Not govt’s job to diversify economy


The news that last summer’s drought had led to slower growth brought predictable responses from the opposition.

They said the government had failed to diversify the economy and we’re too reliant on agriculture.

They’re wrong on both points.

It’s not the government’s job to diversify the economy. That’s the business of businesses.

Even a cursory look at past attempts by governments to interfere in the market shows the dangers in that.

And we’re not too reliant on agriculture.

That we’re good at primary production should be celebrated and appreciated because the demand for what we produce so well is large and growing.

Our climate and soils make us very good at turning grass into protein.

The milk, meat and other food we produce makes a considerable contribution to our exports, but we have several other strings to our trading bow as well.

Key facts for primary sector outlook


MAF’s SONZAF (Situation and Outlook for Agriculture and Forestry)  key facts  indicate:  


  • Dairy export earnings are projected to peak next year at $12 billion – more than 40% higher than earnings two years ago.
  • Dairy export earnings are projected to ease back to $10.5 billion in 2010 before rising again to just under $12 billion by 2012.
  • The weighted average payout (net of industry goods levy) for the next four years averages around $6 – significantly higher than the previous five year period. Detailed payout projections are $6.90 (2009), $5.78 (2010), $5.98 (2011), $6.32 (2012).
  • Demand is growing from new markets in China and OPEC countries. OPEC countries account for 21% of New Zealand’s total dairy exports.
  • The South Island continues to drive dairy herd expansion. The South Island herd grew by 13% last year – 31% of New Zealand’s dairy herd is now in the South Island.


  • Manufacturing beef (a type of minced beef) prices are expected to rise by more than 30% over the five year forecast period.
  • Beef export volumes are projected to fall by about 2% next year due to drought but to grow back to 2007 levels by the end of the five year forecast period.
  • Export returns currently at $1.5 billion are expected to climb steadily to $2.26 billion by 2012.


  • Sheep numbers were down 4% at June 2007.
  • The drought and recent low prices are pushing further declines in sheep numbers – adult sheep slaughter increased by 28% for the year ended June 2008.
  • Lower stock numbers and lower weights mean lamb export volumes are projected to fall through the five year period by 11% to 287 000 tonnes.
  • Higher prices are set to push overall export earnings over the same period up by 25% from the current $2.1 billion to $2.6 billion.


  • The average wool sale price is projected to rise by just over 40% over the next five years to $5.35 per kilogram.
  • Wool volumes are projected to plateau as falling sheep numbers balance higher prices at 142 000 tonnes.
  • After an initial fall export earnings are projected to grow by 29% over the five year period to $795 million.


  • Log prices and pulp prices are both projected to climb by more than 30% over the next five years.
  • Timber and panel export prices are projected to fall before recovering but volumes remain relatively flat over the next five years.
  • Overall forestry export returns are projected to grow from $3.3 billion in 2008 to $4.5 billion in 2012.


  • Wine grapes are now the largest single horticultural crop in New Zealand at more than 25 000 hectares.
  • A big harvest this year will boost export volumes by 30% in next year and increased plantings will push exports up by more than 50% by 2012.
  • The value of wine exports is projected to rise by 76% to $1.3 billion by 2012.
  • Sauvignon Blanc makes up 75% of wine exports and is New Zealand’s largest wine export followed by Pinot Noir, Chardonnay and Merlot.


  • The current average price of $8.1 per tray of kiwifruit is projected to grow to $10.7 a tray by 2012.
  • Predicted kiwifruit export volumes remain static at just under 100 million trays over the next five years.
  • Kiwifruit export returns are projected to grow from $779 million dollars to $1.06 billion by 2012. 

MAF’s assumptions are based on expectations for “normal” climatic conditions with no allowance for domestic or international natural disasters nor major economic changes. Projections are based on Treasury’s exchange rate assumptions from the 2008 Budget.

Stats confirm agriculture still important


NZIER economist Chris Nixon was speaking to the converted when he explained the importance of agriculture at the AGMARDT breakfast during the National Bank Young Farmer Contest.

He said that although agriculture contributes only about 5% of GDP at the farm gate that is only part of the story.

Agriculture has a major impact on downstream and upstream activities. The impact of these industries suggests that roughly 20% of GDP is directly affected by on-farm agricultural activity. These include businesses that service the farming community (downstream) and those that turn farm produce into consumer products – transport and logistics, processing, and marketing activities.

Furthermore, agriculture has a major impact on exports. Land and sea based exports are roughly 42% of exports.


The importance of agriculture to our economy is confirmed by a Statistics New Zealand report prepared for Fontera which showed dairy products accounted for 27% of exports earnings for the year to May and all but 2% of that was from Fonterra.

