Rural round-up

June 3, 2020

Stress pockets in agricultural lending – Hugh Stringleman:

Agriculture has fared relatively well during the covid-19 pandemic but vulnerabilities in the sector remain, the Reserve Bank says.

In its Financial Stability Report for May it said lending to the agricultural sector is a key concentration of risk for the banking system, accounting for about 13% of loans, of which around two-thirds is to dairy farming.

“The industry is vulnerable to income shocks given its dependence on global commodity prices and pockets of dairy lending have yet to recover from the 2015 downturn. . .

The popular ‘New Zealand’ foods made overseas – Esther Taunton:

Think your favourite food is made or grown in New Zealand? Brace yourself for some bad news.

In the aftermath of the coronavirus lockdown, many Kiwis are making a conscious effort to support local businesses and brands.

There are Facebook groups connecting Kiwi shoppers with local makers, and a large-scale media campaign encouraging New Zealanders to back small and medium enterprises.

There’s even an online platform for potato lovers to pledge their support to local growers in the face of a potentially devastating influx of imported frozen chips. . . 

Judge’s 50 years of close shaves – Sally Brooker:

The magnet on Colin Gibson’s fridge says “I thought growing old would take longer”.

It seems appropriate for the man who has been a shearing judge for 50 years and shows no signs of slowing down.

He was aware of his long history in the industry when he was involved with the world record attempt by Stacey Te Huia near Ranfurly in January. The attempt was abandoned at morning smoko when the total had slipped out of reach, but Mr Gibson featured in television coverage of it recently on the equally long-running Country Calendar

He was a mentor for trainee referees at the event, teaching them to officiate when records were being contested. . . 

Down but not out:

The wool industry has taken a significant blow in recent months. Prices have eased back by 25% on the first sales back since covid-19 lockdowns. 

New Zealand is not alone as Australian wool prices have also decreased by 25% since March. Prices achieved in New Zealand have dropped to average $1.50-$1.70/kg greasy for good crossbred second shear fleece. This is a hard pill to swallow for many as crossbred wool returns are no longer covering the cost of the shearing. AgriHQ data shows current crossbred wool prices are $1.84/kg clean, back by about 31% on this time last year to what can only be described as dire. However, the industry is far from giving up. Those involved in the wool sector from the woolshed to the end market are working hard to ensure that wool will continue to have its place in the market and recover from the current downturn. . .

Eyes open to different ways of farm ownership :

Farmer Jane Smith was “blown away” by the group dynamic and drive when she and husband Blair hosted the North Otago-based Growth and Development in Farming Action Group at Newhaven Farms in Oamaru.

While the group members are all working in diverse farming operations, they all have a common purpose – aspiring to farm business ownership.

“It was inspiring to host a group of young people that are passionate about the industry and looking at ways, outside of the box, to get a step up into their own farming businesses,” Smith says. “They are very focused on what they are doing now and what it will take for them to get where they want to be.”

Wild about wilding pines – Rachael Kelly:

They’re considered an environmentalists’ nightmare.

Some groups work tirelessly to remove invasive wilding trees from the high country, but others now have resource consent to plant them.

The Mid Dome Wilding Trees Charitable Trust, which has spent thousands of hours clearing wilding pines from other sites, is dismayed that the Southland District Council has granted a non-notified consent, with conditions, to Mataura Valley Station, near Kingston, to be planted out mainly in Douglas fir.

The trust was now seeking advice from Government ministers. . . 


Rural round-up

December 6, 2019

Be fair about passing on costs, Federated Farmers tells banks:

Federated Farmers is urging the trading banks to absorb as much as possible of the additional costs of new bank capital requirements rather than dump it all on customers, and especially on under-pressure farmers.

The Reserve Bank has estimated the impact of the required lift in total capital to 18% for the four large banks and 16% for remaining smaller banks (from a current average of 14.1%) will be a 0.2% increase in average bank lending rates.

“But the impact on farming is likely to be much higher,” Federated Farmers commerce spokesperson Andrew Hoggard says.

“This is because there is less lending competition in the agricultural sector and we know banks are already looking to reduce their exposure to farm debt. Banks have been putting the squeeze on farmers even before today’s announcements by the Reserve Bank.” . .

Low methane New Zealand sheep coming to a farm near you – Esther Taunton:

Farmers will soon be able to breed low methane sheep through a “world first” genetics programme. 

Beef and Lamb New Zealand has added low methane production to the list of traits breeders can target when choosing rams.

Farmers already use several “breeding values” (BV) to select animals with characteristics they want to strengthen in their flocks, including meat yield and lamb survival rate. . . 

Farmer leads second Wayleggo Cup win – David Hill:

Andy Clark is proud to boast an unbeaten record as New Zealand sheep dog trials test team captain.

The Banks Peninsula farmer led his country to a second successive Wayleggo Cup triumph over Australia at the 125th annual Nelson A&P Show on November 23 and 24.

‘‘It’s a great event and it brings out the best in people. It’s always good to represent your country and it’s an honour to be the captain.’’

He had a very successful season with his dog Girl, winning the national long head title and placing sixth overall in the yarding at the New Zealand sheep dog trials championships earlier this year.

Qualification for the national side is based on performances at the North Island and South Island competitions and the national championships. . . 

Growers told change needed now – Colin Williscroft:

Vegetable growers have been told Overseer won’t work for them and farm environment plans are the best way to demonstrate good land management practice.

Agrilink director Andrew Barber, who is working with Vegetables NZ and HortNZ to encourage growers to develop plans, has been running a series of workshops in Levin to explain their benefits. Workshops are also being held in Pukekohe.

But there are a range of drawbacks applying Overseer to vegetable production. . . 

Kiwi farmers are joining a revolution – farming the regenerative way – Jendy Harper & Frank Film:

There’s a buzz in Simon Osborne’s paddock of crimson clover. It’s the hum of animated chatter as around 70 farming folk share their experiences of farming the regenerative way. 

Others in the field are quietly taking it all in – “newbies” attending their first field day to learn more about a farming practice that “mimics nature” and has its roots in soil biology and plant diversity.

With many New Zealand farmers facing financial and environmental challenges, a growing number are showing an interest in regenerative agriculture. . . 

City kids have farm classroom – Annette Scott:

A slice of rural New Zealand in the centre of Auckland has city kids farming with a view of the Sky tower.

While most Mt Albert Grammar School students grapple with the more usual classroom studies others are out getting hands-on agribusiness lesssons on the school’s 8.1 hectare farm.   

The cows and sheep grazing on a farm with a good view of Auckland’s sky tower is the story being told by the third Dairy Women’s Network visual story telling project – Our people, their stories.

The school farm was established in 1932 when the Auckland Horticultural Society decided city children were losing knowledge of farming practices and asked Mount Albert Grammar to teach agriculture and horticulture. . . 

