Rural round-up

October 31, 2012

Customers attack Sainsbury’s for ditching Red Tractor – Alistair Driver:

SAINSBURY’S has come under fire on its own website over its decision to drop the Red Tractor logo from the food it sells.

Customers have branded the decision a ‘disgrace’ and some are threatening to stop shopping at Sainsbury’s stores until the logo is reinstated. The move has also been attacked by TV presenter Jimmy Doherty, who described it as ‘an odd thing to do’.

The UK’s third biggest retailer announced it was ditching the Red Tractor logo last week, blaming concerns that consumers were becoming confused about the number of labels on food packaging. It is planning to phase the logo out across its products lines, beginning with fresh meat. . .

CAP reform must not overshadow collaboration on family-owned farms –  Tom Levitt:

SMALLER family farms need better access to rural development funds to enable them to break free of subsidy dependence, a meeting of the Family Farmers Association (FFA) in Westminster heard last week.

NFU vice-president Adam Quinney, whose wife now runs the family farm near Redditch, West Midlands, told the audience that CAP funding was still inaccessible and unfavourable to smaller farm enterprises.

He was especially scathing of rural development funding, split between environmental schemes, modernising the farming sector and helping the rural economy. He said it had been largely ‘wasted’. . .

Times change for big show – Jill Galloway:

A & P shows used to be the the highlight of the social calendar for many people. They were the event of the year and there were public holidays, so people had time off to go to the show.

Now there are just two which have statutory holidays – Hawke’s Bay and Canterbury celebrate their anniversary days the weekend of their shows.

“Twenty years ago, it was about the promotion and sale of livestock,” says Manawatu and West Coast A & P president Lawrence Satherley. Now, Manawatu Showtime, being held at Manfeild Park this weekend, is competing against the Tour de Manawatu bicycle race, the Feilding horse races at Awapuni and the stock cars in Palmerston North. . .

Farm Environment Trust Leader Bows Out After Constructive Tenure:

North Waikato farmer Jim Cotman has stood down from his role as chairperson of the New Zealand Farm Environment Trust after a very successful six years at the helm.

Since the Trust was established, its flagship event, the Ballance Farm Environment Awards, has gone from strength to strength and is now regarded as one of New Zealand’s premier farming awards. The Trust has also developed a range of other initiatives designed to promote environmental sustainability in New Zealand agriculture.

Mr Cotman says the Trust has played a key role in showcasing sustainable farming practices. . .

What NZ agriculture can learn from the i-Phone –  Milking on the Moove:

. . . New Zealand’s agricultural sector could do well to study Apples business model and supply chain design. I’m really struggling to think of a major NZ agribusiness that even attempts a vertical supply chain.

Fonterra is New Zealand’s economic saviour, but Fonterra is a commodity supplier. It is equivalent to a Korean company that supplies a component to Apples iPad or iPhone and receives less than 7% of the final retail price.
The red meat sector is in the same, farmers are relegated down the value chain and as a result receive only a small fraction of the retail price.
Australian dairy farmers are at the mercy of the supermarkets because they don’t control their supply chain. The same is true for our UK dairy farming friends too. . .

Standards met through pond course:

Over 100 contractors and designers of farm dairy effluent (FDE) ponds are the first to complete a training course aligned with new industry standards.

The Farm Dairy Effluent Pond Training Course was established by DairyNZ in conjunction with InfraTrain New Zealand and Opus International Consultants (Opus).

The course is based on Practice Note 21: Design and Construction of FDE Ponds, released by the Institution of Professional Engineers New Zealand (IPENZ) at the end of last year. . .

Australia on top in new Trans-Tasman series opener:

New Zealand has suffered a double defeat in the machine shearing and woolhandling tests against Australia in Warnambool, near Melbourne.

The Shearing Sports New Zealand team did however derive some success, with a victory to its two blades shearers denying Australia a clean sweep of the three matches at Saturday’s Romney Shears, which also incorporated the Australian national championships. . .

Public Consultation Begins On Proposed Agricultural Vehicle Rule Changes

The NZ Transport Agency is seeking public feedback proposed changes to agricultural transport law.

The proposed changes would establish a two-tier system for agricultural vehicles, based on a 40km/h operating speed. Vehicles operating below this speed will be exempt from warrant of fitness and work time requirements. The proposed changes aim to reduce compliance costs and provide greater operational flexibility for vehicle owners, without comprising safety. . .


Foreign ownership fears unfounded, benefits not appreciated

August 14, 2012

Fears of foreign ownership are overstated and the benefits are under appreciated.

In a speech to New Zealand Contemporary China Research Centre Finance Minister Bill English said our investment relationship with China is much smaller than our trade:

Despite our strong trading relationship, China is not a major investor in New Zealand, being New Zealand’s 11th largest investor totalling $1.8 billion in 2011.

Foreign direct investment, or FDI, is less than half this amount.

By comparison, New Zealand has NZ$52 billion of FDI from Australia and NZ$11 billion from the US. China has made investments in New Zealand forestry, manufacturing and agriculture.

China is also investing in New Zealand government bonds, contributing to the record low borrowing rates New Zealand currently enjoys. New Zealand is seen as a relatively safe haven in these difficult times and Chinese authorities want to diversify their international bond holdings.