Fonterra is the world’s largest dairy exporter, fifth largest dairy company globally and trades in 140 countries. Chairman Henry van der Heyden said much of the increase had been driven by record commodity prices.

“If we hadn’t had the drought, which saw our milk production drop by around 4 per cent, the figure could have been even higher,” he said.

World economic growth and demand from emerging markets – along with reduced supply, drought in Australia and biofuel production driving up the costs of feedstock – helped drive up dairy commodity prices.

The ANZ Commodity Price Index for dairy products hit 291.9 in November, having risen for 15 consecutive months from 127.6 in August 2006. The dairy index has since fallen in all but one month to reach 256.7 in June.

“We’re seeing continued investment from farmers and in our processing capacity. That’s a huge boost, particularly for regions like Southland with a lot of new jobs and benefits flowing through,” van der Heyden said.

“It’s great that dairying is able to make such a positive and timely contribution to the New Zealand economy at a time when the broader economy is facing increasing pressure.”

It is indeed, although the best may still be ahead of us. Nixon said it takes roughly 18 months for export performance to filter through to the domestic economy so the impact of the good prices farmers are getting now won’t show up beyond the farm gate until the end of next year.

June quarter trade deficit up


The seasonally adjusted trade deficit  increased to $1.9 billion for the three months to June, up from $861 million in the March quarter.

Statistics NZ says this is similar to the deficit in the June quarter last year.

Major contributers to the deficit were siginificant increase in imports of one-off capital goods (particularly oil-related) and petroleum and products, combined with a large seasonally adjusted drop in dairy exports.

The seasonally adjusted value of merchandise imports rose 8.5 percent in the June 2008 quarter (to $12.1 billion) following a flat March quarter. One-off capital imports (an oil platform, oil production vessel, and two large aircraft) were the largest contributors to this increase, added to by the highest ever quarterly value of petroleum and products imports.

The seasonally adjusted value of merchandise exports was down 0.5 percent in the June 2008 quarter (to $10.3 billion) following a 2.4 percent decrease in the March quarter. Although lower, June 2008 still has the third highest quarterly exports value on record. The latest small decrease in total exports comes despite increases in most commodity groups and is primarily the result of a large drop in dairy product exports, following on from the recent drought. Crude oil showed the most significant increase, up 56.6 percent (largely due to price rises).

In the month of June 2008, merchandise imports were valued at $3.8 billion, the highest value for a June month, up 16.9 percent from June 2007. This increase was led by crude oil with the price of crude up substantially since June 2007.

Merchandise exports were valued at $3.6 billion in June 2008, up 30.9 percent from June 2007. This is the largest percentage increase from the same month of the previous year since January 2001. The increase in exports was dominated by crude oil and milk powder, butter and cheese.  

ETS for agriculture is economic stupidity


David Bellamy’s biological arguments for excluding agriculture from the Emissions Trading Scheme (see post below) are complemented by economic arguments from Muriel Newman:

The primary sector remains the backbone of New Zealand’s prosperity. Last year it earned 47 percent of the country’s export returns of $35 billion. Dairying was the single biggest export earner with receipts of $7.5 billion, or 21.6 percent of the total. Meat exports ranked second with $4.3 billion or 12.4 percent. In third place, wood exports were worth $2.1 billion, or 6 percent.

The primary sector exports around 90 percent of all of the food produced in New Zealand. This is in sharp contrast to Australia, which only exports a quarter of its food production. An estimated 40 percent of New Zealanders are employed in the food industry.

New Zealand’s prosperity has, of course, always been dependent on farming…

That’s why it is incomprehensible that a New Zealand parliamentary party is undermining the farming sector. The Green Party should be ashamed of itself for blaming farmers for increasing food prices, when farmers, like everyone other New Zealander, are facing rising costs caused by increasing fuel and power prices, higher mortgages, and an escalation in rates and other government charges.

In fact, it is Green Party policies like biofuels, emissions trading schemes, and an over-reliance on solar and windpower that are the cause of much of the cost pressure increases that are occurring in New Zealand and around the world. That is why their call for an inquiry into supermarket pricing smacks of hypocrisy and political game-playing – especially in light of their opposition to the government’s proposal to delay the entry of farming into the emissions trading scheme.

Absolutely right. They don’t appear to understand that if it costs more to produce food it will cost more to buy it.

The government has estimated that at a conservative price for carbon of $50 a tonne, under their proposed emissions trading scheme agricultural payouts will fall by 12 percent for dairying, 21 percent for beef, 34 percent for sheep and 43 percent for venison. 