Feeling of being branded ‘unclean’ – Sally Brooker:

North Otago farmers Murray and Gaynor Smith say they feel like they’ve been branded ‘‘unclean’’ as a result of being caught up in the Mycoplasma bovis outbreak.

The Smiths are speaking out to show others in a similar predicament they are not alone.

It all started a year ago when Mr Smith bought eight cattle at Oamaru’s Waiareka saleyards. They joined the one resident steer on the 62ha Livingstone farm.

Mr Smith said he was contacted by the M. bovis casing team in Wellington on September 9, but ‘‘there was no indication given that there was anything to worry about’’.

About a week later, he was phoned by a person assigned by the Ministry for Primary Industries to be his incident control point (ICP) manager. The man, whom Mr Smith preferred not to name, told him his cattle were linked to a property known to have M. bovis. . . 


Rural round-up

July 8, 2019

Katie Milne addresses national conference:

Kiwis can be proud of the rural women and men who produce the top quality food that arrives daily in supermarkets, and the extra which is shipped offshore as exports that help fuel our economy.  Over 65% of our exports come from agricultural food production and we produce it with a lower carbon footprint than any other country in the world.  

Biosecurity threats, geopolitics, alternative proteins, robotics, disruptors, food and environment sustainability…there’s no shortage of challenges and change confronting us. 

But you should also know – especially if you’ve been fortunate enough to catch some of the keynote addresses and panel discussions of the inaugural Primary Industries Summit that Federated Farmers organised and has hosted Monday and Tuesday – that New Zealand also has a wealth of ideas, talent and drive to deal with these big issues coming at us. . .

Tougher bank capital rules could slice 10% from dairy profits – Rabo NZ – Rebecca Howard:

(BusinessDesk) – Stricter bank capital requirements would severely dent dairy farm profits if the Reserve Bank goes ahead as planned, warn dairy interests in submissions on the contentious proposals.

“Our initial estimates are that the proposals could – at least in the short term – result in approximately a 10 percent decrease in profit for the agriculture sector,” Rabobank New Zealand said in its submission. . .

Trees replace top cattle – Annette Scott:

As far north as sale yards get in New Zealand the Broadwood selling centre in Northland hosted one of the country’s more notable capital stock clearing sales last week.

On behalf of Mark and Michelle Hammond of Herekino, Carrfields Livestock held the sale of a Hereford beef herd that put 50 years of top-quality genetics under the hammer, the animals’ grazing land destined for pine trees. . .

Ruapehu rural reading scheme spells out a winning idea  –  Katie Doyle:

A pair of librarians from the central North Island town of Taumarunui are bringing a love of reading to rural school children.

Fiona Thomas and Libby Ogle have started their very own mobile library – each month ferrying a load of books to two isolated primary schools in the Ruapehu District.

The idea came to life eighteen months ago when Mrs Thomas realised some kids in the region couldn’t access the library because they lived too away. . .

Blue Sky reports best result in 8 years – Rebecca Howard:

(BusinessDesk) – Southland meat processor and marketer Blue Sky Meats says the year to March was its best result in eight years as a strategic plan bore fruit.

The company, which is due to release its annual report shortly, said the March financial year ended with revenue up by 34 percent to a record $140 million. Pre-tax profit was up 36 percent at $5 million. . .

Overseas investors fined almost $3 million for illegal purchase of Auckland properties:

The High Court yesterday ordered the overseas owners of two rural properties at Warkworth, north of Auckland, to pay $2.95 million to the Crown after an Overseas Investment Office (OIO) investigation found they were bought without consent. The properties were bought in 2012 and 2014.

The court ordered the owners to sell the properties and pay penalties, costs and the gain made on the investment.

The overseas owners – Chinese businessmen Zhongliang Hong and Xueli Ke, and IRL Investment Limited and Grand Energetic Company Limited – should have applied to the OIO for consent to buy both properties because they are rural land of more than five hectares. . .

Latest technology to be demonstrated at the Horticulture Conference 2019:

Technology that will help fruit and vegetable growers now and in the future will be demonstrated at Our Food Future, the Horticulture Conference 2019 between 31 July and 2 August at Mystery Creek, Hamilton.   

‘We’ve gone all out to ensure that this year’s conference features demonstrations of technology that can help growers tackle some of the challenges that they face,’ says Horticulture New Zealand Chief Executive, Mike Chapman. 

‘From biological control products for crop protection to robots for asparagus harvesting and greenhouse spraying, they will all be demonstrated during the morning of second day of the conference.  . .

Ben Richards becomes Bayer Marlborough Young Viticulturist of Year 2019:

Ben Richards from Indevinbecame the Bayer MarlboroughYoung Viticulturist of the Year 2019 on 4 July following the competition held at Constellation’s Drylands Vineyard.

Congratulations also to Jaimee Whitehead from Constellation for coming second and Dan Warman also from Constellation for coming third. . 


Rural Round-up

June 17, 2019

ANZ’s rural manager questions capital call – Richard Rennie:

It is a case of when rather than if banks will have to increase their capital reserves against loans and rural customers will end up paying, ANZ commercial and agricultural manager Mark Hiddleston says.

Late last year the Reserve Bank said it wants banks to increase the amount of capital held as security against loans, with weighted capital increases likely to be greater for riskier parts of banks’ lending. 

That prompted fears the dairy and construction sectors in particular could wear the brunt of the higher capital requirements through higher interest rates. . .

Community a priority for environmental winners – Nigel Malthus:

Staying in touch with their community is a priority for the 2019 Canterbury regional Ballance Farm Environmental Award winners, Duncan and Tina Mackintosh.

The Mackintoshes own and run White Rock Mains farm, a 1056ha sheep and dairy support property nestled against the hills at North Loburn, near Rangiora.

Their recent winner’s field day featured presentations from the local North Loburn Primary School, which has partnered with the Mackintoshes on Garden to Table and Predator-Free programmes.

Cattle culls don’t rely on tests – Annette Scott:

Herds with cattle bought from properties confirmed as being infected with Mycoplasma bovis will be culled, regardless of test results, Primary Industries Ministry chief science adviser John Roche says.

More efficient testing is in the pipelines but it’s several years away.

In the meantime any herds containing cattle from properties confirmed as infected will be considered extremely high risk and will also be culled, Roche said.

Tests being used are adequate to determine the need to cull infected and extremely high risk animals.  . .

Climate change and the rural way of life – Alex Braae:

The government’s environmental policy is creating major tensions in farming communities. Alex Braae went to a meeting in Taumarunui to see it play out. 

“We’ve got to get the government’s attention somehow. Okay, we’re not all going to jump on our tractors and drive to Wellington. But we could jump on our tractors and block all the roads for a day and a half, just to get them to listen.”

