum reserves; and extraordinary bio-diversity.

 The World Bank estimates that New Zealand ranks eighth out of 120 countries and second out of the 34 OECD countries in natural capital per capita, which helps explain why three-quarters of our merchandise exports are from the primary sector. While primary sector exports may have dipped over the past year, steady growth is expected in the four years ahead.

Of course a big part of those exports come from the dairy industry, and I know there’s concern about the direction dairy prices have been heading recently. The Treasury’s base forecast in last month’s Budget is for dairy prices to recover towards the long-term levels forecast by the OECD-FAO of around US$3,900 per metric ton towards the end of 2016 as supply and demand become more balanced. But like dairy farmers everywhere in New Zealand the Treasury is closely watching the fortnightly auctions and monitoring developments.

We are fortunate to make our living off the land in a land worth living in. But we cannot be complacent if we want things to stay that way. We’re not pristine, and we can do better. New Zealanders have to make well-informed choices about how we conserve, use and manage our natural resources for the greatest overall benefit to society now and into the future.

Today I want to talk about choice.

I want to challenge some false ‘choices’; expose a few choices that we are denied by the systems we have created; and highlight the fact that more informed public debate can deliver us a system with more choice in it.

For a long time discussions over natural resources have been dominated by false dichotomies.

A key example is the supposed ‘choice’ between sustainability and prosperity. It’s nonsense to believe you have to pick one or the other and can’t achieve both.

A more prosperous economy creates higher incomes and jobs for New Zealanders. Higher incomes are linked to better outcomes across a range of economic, social, and indeed environmental measures that matter for living standards. And the Treasury knows that economic performance is not just about prosperity today; it’s also about prosperity tomorrow and the future prosperity of our children. Sustainable growth depends upon good management of our environment and natural resources, and the productivity with which we use these resources. 

Sustainability and prosperity are interconnected in the Treasury’s wider view of wellbeing and are encapsulated in our Living Standards Framework.

This identifies five ‘dimensions’ which we seek to advance when developing policy: sustainability; equity; social infrastructure; risk management; and of course economic growth. When wellbeing is understood in this broader sense, the assumption that there’s immutable conflict between prosperity and sustainability just doesn’t stack up.

Norway is a good example of a country that has grown wealthy from its natural resources – in its case oil and gas – while playing a pioneering role in environmental protection and sustainable development. As the OECD notes, the Norwegians have simplified their regulatory procedures related to environmental permits and reduced the administrative burdens people face.  Enforcement is risk based and better targeted.

Closer to home, many Māori-led businesses are demonstrating how prosperity and sustainability work together by embracing the concept of kaitiakitanga. They take a very long-term view and manage their assets in a way that meets their aspirations for people, the land, rivers and the sea. Last year a group from the Treasury visited Parininihi ki Waitotara or PKW, a company based in Taranaki who run a number of businesses in the primary sector. PKW are combining successful dairy farming with sustainable practices: protecting waterways, carefully managing nutrients, and even using solar energy to power their cowsheds.   

The falseness of the ‘choice’ between prosperity and sustainability is being shown up not just by countries and companies, but by consumers too.

The premium on ethical, sustainably produced, healthy goods continues to rise. Interest in working practices and supply chains means that companies have to be able to clearly demonstrate their sustainability credentials.

It’s also clear that productivity and sustainability are converging in ways not seen before.

For example, in recent years we have seen irrigation infrastructure, originally installed to boost farming productivity, helping to alleviate further pressure on struggling river and stream ecosystems. 

Central Plains Water scheme in central Canterbury is currently under construction, and will from September this year relieve climatic and allocation pressures on groundwater and lowland streams around environmentally and culturally important Lake Ellesmere Te Waihora.

The Opuha dam was able to keep streams flowing in South Canterbury during this year’s drought, which would otherwise have stranded fish.

The small Eiffelton scheme in mid-Canterbury pumps groundwater into ecologically important streams that would also have stopped flowing last summer without it. This leads me to the second false ‘choice’ I want to shed light on – between high technology and our primary industries.

Through companies specialising in precision agriculture, such as Varigate, Agroptics and others, New Zealand’s world-leading tech is both increasing productivity and serving environmental outcomes.

By mapping soil characteristics, tailoring the use of irrigation, fertiliser and other inputs to match, and ensuring accurate spatial delivery, the use of inputs can be reduced. This results in savings of energy, time and inputs, while pasture and crop yields increase and less nutrients are lost to the environment, leading to better water quality in our rivers and groundwater.