New Zealand’s investment into China is similarly small, totalling $789 million in 2011, making China our 13th largest investment destination.

These investment figures reflect broader trends.

While New Zealand is a recipient of foreign investment in line with the OECD average, New Zealanders invest overseas at well below OECD average rates. . . .

Opponents of foreign investment play on fears, most of which are unfounded.

They take no account of the the benefits which include  supplementing domestic savings, sharing technology, and driving growth in wages, employment and economic output.

As a small country, we naturally rely on FDI to help us achieve economies of scale, and for access to ideas and consumer markets. We do not have the large stock of capital which older and wealthier countries have.

Foreign direct investment has benefits for New Zealand in three broad areas:

• First, as a source of capital to supplement New Zealand’s domestic savings.
• Second, as a driver of growth in wages, employment and output.
• And third, for the transmission of technology, skills and know-how to New Zealand and for improving our connections to valuable international markets.

New Zealand simply does not save enough to cover our investment needs.

Between 2002 and 2011, New Zealand saved just over $4 billion a year, leaving a shortfall of $9 billion a year to fund our investment. Foreign direct investment is a type of international trade in savings and helps bridge this funding gap.

Foreign investment can bring benefits that foreign borrowing does not. These benefits can be of particular value to a small economy, and include:

• FDI provides a stronger buffer against economic shock because investment comes without the fixed interest payments of debt.
• FDI produces transfers of technology and know-how, and provides access to international markets.

Recent research shows that New Zealanders working for firms with foreign investors tend to be paid more, and that firms receiving foreign investment increase employment and output.

In 2008, Treasury concluded that foreign capital flows into New Zealand lifted incomes by around $3800 per worker between 1996 and 2006 in today’s prices, and lifted wealth by $16,000 per person.[5]

Foreign investors in New Zealand do take out some profits, but between 2006 and 2011 they have also reinvested about 25 per cent of their returns on equity back into New Zealand.

New Zealanders interact with foreign-owned businesses every day. Over half of the companies larger than $100 million in New Zealand have majority foreign ownership.[6]

Many of these companies are a familiar part of our national landscape, and provide Kiwis with a huge range of products and services. They are also among our largest employers. A recent study showed about a quarter of Aucklanders work for foreign owned companies.[7]

FDI, inward or outward, does not necessarily mean acquisition of full ownership by foreigners. In many cases it can take the form of a joint venture or partnership between New Zealand and foreign owners.

And FDI is not a one shot deal. Businesses built up under foreign ownership can move or return to New Zealand ownership.

Examples of that are Shell petrol stations which are now owned by Z, Opus which was bought by Malaysians but now has significant local shareholding and several meat companies.

What would happen if New Zealand could not access foreign investment?

One outcome is that the cost of capital would increase. This would constrain businesses’ ability to grow, and would reduce employment opportunities and household incomes.

Treasury has estimated that a permanent one percentage point change in interest rates (say, from 5 per cent to 6 per cent) would lower the level of GDP by about 2 per cent over a period of time.[9] New Zealand’s standard of living would be lower without access to foreign investment.

FDI can have its costs. The quality of foreign investment matters, and New Zealanders care that investment goes to productive capital, and that it supports jobs and higher incomes.

But fears of foreign ownership are frequently overstated. While it is true that the returns from foreign financing contribute to New Zealand’s current account deficit, it’s also important to consider the bigger picture.

The outcome for the economy is positive overall when foreign capital raises worker productivity and national income increases by more than the return on the investment.
FDI is profitable precisely because it introduces ideas and brings new capital to countries.

Foreign investment is a vote of confidence in the quality of New Zealand’s institutions and the quality of its workforce.

New Zealand welcomes foreign investment.

Firms that are successful enough to be international investors tend to have developed the skills and deep specialisation New Zealand needs.

These skills produce higher wages for New Zealanders working in those firms, and skills tend to spill over.

As employees come and go from foreign owned firms, they take what they learn and apply it to new ventures. Foreign investment helps bring these advantages to New Zealand.

FDI has other benefits. It helps link New Zealand into opportunities for export and to tap in to international supply chains.

Foreign investors bring knowledge of international markets and access to established networks that are hard to develop from this far away.

FDI has been instrumental in the global shift towards international production networks in which steps on the production process occur across borders. Economies that have experienced the largest FDI inflows have on average also seen the largest expansion in merchandise exports.[10]

The benefits don’t negate the need for checks and balances.

A recent OECD study has rated New Zealand among the most restrictive overseas investment regimes in the OECD.[11] The study focuses on our regulations rather than how many foreign investments we turn away.

But there can be no serious suggestion that New Zealand lacks appropriate controls.

Our constraint on growth is not the size of the opportunity. It is our ability to access capital, knowledge, and people, and we get to decide this in part through policy.

New Zealand has not moved rapidly to reach out overseas to find new ideas and access new capital. This is something we must learn to do.

We sit on the doorstep of the fastest growing economies in the world.

There will be many more people in the Asia Pacific region with growing incomes who want more of New Zealand’s products.

Our trading partners, led by China, have opened the door for us.

Our challenge is to assemble enough capital, people and market knowledge to take advantage of this opportunity. How we go about that will define our economic success in the next generation.

The xenophobes have unfounded fears about the costs of foreign investment but we would have far more to fear if we didn’t have the benefits of overseas capital and expertise.


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