The comment came from the floor, at a public meeting on carbon farming being held at the Taumarunui Golf Club. It was a rainy day, which meant farmers had some free time. The room was packed and fearful. In question was the future of their town, their district and their way of life.

A while ago, some farmers started talking about the ‘triple bottom line’ – economic, environmental and social. They started assessing themselves on not only how much money could be brought in, but how the farm contributed to the wider community and ecosystem. It’s a concept borrowed from the world of corporate sustainability, and has parallels in the long term view of what farming should be about. Obviously, the performance of the farming world has been mixed on all three, particularly the environmental bottom line, but the mindset is changing.. . 

One billion trees snag? Bay of Plenty, Taupō face ‘drastic’ shortage of planters – Samantha Olley:

The Government wants one billion trees planted across the country by 2028. It has allocated $120 million for grants for landowners to plant new areas and $58m to set up Te Uru Rākau forestry service premises in Rotorua. Across the country, 80m trees are expected to be planted this season. However, Bay of Plenty and Taupō contractors are facing an uphill battle to get trees in the ground. Reporter Sam Olley investigates.

CNI Forest Management has 100 planters working in the wider Bay of Plenty and Taupō this season but it’s not enough and the company is struggling to find workers now more than ever before.

Director Stewart Hyde told the Rotorua Daily Post the company started recruiting six weeks before the start of May when planting began, but “we just can’t get enough people”.

“It’s having a drastic effect.” . . 

How to restore depleted soils with cattle – Heather Smith Thomas:

Michael Thiele’s mission today is to acquaint more farmers and ranchers with a holistic view of agriculture.

Thiele grew up on a farm west of Dauphin, Man., just north of Riding Mountain National Park. His father had a small grain farm and a few cows.

“We were busy trying to farm and make a living and like all the other farmers around us, we were creating a monoculture of grain crops — mostly wheat, canola, oats and barley,” says Thiele.

“When I went to university, I thought soil was simply dirt,” he says. People didn’t realize how alive soil is, teeming with life and activity, and how much we depend on a healthy soil system. Now Thiele is trying to help producers understand that the way we farmed created unhealthy soil. . . 

 


Reserve Bank’s plan to cost farmers up to $8m/year more

May 7, 2019

The Reserve Banks’ plan to require banks to hold more reserves could cost farmers up to $800m a year in extra interest:

Estimates of the impact on interest rates range from the Reserve Bank’s own stab of 20 to 40 basis points up to the 120 bps estimated by the local arm of Swiss investment bank UBS, Federated Farmers says.

Multiplied across the agricultural sector’s $63 billion debt pile that would see farmers slugged for anywhere between $120m and $800m in extra interests costs annually.

“For farmers an increase in costs along the lines of the Reserve Bank’s modest estimate would be unwelcome enough while the worst-case scenario would be devastating,” the federation wrote to the Reserve Bank.

The bank wants trading banks to increase the minimum amount of capital they hold against loans from 8% to 16% within five years.

The increase is designed to ensure the banks have the capital needed to survive the write-downs on loans the Reserve Bank estimates would come with a one-in-200-years downturn.

Officially, the cost to the banks of meeting the new capital minimums is being put at $20b but banking sources believe it could be billions more. . . 

Ensuring banks survive a crisis is sensible but the Reserve Bank’s plan would require far greater reserves than ought to be needed and that will add high and unnecessary costs to loans.

Westpac NZ chief executive David McLean said shareholders in the banks’ Australian parent companies will not stump up that sort of money unless they can see a return.

In all likelihood that means interest rates would have to rise to offset the decrease in returns that would come with holding higher amounts of capital against the same amount of lending.

“We think the middle of that 80 to 120 basis points range is where it might come out but that is an average across all lending and it may fall differently across different portfolios of lending,” McLean said.

The increase is likely to be at the higher end of that range for agricultural lending because of the higher risk weighting applied to lending against farms, which historically experience bigger ups and downs in values and are seen as a riskier form of security than houses.

Because agricultural lending soaks up more capital per dollar lent the returns are lower for the banks’ shareholders relative to other types of lending where less capital is required. . . 

Should borrowers have to pay the price for safeguarding banks against a one in 200 year downturn?

The ANZ is warning farmers that if the Reserve Bank’s plan is implemented it will increase the cost of borrowing.

That in turn will increase the cost of production resulting in lower profits from farming and/or higher prices for food and fibre.

The Australian-owned companies which dominate the banking sector in New Zealand weathered the global financial crisis, why force them to hold such high reserves?


Rural round-up

January 10, 2018

Tests confirm cattle disease Mycoplasma bovis on Ashburton farm:

The Ministry for Primary Industries (MPI) confirms that the bacterial cattle disease Mycoplasma bovis is present on a farm in the Ashburton area.

The Ministry’s response incident controller David Yard says milk sampling carried out by the dairy industry just before Christmas revealed a suspected positive result and MPI’s Animal Health Laboratory testing has just confirmed this.

“The affected farm and an associated property have been under controls since Christmas Eve as a precautionary measure. No animals or other risk goods such as used farm equipment have been allowed on or off the property during this time and these controls stand,” Mr Yard says. . . 

Water taxi arrives in North Otago

It’s been a funny old year on Gareth and Sarah Isbister’s farm, Balruddery, near Five Forks.

Swamped by rain, the cattle farmers finished 2017 beside the Kakanui River with new irrigation and options.

The Isbisters are happy to have the extra water on hand after a difficult 12 months for an irrigation rollout in their area.

Their supplier, the farmer-owned North Otago Irrigation Company, was meant to be pumping high-pressure flow to downland farmers like them in late 2016. Joint faults in pipes put paid to that idea, costing shareholders as the contractor fixed its faulty workmanship. . .

Ruawai farmer survives being trampled by stampeding herd:

Dairy farmer Chris Baker says he is “hellishly lucky” to have survived a stampede by his 180 cows that left him trampled, unconscious and with broken bones.

The 61-year old Ruawai man has been a dairy farmer for 40 years, and has never before been in such a life threatening situation.

He does admit to being kicked in the chest and elsewhere a few times by cows, “but that’s just day to day farming.”

Baker said he did nothing different or wrong last Tuesday but the freak occurrence could have left him dead. He now has a cautionary tale for anyone working on their own on a farm, and with animals. . . 

Pastures imperiled by seawater flooding – Jessie Chiang:

Seawater flooding of rural properties in Kaiaua is going to have a serious impact on farmers, Federated Farmers says.

Wild weather and a king tide last week caused widespread flooding in the coastal region on the western side of the Firth of Thames, leaving behind soaked properties filled with debris.

The federation’s Hauraki-Coromandel president Kevin Robinson said saltwater destroys pastures.

He said farmers would now have to wait for rain to wash away the salt before they could replant grass.