Progress in GIS technology and nutrient management data is enabling farmers to understand their farms in new ways. This is delivering environmental improvements and driving the best increases in productivity in the whole economy.

Another false ‘choice’ is between protection and use of natural resources.

As a country, we protect around a third of our land area for conservation, but the mountains and forests making up most of this area are used as a playground by our people.  They’re also a workplace for some of the 166,000 people employed in tourism industry; an industry that relies on us continuing to protect our outstanding natural beauty.

Instead of accepting these false ‘choices’ we have an opportunity to focus on ensuring our system gives us the freedom to make the choices we actually want.

One example is in the space of bio-technology.

I am not going to get into the question of genetic modification specifically.

What I will say is that when new technologies come along – both GM and non-GM – our current system denies us the choice over whether we want them. Meanwhile, our international competitors do have this option.

There is, for example, a new variety of high-yielding eucalyptus tree which has just been approved for cultivation in Brazil.  Using this variety, growers can get a 15 percent increase in wood for the same area, processors can get a 20 percent reduction in the cost of wood production, and the environment benefits from a 12 percent increase in the amount of carbon dioxide stored per hectare.
High-yielding wood is at the core of our pulp and paper industry.

However our current regime for regulating new organisms is highly restrictive in practice, which means we do not have the flexibility to choose whether this is something we would want in New Zealand.

I’ve heard it said that our current regulatory regime would deny us the choice to adopt many new plants and species that today offer us huge advantages: kiwifruit, rye grass, and even the ubiquitous pinus radiata.

Another example of a choice we are currently denied is found in our approach to risk.

This is particularly important when we consider the potential to sustainably use the resources contained in our precious marine environments.

I am not going to stand here and tell you that New Zealand does not take enough risk. That is for the country, through elected representatives, to decide.

The point I want to make is that we often deny ourselves the choice over how much risk we want to take. When systems adopt rigid approaches to risk, for example, rather than genuinely enabling adaptive management approaches, we limit our ability to explore and assess the potential risks of our actions.

Another restriction on our choice comes when we have inefficient systems. In these instances we deny ourselves the chance to decide, clearly and efficiently, how we want to manage our resources.

From an economist’s point of view, a resource management system like ours is intended to reduce the costs of allocating resources, account for factors which market forces don’t value, and manage collective action problems – including intergenerational fairness.

Our current system could be better on all of these fronts.

As we saw with the establishment of the Kaikoura marine protected areas, the transaction costs of making decisions on how to manage our resources can be extremely high.

Many of our resource management systems come in for regular criticism, although it’s often directed at how the decisions are made rather than the decisions themselves.

And our limited framework for valuing natural capital and ecosystem services often prevents us from understanding how much they are really worth to us. It also means weighing public benefits against the gains to be made from resource use is hard for decision makers.

But it’s not all doom and gloom.

We are starting to reclaim some of these choices.

A number of Government departments are working together to assess the feasibility and benefits of more systemically gathering natural capital information to feed into decision-making.  Appropriately considering the impacts on natural capital, such as clean water, soil or habitat for threatened species, will allow us to make better, more balanced decisions.

The Government’s resource management reforms aim to provide greater certainty for communities to plan for, and meet, their area’s needs in a way that reduces costs and delays, while maintaining the environmental standards that are important to them. 

Freshwater policy is another area where we are reclaiming choice.

Here, communities are able to debate the value of public goods; public discussion is exposing and trading-off risks; and collaboration through the Land and Water Forum continues to help create a management system which is responsive to the goals of users.

But there is a price for moves to systems such as this, which give us the choices we really want.

The quality of information and the level of public debate must be raised. This is something for which all parties must share responsibility.

Government doubtless has a role here. The work to develop a Māori Land service is one example.

Here the Crown is providing the information and support that Māori landowners need to assess the different choices available to them from their land. This in turn exposes the true value to Māori of systems which allow us to choose how our resources are managed. 

However, businesses and industry sectors must play also play a part in setting the conditions for a more informed debate.

On the issue of climate change, for example, the agriculture sector has the opportunity to contribute to the public debate about New Zealand’s future emissions targets, and options for meeting these targets. 

It is important that we focus on what the science tells us.  

As the IPCC told us last year, carbon dioxide emissions fundamentally drive long-term global warming.  Methane has a larger impact initially, but its effect is only short lived. This clearly has little impact on most other developed countries whose emissions consist mainly of carbon dioxide, but it makes a huge difference for New Zealand because of our high agricultural emissions.