Anyone who has even the most rudimentary understanding of our economy will realise that these charges will not only ruin the viability of the farming sector and cause food prices to escalate to unprecedented levels, but will further undermine the wealth of all New Zealanders.

Why would any government commit to something which will be hugely expensive, damage the economy and do nothing for the environment. It is economic and political madness to impose such high costs for no benefit.

Low wages not high prices the problem


Vernon Small asks in The Independent (not on line) why politicians and many commentators can’t find much to cheer about in the success of the diary industry.


What do they want? Dairy products to be dirt cheap and not in demand? And if we don’t want cheese, butter and milk to be expensive – some of our most important exports – just what do we want?


As a partner in a dairy farm I am biased but my appreciation of higher dairy prices isn’t entirely selfish because we all benefit from increased export earnings.


Would it be better if all those overseas consumers paid less for dairy – and other foodstuffs we export that are no riding high – so we could pay less too?


Definitely not. The trouble is that most of those who voice concern see the cost of dairy produce as the problem instead of looking at why New Zealanders aren’t earning more which would make food, and everything else, more affordable.


It is our white and yellow gold being sent out into a market where growing middle classes are fuelling demand and where it is not facing a European Union butter mountain overshadowing prices. Certainly these are basic foodstuffs …and consumers are hurting. So you would expect politicians to reach inside their ideological toolboxes for tax cuts, income assistance or regulation.


But some lose sight of the overall good to the economy behind a welter of concerns about the inflationary impact of dairy prices and the way consumers are being milked. …The overall impact on New Zealand Inc from high dairy prices must be stronger growth, a boost to productivity, safer jobs and stronger consumer demand – although the environmental impact acts as a counterweight.

There is nothing wrong with high returns on exports. The problem is what’s driving record numbers of New Zealanders overseas – relatively low wages and high taxes.



Tomato & Capsicum Exports Suspended


Exports of tomatoes and capsicums  have been suspended after the discovery of a debilitating bacterium in three North Island hot houses.


MAF Biosecurity has withdrawn phytosanitary certification for fresh tomato and capsicum exports until further notice and says it’s a significant find which could impact on export markets.


Total exports of tomatoes are valued at $7.3 million, while capsicums are worth $34m. Australia is the largest importer of the products, while Japan, the Pacific Islands, United Arab Emirates and Hong Kong are other capsicum markets. Those countries have been informed about the outbreak.

MAF director of border standards Tim Knox said the withdrawal of certification was a precautionary measure until more information about the bacterium was known.

“Initial findings suggest that the bacterium may be transmitted by a small insect called the tomato/potato psyllid.”

He said there were no considered human health issues associated with the bacterium or with eating tomatoes or capsicum.  At this time of year exports of tomatoes and capsicum are negligible – they usually begin on a large scale in October. The bacterium affects both the growth and quality of plants and reduces yield.

 Border incursions by pests and diseases pose an enormous risk to our economy but a lot of people don’t understand that and some who ought to, don’t care.

When I was coming home from Australia the airport x-ray picked up a jar.  I told the MAF officer it was only hand cream but he said sorry, he had to check it. I said there was no need to apologise because I was from a farm and understood the importance of border security; he replied that meant nothing. The previous day he’d caught two farmers returning with muddy boots and they abused him when they were fined.


Not all infringements are deliberate. An Australian friend flew in to New Zealand with a pair of boots for his daughter who was working here. He forgot about them when he was filling in the MAF declaration form but they showed up on the x-ray and the MAF officer pulled them out for inspection. Rod had scrubbed the boots before he’d packed them and the MAF man said because of that he wouldn’t be fined but he did get a written warning that next time there’d be no leniency.


These examples ought to give us confidence in our border protection, but it isn’t always this strict. A couple of years ago a friend from the USA who had been on farms in Argentina came to New Zealand with work boots in his case. He too forgot to declare them and they weren’t picked up by MAF screening.


Unless everything in every bag is checked, there will always be an element of luck in whether or not something untoward comes in with a traveller, even if they pack carefully. We brought some wine home from Argentina and an insect crawled out of the bubble wrap as I was unpacking it. I cut it in half and burned it so no harm was done but it made me realise how easily something could come in by accident.


However, more worrying than missing something by chance is the experience of a friend who returned to New Zealand after shearing in Britain during the foot and mouth outbreak. He explained this when he showed his hand piece to the MAF inspectors but they weren’t at all concerned and the shearer had to persuade them to take his gear for cleaning.


Our borders have already been breeched by didymo, varroa bee mite and now this insect which is attacking the tomatoes and capsicums so fears that it’s a matter of when, rather than if, we face an incursion which infects farm animals are realistic.

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