“It’s become evident that there are quite a few farmers there who [have been] significantly affected by the tidal inundation – one farmer 100 percent and others to a lesser degree,” said Mr Robinson. . . 

MyFarm sees dairy farm investments waning, eyes growth in horticulture – Tina Morrison:

(BusinessDesk) – MyFarm Investments, New Zealand’s largest rural investment syndicator, is moving its focus away from its dairy farming origins and expects future growth to come from smaller overlooked investments such as fruit.

The rural investment firm was set up in 1990, initially investing in dairy farms which it syndicated to investors. It has since diversified into sheep and beef farms, horticulture and mussel farming and has more than $500 million of rural assets under management. About half its assets are dairy farms, with some 30 percent in sheep and beef farms and 20 percent in other investments, and the company expects its dairy investments to shrink as farms are sold when investments mature while the proportion in other areas grows. . . 

Have banks signalled they’ve had enough of funding the dairy industry? If funding is closed off, the new Govt’s obligations for the industry are likely to be expensive and even more stressful– David Chaston:

Rural borrowers currently owe banks in New Zealand $60.4 bln, according to the Reserve Bank.

With banks over the past decade rushing to support the capital needs of the growing dairy sector, two thirds of this rural debt is held by dairy farmers.

All rural debt represents just 14% of the debt held by banks in New Zealand and pales in comparison to the 56% of all debt banks hold over urban residences ($240 bln). These numbers don’t include another $4.9 bln lent to the rural support sector or the forestry or fishing sectors. . . 

Young Taranaki local wins Poultry Industry Trainee of the Year Award:

Henry Miles is a busy young man who is about to become even busier. Next month, the 21-year-old New Plymouth resident, who is currently Assistant Manager of a Tegel meat chicken farm, will step up to manage a large new free-range farm – which will expand to a total of eight sheds by adding a shed every seven weeks.

It is a role that Henry is well prepared for, having gained a thorough grounding in poultry farming since leaving school in 2014. . . 


Moving targets

November 10, 2017

National used yesterday’s question time to attempt to get clarification on the government’s targets for housing and spending.

The answers weren’t helpful:

1. Rt Hon BILL ENGLISH (Leader of the Opposition) to the Prime Minister: What will the specific measurable targets be, if any, that she will use to hold her Government to account?
Hon KELVIN DAVIS (Acting Prime Minister): As Prime Minister, I will hold my Ministers to account for improving the well-being and living standards of New Zealanders.
Rt Hon Bill English: What is the appropriate measure—[Interruption] 
Mr SPEAKER: Order! Sorry, I’m just going to start right now. Who is the member who interjected then? Right, there’s an additional question to the Opposition.
Rt Hon Bill English: What is the appropriate measure we should follow to monitor progress on KiwiBuild where the Government has committed to build 100,000 houses over the next 10 years?
Hon KELVIN DAVIS: We will make decisions on appropriate targets in due course.
Rt Hon Bill English: So does that mean that the current expression of the Government’s commitment, which is “to build 100,000 houses over the next 10 years” does not necessarily mean what most people would take it to mean?
Hon KELVIN DAVIS: We will make and confirm decisions on appropriate targets in due course.
Rt Hon Bill English: Does the Government stand by—[Interruption] 
Mr SPEAKER: Order! The chief Government whip, I think, interjected, or someone around her did. There is a further supplementary to the Opposition.
Rt Hon Bill English: Does the Prime Minister stand by her Government’s commitment to “build 100,000 houses over the next 10 years”?
Hon KELVIN DAVIS: We will make and confirm decisions on appropriate targets in due course.
Rt Hon Bill English: Why did the Government commit to “build 100,000 houses over the next 10 years” if it is now not willing to re-express that commitment in this House?
Hon KELVIN DAVIS: Because the previous Government didn’t build houses.
Rt Hon Bill English: Is it possible that the Government is revising this commitment because of public statements made by the Minister of Housing and Urban Development, that the commitment may involve not building houses but buying existing houses?
Hon KELVIN DAVIS: No. 
Rt Hon Bill English: What other reason could there possibly be for not being willing to restate a commitment made by all its members right though the election campaign to “build 100,000 houses”? What other reason could there be not to make that commitment here today? 
Hon KELVIN DAVIS: We are not revising targets. We will make and confirm decisions on appropriate targets in due course.
Rt Hon Bill English: So is the commitment to build 100,000 houses an appropriate target, or one that is subject to revision or further decisions, or is it one that we should take at its word? 
Hon KELVIN DAVIS: The member will find out in due course. . . 

That sounds like the answer is if there’s a target it’s a movable one.

Hon Michael Woodhouse: Who is correct: the Minister of Housing and Urban Development, who says that there is a fixed commitment to build 100,000 extra houses, or the Prime Minister, who says such a target has not yet been set?
Hon PHIL TWYFORD: Both the Prime Minister and the Minister of Housing and Urban Development have reiterated our policy, which is to build 100,000 affordable homes to restore affordable homeownership to this country. . . 

That’s the policy but what’s the target?

The Reserve Bank also questions the number of houses that will be built:

The Government has announced an intention to build 100,000 houses
in the next decade. Our working assumption is that the programme
gradually scales up over time to a pace of 10,000 houses per year by
the end of the projection horizon. Given existing pressure on resources
in the construction sector, the aggregate boost to construction activity
from this policy will depend on how resources are allocated across public
and private sector activities. The Government intends to introduce a
‘KiwiBuild visa’ to support the supply of labour to high-need construction related
trades. While accompanying policy initiatives may alleviate
capacity constraints to some extent, our working assumption is that
around half of the proposed increase will be offset by a reduction in
private sector activity.

It could be the new house target is a movable one because there’s more than a little doubt about the finances:

3. Hon STEVEN JOYCE (National) to the Minister of Finance: Can he confirm it is his intention as Minister of Finance to ensure core Crown expenses do not exceed $81.9 billion in 2017/18, $86.1 billion in 2018/19, $88.2 billion in 2019/20, $91.8 billion in 2020/21, and $96.1 billion in 2021/22, as specified in the Labour Party’s pre-election Fiscal Plan?
Hon GRANT ROBERTSON (Minister of Finance): I can confirm that it is my intention for core Crown expenditure as a percentage of GDP to be within the recent historical range. As to the exact figures in the member’s question, I cannot confirm those as, of course, they are subject to detailed Budget decisions and revenue forecasts that are yet to be finalised.
Hon Steven Joyce: Can he confirm that he stands by his statement from 4 September this year, and I quote, “Labour’s Fiscal Plan is robust, the numbers are correct and we stand by them”?
Hon GRANT ROBERTSON: I can confirm that the Budget that this Government is putting together will be robust and it will deliver on a commitment that this Government has made to ensure that all New Zealanders share in prosperity.
Michael Wood: What else, in addition to managing core Crown expenditure, will guide the Government’s approach to responsible fiscal management?
Hon GRANT ROBERTSON: The Government will observe the Budget responsibility rules as indicated in the Speech from the Throne: namely, delivering a sustainable operating balance before gains and losses; reducing net core Crown debt to 20 percent of GDP within 5 years; and ensuring a fair and balanced progressive taxation system. We will also never forget that the purpose of a strong economy is to give every New Zealander the chance to share in prosperity, and we will never be satisfied while children live in poverty or families sleep in cars.
Hon Steven Joyce: Does he stand by his statement also on 4 September, and I quote, that “Our operating expenses are above the line and are clearly stated.”?
Hon GRANT ROBERTSON: The Budget that this Government will prepare will be clear about what we are spending and where the revenue for that is coming from.
Hon Steven Joyce: So that’s a no. Can I also ask: does he stand by his statement, and I quote, “We have quite clearly put in the spending requirements to meet the promises we have made. Our fiscal plan adds up. We are absolutely clear that we have the money to meet the commitments that we’ve made.”, also on 4 September?
Hon GRANT ROBERTSON: The Government will prepare a Budget that shows how we will pay for the important commitments that we have made to ensure that every New Zealander benefits from economic prosperity.
Hon Steven Joyce: Can the Minister of Finance then confirm that it is not his intention to necessarily ensure core Crown expenditure does not exceed $81.9 billion this current financial year, $86.1 billion in the next financial year, $88.2 billion in 2019-20, $91.8 billion in 2020-21, and $96.1 billion in 2021-22? Can he confirm that’s not his intention, even though it was specified in the Labour Party’s pre-election fiscal plan?
Hon GRANT ROBERTSON: I can confirm that we will keep Government expenditure as a percentage of GDP in line with the historical range.
Hon Steven Joyce: Can the finance Minister then confirm that he doesn’t at all stand by the numbers he presented in the Labour Party’s fiscal plan prior to the election?
Hon GRANT ROBERTSON: The Government is currently going through the usual process of putting together a Budget. We are absolutely confident that we will deliver a Budget that is in line with the Budget responsibility rules that were outlined in the Speech from the Throne and that will deliver to New Zealanders a fair share in prosperity. As I said in my primary answer, the final numbers are the subject of the normal Budget process. . . 

Hon Steven Joyce: Is he saying that the actual numbers written on the Labour Party’s fiscal plan prior to this election, which he and his colleagues defended vigorously during the election campaign, are no longer relevant? The comments he has made suggest that he will put whatever numbers he likes in front of the public in due course in the next Budget.
Hon GRANT ROBERTSON: I have been absolutely clear that the commitment that we have made is that Government expenditure as a percentage of GDP will remain in line with the long-run historical trend. Members on the other side of the House well know that we will now be looking at new revenue forecasts and, indeed, new growth forecasts. They will determine the exact numbers that are presented. But we are very clear on this side of the House: our number add up. . . 

Hon Steven Joyce: Has he noted how often the Reserve Bank mentioned policy uncertainty in their Monetary Policy Statement this morning, and has he considered how his statements in the House this afternoon and his responses to questions will not help with that policy uncertainty when the Reserve Bank was obviously placing some credence on his previous statements about Government expenditure and now he is not even standing by those?
Hon GRANT ROBERTSON: The Reserve Bank Governor noted today that his thinking was preliminary, and, just like the member opposite, when the Half Yearly Economic and Fiscal Update and Budget Policy Statement are released before the end of the year, there will be significant certainty about our spending plans. If the member can’t wait, I’ll make up a special advent calendar for him so that he can count down to the half yearly update.

In opposition you might be able to get away with vagueness, but governments need to be much clearer on its spending plans so that public institutions like Treasury and the Reserve Bank have sufficient information to perform their roles effectively.

“This morning’s Monetary Policy Statement from the Reserve Bank makes numerous mentions of domestic policy uncertainty including ‘uncertainty around tax policy’, uncertainty around the ‘future impact of these policy changes’ and ‘heightened uncertainty regarding the domestic outlook,” Mr Joyce says.

“While the Bank is taking a steady as she goes approach at this point, it is clear that their economic forecasting is affected by a lack of clarity from the new Government as to their fiscal and economic plans.

“This is not a surprise as we are all still yet to see the figures underpinning the coalition agreement between Labour and New Zealand First, which was signed over two weeks ago, and we are all still yet to see the Government’s mythical final 100 Day Plan.

“Yesterday’s Speech from the Throne contained 51 new spending commitments, which will put significant pressure on the Government’s spending track and net debt.

“The first Bill In Parliament this week seeks to legislate for $325 million of extra spending, without any reference to how this fits in to the government’s wider spending plan.

“The public will rightly be concerned that the large number of spending promises they have heard about could sacrifice New Zealand’s hard work to get back into surplus and start paying down debt.

“The irony is that in recent years all the economic risks have been offshore. Now just as the world economic outlook is strengthening, all the risk and uncertainty is being generated domestically by the economic opaqueness of the new Government.

“It is time for the Government to be much more transparent and start releasing more details of their fiscal plans.”

It’s possible they haven’t got any fixed ones, like their housing target they’re movable.


Too little and too much

April 5, 2016

Oh Dear.

Labour leader Andrew Little still wants to stiff-arm banks:

. . . ‘I stand by the stance I took, which is to get very heavy-handed with the banks. Because the truth is when the banks fail to follow the signal that the Reserve Bank is sending, that’s keeping money out of the back pockets of ordinary Kiwis, and I will always fight for their interests and for their rights. If the banks don’t want to play ball when it comes to the way we run our monetary policy, actually, there’s only one outfit that can really take them on, and that’s the government.’. . .

The Reserve Bank is independent because it’s not the government’s role to set interest rates.

Retail banks are independent businesses and it’s not the government’s role to tell them what interest rates they should charge.

Interest rates are at historically low levels. They are higher in New Zealand than in many other countries which is partly a reflection on overseas investors’ perception of our economic and political stability.

That would be threatened by any stiff-arming of banks by government.

State intervention would also make business more risky for banks, the lenders and their borrowers.

Little’s not the only politician on the left who wants the government to get involved in banking.

Green co-leader James Shaw wants it to give $100m to Kiwibank which Prime Minister John Key described as dangerous:

He told Morning Report he did not support the idea, as the bank would be asked to make “non-commercial loans” – putting it in a weak position.

He said the Greens were using a state-owned enterprise (SOE) to bring about a policy goal.

“But to do that would be highly dangerous, because what you will end up doing is being in a position where you’re effectively asking them to make non-commercial loans, and potentially non-commercial returns.”