New Zealand has invested heavily in finding ways to mitigate the effects of biological emissions, though commercialisation is still some way away.

So science clearly plays an important role in helping us work out how we can have the greatest impact in reducing emissions.  And it has an important part to play in informing the public, in helping us avoid false dichotomies and giving us greater choices to enable living standards to continue to rise for generations to come.  And as part of this, the business community has the opportunity to explain how its actions contribute to increases in all areas of wellbeing.

I, for one, look forward to working together to make these challenging, but ultimately vital, choices about the future of our natural resources, the prosperity of our country and the living standards of New Zealanders.

Sustainability and prosperity aren’t mutually exclusive.

Furthermore,unless we want to return to subsistence living, which may or may not be environmentally sustainable but certainly isn’t socially and economically sustainable, prosperity is essential for sustainability.

That doesn’t mean that prosperity should be at the cost of the environment or people.

The challenge is to balance economic, environmental and social considerations.

 


OCR down .25 basis points

June 11, 2015

Reserve Bank Governor Graeme Wheeler has announced a small drop in the Official Cash Rate:

The Reserve Bank today reduced the Official Cash Rate (OCR) by 25 basis points to 3.25 percent.

Growth in the global economy remains moderate. Data on economic activity in the US, China and Australia has been mixed, although there has been some improvement in the euro area and Japan. Volatility in financial markets has increased.

The New Zealand economy is growing at an annual rate around three percent, supported by low interest rates, high net migration and construction activity, and the decline in fuel prices. However, the fall in export commodity prices that began in mid-2014 is proving more pronounced. The weaker prospects for dairy prices and the recent rises in petrol prices will slow income and demand growth and increase the risk that the return of inflation to the mid-point would be delayed.

Inflation has been low due to falling import prices and the strong growth in the economy’s supply potential. Wage inflation and inflation expectations have been subdued.

With the fall in commodity prices and the expected weakening in demand, the exchange rate has declined from its recent peak in April, but remains overvalued. A further significant downward adjustment is justified. In light of the forecast deterioration in the current account balance, such an exchange rate adjustment is needed to put New Zealand’s net external position on a more sustainable path.

House prices in Auckland continue to increase rapidly, and increased supply is needed to address this. The proposed LVR measures and the Government’s tax initiatives planned for 1 October 2015 should ease the impact of investor activity.

A reduction in the OCR is appropriate given low inflationary pressures and the expected weakening in demand, and to ensure that medium term inflation converges towards the middle of the target range.

We expect further easing may be appropriate. This will depend on the emerging data.

It’s good to see policies to address the supply side of the Auckland housing problem being acknowledged so that the rest of us aren’t paying in higher interest rates.


Quality and results matter most

June 10, 2015

The government accounts were in surplus for the second time this financial year:

The Government’s $448 million OBEGAL surplus in the 10 months to 30 April – around $1 billion better than the $555 million deficit forecast in the Budget – highlights the inherent volatility in monthly fiscal results, Finance Minister Bill English says.

“We’ve always said small differences between large revenue and expenditure numbers can lead to swings of several hundred million dollars in the OBEGAL balance,” he says. “From the Government’s point of view, what matters is the quality of our spending, the results we get from that spending and clear improvement in our overall fiscal direction.

This government recognises that the quality of the spend and the results it gets are what matter.

That contrasts with previous administrations which put more emphasis on the quantity of their spend, regardless of whether it made a positive difference.

“We won’t know whether we will make surplus for the full year until we see the final accounts in October. But it’s clear it will be a close run thing.”

April was the second month this financial year where the Government has achieved a surplus, following a $77 million surplus in the seven months to 31 January.

The April surplus was the result of core Crown tax revenue being $437 million ahead of Treasury’s budget forecasts, core Crown expenditure being $420 million below forecast and results from State Owned Enterprises and Crown entities being $172 million better than forecast.

“The Treasury advises that, based on the April results, there is now some upside risk in both tax revenue and Crown expenses,” Mr English says. “However, it’s not yet clear how much of this latest overall improvement will carry through to the full year’s result.

“Whatever happens, the Government will continue with its responsible and balanced economic and fiscal programme, which is taking New Zealand in the right direction.”

The return to surplus is important, but whether it happens this year or next doesn’t matter nearly as much as the continuation of responsible management of public money and using it on policies which get the right results.


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