Mr Key said that would be “very poor public policy” and could lead you to a situation where the bank had to be bailed out. . . 

Jim Rose at Utopia points out other flaws:

Note well that the $100 million capital injection is to expand in to commercial banking. More aggressive passing on of interest rate cuts may jeopardise credit ratings if this lowers the profitability of KiwiBank. KiwiBank has an A- rating. . .

KiwiBank is minnow in the mortgage market and a pimple in commercial lending. Rapid business expansion is risky in any market, much less in banking. . . 

The proposal to use KiwiBank to lower mortgage rates does not add up. KiwiBank does not pay much in the way of dividends to fund such a foray.  KiwiBank is already far more leveraged than any other New Zealand major bank. 

Rob Hosking points out that while the policy might have political appeal it is bad economics:

Somewhat lost in all this is the risk of a policy that will encourage New Zealanders to take on more debt. . . 

 

New Zealand’s current account deficit has been there since 1974 and although it is now lower than the peak it reached a decade ago, it is still firmly in the red.

The Scandinavian and North European countries might be running larger household debts on their balance sheets, but these are internally funded: Norway and the Netherlands, for example, are running current account surpluses of  around 10% of GDP as opposed to New Zealand’s 3% of GDP deficit.

So they can afford to run up those debts.

New Zealand cannot. And a drive to push interest rates down – a taxpayer-funded drive no less – sounds more than a little foolish given New Zealand’s long-standing economic and financial vulnerabilities. . . 

Shaw’s suggestion of $100m sounds like a lot of money and it is far too much for taxpayers but it wouldn’t be enough to help many people.

Besides, if people can’t borrow money at the current very low rates, it would be a dangerous move for them, the banks, any other creditors and the wider economy, to try to make it easier.

When Labour was in power in the 1980s interest rates were higher than 20%. When it was in power in the noughties, interest rates were in double figures, well above current rates.

There were several reasons for that and the big one which politicians could have influenced was high government spending and mismanagement of public money.

If Little and Shaw want to keep interest rates low they should be supporting the current government’s efforts to keep a tight rein on its spending and developing policies which would continue that.

That is far better policy than either stiff-arming banks or using more taxpayers’ money to prop up Kiwibank.


They’re from the Opposition & won’t help

March 18, 2016

If I’m from the government, I’m here to help,  is greeted with suspicion, the sudden enthusiasm Opposition MPs are showing for the regions in general and dairying in particular is being seen as nothing more than political opportunism.

The Chicken-Littleing from Labour, the Greens, New Zealand First and some media isn’t helping.

The sky isn’t falling.

Dairy prices are lower in real terms than they have been for more than 20 years which is a challenge for farmers, sharemilkers, their staff and those who service and supply them.

There were a few forced farm sales and other business failures when the dairy price was over $8.

There will be some more in the coming months and that will be very difficult for everyone affected.

But most will hang on, with the support of their banks, and get through what is a temporary slump.

Labour leader Andrew Little’s attempt to demonise banks did nothing more than show he doesn’t understand what he’s talking about.

His calls for stiff arming banks and legislation to force them to pass on interest rate cuts has been greeted with the derision they deserve.

His response to the Reserve Banks’ explanation about its stress-testing of banks provided further evidence he doesn’t know what he’s talking about.

The media release made it clear the banking system was robust to a severe dairy stress test.

. . .Five banks that are the largest dairy sector lenders participated in a stress test run by the Reserve Bank in late 2015. Two scenarios were tested, with scenario one assuming that the dairy payout recovers to $5.25 per kilogram of milksolids by the 2017/18 season and a fall in dairy land prices of 20 percent. Under the second scenario, the dairy payout was assumed to fall to $3 in 2015/16 and remain below $5 until the 2019/20 season with a fall in land prices of 40 percent.

Head of Macro Financial Bernard Hodgetts said both scenarios assume the dairy payout remains lower for longer than was assumed in the economic projections contained in the Reserve Bank’s March Monetary Policy Statement.

“On average, banks reported losses under the two scenarios ranging between 3 to 8 percent of their total dairy sector exposures,” said Mr Hodgetts.

“Bank lending to the dairy sector stands at around $38 billion, which is approximately 10 percent of the banking system’s total lending. We would expect losses of the order seen in the stress scenarios to be absorbed largely through lower bank earnings rather than through an erosion of bank capital.”

The test results suggested that in the shorter term, banks would increase their dairy lending in order to support existing borrowers facing negative cash flow, before facing a longer term rise in loan losses if there were a prolonged dairy sector downturn. . . 

Anyone who understood this would have been pleased that banks were prepared to support existing borrowers and could cope with losses in a worst-case scenario.

That Little didn’t understand it became evident at Question Time on Wednesday:

Andrew Little: Is he at all concerned about the Reserve Bank’s projection that dairy land values will crash by between 25 and 40 percent, which will undermine the livelihoods of thousands of Kiwis?

Rt Hon JOHN KEY: That is the problem with the Leader of the Opposition—it is that you cannot take him seriously, when he actually misrepresents the Reserve Bank Governor. The Reserve Bank Governor is not saying there is a projection that land prices will drop by 25 to 40 percent; he is doing a stress test to say what would happen if land prices went down. There is quite a—

Grant Robertson: And that’s the scenario we’re in now.

Rt Hon JOHN KEY: Well, banks—reserve bankers do that all the time, because their prudential requirements require them to make sure the banking system is strong. And what he is saying is, even under a worst scenario like this, the banking system is very strong.

Andrew Little: Has the Prime Minister actually read the Reserve Bank’s report released at 2 p.m. today; if so, has he read it?

Rt Hon JOHN KEY: No, what I have read is the release—the press release—because it came out at 2 o’clock today, and I got this only 1 minute before I came here. But what the release says quite clearly is (a) the banking system is very strong, (b) under its worst-case scenarios—to quote—“The test results suggested that in the shorter term, banks would increase their dairy lending in order to support existing borrowers …”, and it is saying that even in the worst scenario, the losses could be between 3 percent and 8 percent of their total dairy exposure. Banks have considerably more exposure than just this, and, as the member was pointing out yesterday, banks have been making pretty good money. They can afford, if they have to—

Mr SPEAKER: Order! Bring the answer to a conclusion

Rt Hon JOHN KEY: —to take some losses in that sector.

Andrew Little: Does he agree with Mind Your Own Business that “approximately 100,000 businesses employing upwards of one million New Zealanders are facing reducing revenue because of the dairy downturn.”?

Rt Hon JOHN KEY: I do not have anything to back that up—I would need to see the analysis. But it could be as small as a business that is affected, from someone who sells sandwiches to someone who works in that area. There is a very large range of businesses in that sector.

Andrew Little: Is it fair that our dairy farmers go bankrupt and 100,000 small businesses face reduced revenue while overseas-owned banks continue to make $90 million a week and speculators circle over our farmland?

Rt Hon JOHN KEY: The member is, I think, terribly confused about what is happening. What you have got is a scenario where dairy prices are lower, and what we should be doing is supporting dairy farmers with the things that we can control. We cannot control the exchange rate and we cannot control commodity prices and we cannot control the weather. We can control free-trade agreements, planning laws, health and safety, Resource Management Act reform, and a variety of other things, and on this side of the House we support helping those farmers, actually, in good times and in bad.

With the exception of West Coast Tasman, Palmerston North and Winston Peter’s opportunistic enthusiasm for Northland, Opposition parties don’t even try to win regional seats.

Their MPs flit in for photo opportunities but their sudden faux support for dairy farmers merely shows how little they understand the people and the issues.

The dairying downturn is a passing car at which the Opposition is barking.

Farmers don’t want banks strong-armed, they don’t want bail-outs and they certainly don’t want a return to the any of the government-knows-best policies, the recovery from which necessitated the radical reforms of the 80s and 90s.

Those are mad ideas from the Opposition and they won’t help.


Rural round-up

November 12, 2015

Fonterra’s silent majority hold key to shareholder vote on number of directors:

Fonterra shareholders who want to send a message to their company have been encouraged to support the proposal to reduce the number of directors on the company’s board.

Colin Armer and Greg Gent, the two former directors behind the proposal, say that shareholders are the only people who own the company’s constitution and the only people who have the right to change it.

Mr Gent said he wanted to encourage those who do not normally vote to do so this time. . . 

Improving resource base key to sustainable growth:

Improving the quality of our natural resources is the key to sustaining economic growth in our primary sectors right across regional New Zealand, says Economic Development Minister Steven Joyce and Primary Industries Minister Nathan Guy.

Ministers Joyce and Guy today launched the updated Building Natural Resources chapter of the Business Growth Agenda with an emphasis on lifting primary sector productivity while improving our environmental outcomes at the same time.

“Our natural resources are central to achieving growth and more jobs in New Zealand’s economy, especially our regional economies. We are committed to using new scientific techniques and innovations, alongside infrastructure developments in information technology and water storage, to achieve both productivity gains and environmental gains,” says Mr Joyce. . . 

NZ’s primary sector leaders of tomorrow still bank on brand Kiwi, want deeper debate on GMOs – Jonathan Underhill:

(BusinessDesk) – New Zealand’s emerging agri-business leaders say affluent consumers in 2035 will pay a premium for products sold with a strong provenance story and that are more tailored to their needs, according to KPMG’s Agribusiness Agenda 2015.

The accounting firm asked a range of primary sector organisations to nominate emerging leaders and more than 50 of them – scientists, company executives, farmers, government officials and marketers – met for a summit in Auckland in September and were asked to share their vision for the sector in 2035. They were also surveyed on their priorities and the results compared to a separate poll of current leaders. . . 

RBNZ asks banks to stress test dairy loans, confident they can weather downturn – Paul McBeth:

(BusinessDesk) – New Zealand’s major lenders are able to cope with a protracted downturn in the dairy sector, which the Reserve Bank estimates could cause credit losses of as much as 18 percent over a four-year period.

The central bank has requested the five biggest lenders to the dairy sector – ASB Bank, ANZ Bank New Zealand, Bank of New Zealand, Westpac New Zealand and Rabobank New Zealand – to stress test their portfolios, which the Reserve Bank sees as a growing risk to the health of the nation’s financial stability. The regulator was encouraged by “realistic provisions” set aside for the portfolios, and its modelling suggests a sustained downturn would be manageable for the wider system. . . 

Dairy farming not fanning Indonesian forest fires:

Federated Farmers echoes the concerns of Greenpeace and others regarding the devastation and environmental impact of forest fires that have burned for more than three weeks across Indonesia, but says the use of Palm Kernel Expeller (PKE) as a supplementary feed source for dairy cows is not to blame.

“It’s important to remember that PKE is not the reason for these fires or tropical deforestation. It is a by-product of the extraction of palm oil and palm kernel oil which would otherwise be treated as waste,’ says Federated Farmers Dairy Industry Chair Andrew Hoggard.

“Dairy farmers are taking this waste product and making use of it as a supplementary food source, used mainly as an alternative to pasture during adverse weather such as droughts, to maintain the welfare of herds and the productivity of New Zealand’s vitally important dairy industry.” . . 

Panning for Pink Gold: Fonterra Expands Capacity in High-Value Lactoferrin:

It takes 10,000 litres of milk and incredibly sophisticated technology to make just one kilogram of lactoferrin – a high-value ingredient that Fonterra has recently doubled its capacity to produce.

The new $11 million upgrade of the lactoferrin plant at the Co-operative’s Hautapu site is now running at full volume, helping to meet growing worldwide demand for the product affectionately known as ‘pink gold’.

Lactoferrin is a naturally occurring iron-binding protein found in milk and is in high demand, particularly in Asia, for a wide range of nutritional applications from infant formula through to health foods and yoghurts. . . 

Enter Dairy Industry Awards and go on holiday:

Those that enter the 2016 New Zealand Dairy Industry Awards can win a holiday of their choosing – so long as they enter soon.

Entries in the 2016 New Zealand Share Farmer of the Year, Dairy Manager of the Year and Dairy Trainee of the Year competitions are now being accepted online at www.dairyindustryawards.co.nzand close on November 30.

Those that enter by midnight on November 20* will go into the Early Bird Entry Prize Draw and be in with a chance to win a share of $12,000 in travel vouchers and spending money. . . 


Bank, govt aim at demand, what about supply?

May 18, 2015

The Reserve Bank and the government are both trying to take the heat out of the Auckland housing market.

The Bank announced proposed changes to the loan-to-value ratio (LVR) policy to take effect from 1 Octobere:

They will:

  • Require residential property investors in the Auckland Council area using bank loans to have a deposit of at least 30 percent.
  • Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent, to reflect the more subdued housing market conditions outside of Auckland.
  • Retain the existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 percent.

The government is  taking extra steps to bolster the tax rules on property transaction.

FInance Minister Bill English and Revenue Minister Todd McLay say the Government is taking extra steps to bolster the tax rules on property transactions – including those by overseas buyers – and to help Inland Revenue enforce them.

The tax measures are also expected to take some of the heat out of Auckland’s housing market and sit alongside the Reserve Bank’s latest moves to address associated financial stability issues, Mr English says.

“Taken together, they will help Inland Revenue enforce existing tax rules, provide it with extra resources and ensure that property investors pay their fair share of tax – whether they’re from New Zealand or overseas.”

The Budget this week will confirm that, from 1 October this year, the following will be required when any property is bought or sold:

  • All non-residents and New Zealanders buying and selling any property other than their main home must provide a New Zealand IRD number as part of the usual land transfer process with Land Information New Zealand.
  • In addition, all non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification requirements such as a passport.
  • And to ensure that our full anti-money laundering rules apply to non-residents before they buy a property, non-residents must have a New Zealand bank account before they can get a New Zealand IRD number.
  • In addition, a new “bright line” test will be introduced for non-residents and New Zealanders buying residential property, to supplement Inland Revenue’s current “intentions” test. Under this new test, gains from residential property sold within two years of purchase will be taxed, unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement.

“Tax rules are complex and affect people in different ways, so we will consult on these measures before they take effect on 1 October,” Mr English says.

The “bright line” test will then apply to properties bought on or after 1 October.

To further ensure overseas property buyers meet both existing tax requirements and those of the new test, the Government will investigate introducing a withholding tax for non-residents selling residential property.

Officials will consult on these details with a view to this withholding tax being introduced around the middle of 2016.

Mr English reiterated owner-occupiers of residential property will not be affected by the new measures when they sell their main home, or if property is inherited from a deceased estate or transferred as part of a relationship property settlement.

“It’s important to reiterate that these changes will not apply to New Zealanders’ main home, although existing tax rules will still apply in  addition to these new measures,” Mr English says.

“It’s equally important that people buying residential property for gains meet their tax obligations, whether they are from New Zealand or overseas.

“The combination of collecting IRD numbers and introducing this new bright-line test will help ensure that non-residents pay their fair share of tax in New Zealand.” . . .

New Zealand National Party's photo.

These measures should go someway to dampening the demand side of the pressure on Auckland property prices.

More needs to be done to increase the supply of houses.

This could be done by building more houses and by people moving from Auckland to other areas.

Immigration Minister Michael Woodhouse is considering incetivising immigrants to settle in the regions:

The Government is set to give skilled migrants, investors and those planning to bring businesses to New Zealand extra points if they settle outside of Auckland.

Skilled migrants and those applying to live in New Zealand under entrepreneur visas already gain 10 points in the immigration points system if they say they intend to settle outside of Auckland. That could soon get a boost.

“Those entrepreneurs, those innovators who could make a contribution to regional development, it is possible for us to bump up the points settings to incentivise that,” says Mr Woodhouse. . .

 It’s not just immigrants who could make a contribution to regional development.

If some of those bemoaning property prices in their home city opened their eyes to opportunities outside Auckland they could move out of Auckland.

They would get a house for much less than they could hope to pay in the city, find how much easier life is when there are fewer people clogging the roads and in improving their lives would free up houses in Auckland for those who can’t or won’t move.


Inflation targeting works

December 1, 2014

The Reserve Bank’s focus on inflation is working:

Inflation targeting has delivered price stability without reducing long-term growth, and remains the appropriate focus for monetary policy, Reserve Bank Governor Graeme Wheeler said today. . .

“Price stability has brought many benefits. It enables people to plan and contract with greater certainty for longer periods. It reduces the inflation risk premium in interest rates and the need for speculative inflation hedges, and it reduces the insidious toll that inflation exacts on the more vulnerable and less financially sophisticated,” Mr Wheeler said.

The opposition’s calls for a less rigorous approach to controlling inflation is foolish.

Inflation is theft, it erodes the real value of savings and that hits the poorest hardest.

“In the 20 years before the Act, annual real GDP growth averaged 2.2 percent while annual inflation was volatile around an average of 11.4 percent. Since 1990, real GDP growth and annual inflation have averaged 2.6 and 2.3 percent respectively, and there has been a marked decline in inflation variability.”

Mr Wheeler said the Reserve Bank is a ‘flexible inflation targeter’.

“We seek to anchor inflation expectations close to the price stability objective while retaining discretion to respond to inflation and output shocks in a flexible manner.”

This flexible, medium-term approach to policy was drawn on at the outset of the Global Financial Crisis when the Bank lowered the Official Cash Rate by almost 6 percentage points in 2008-2009, even though headline inflation was initially well above target. This policy stance was able to cushion the impact of the crisis.

In order to do its job effectively, Monetary Policy needs to be supported by prudent fiscal policy and sound structural adjustment policies. Monetary policy can affect the demand for housing and help ease imbalances in the housing market while supply is increased. But it cannot free up more land constrained by zoning regulations, address procedural and pricing issues around planning consents, offset tax policies in the housing sector, or raise productivity in the construction sector. . .

The tax and spend policies proffered by opposition parties before the election would have been inflationary and pushed up interest rates.

Housing prices reflect supply and demand. The best way to address that is to increase the supply where it’s not meeting demand. Local government has a big part of play in doing that by sensible zoning and simple and timely consent processes.

The full speech is here.


On balance

May 4, 2014

Unions don’t usually try to be balanced.

They are almost always anti National polices and pro Labour ones. Their silence on Labour’s monetary policy therefore speaks volumes.

Federated Farmers which isn’t politically aligned tries to be more balanced. Take its response to that policy:

It’s headlined Federated Farmers keen on Labour’s monetary policy and starts:

“We may be swimming against the tide but there are elements in Labour’s Monetary Policy which has some merit,” says Bruce Wills, Federated Farmers President.

“Of course we are talking high-level and the devil will be in the detail, but I wish to first caution any party from assuming inflation has gone the way of Rinderpest.  The moment you lose focus on inflation it will be back faster than a rat up a drainpipe.

“Giving the Reserve Bank the means to adjust universal KiwiSaver savings rates, as an alternative to raising interest rates, does genuinely strike us as innovative.

“We’re certainly not so quick to rush to judgement on such a policy as if it works, it could potentially boost savings while relieving pressure on both the Official Cash Rate and the Kiwi dollar.

Willis is trying to keep an open mind but he’s not quite as keen as the headline suggests:

“Whatever happens, it will need work to make sure it’s feasible, workable and equitable, given this policy could squeeze low and middle income earners.

Those low and middle income earners are the ones Labour is supposed to champion.

But Wills give Labour some credit:

“Federated Farmers is very happy to see that Labour will maintain the Reserve Bank’s independence and inflation target.  We’re also pleased to see inflation in the non-tradable sector being fingered by Labour too.

Being fingered by one hand while promoting policies which would fuel inflation with the other, though.

The rest of the media release looks at other policies on which Feds definitely isn’t keen:

“Even when running a surplus, what remains unanswered in Labour’s ‘monetary policy needs mates’ equation, is the pressing need for fiscal prudence.  If imprudent government spending takes off to deliver on political deals then it will kneecap monetary policy.

“We need the next government to truly cut its cloth because it is our money being spent.  

“Federated Farmers is sceptical about a Capital Gains Tax.  Aside from becoming just another tax, a CGT hasn’t dropped the price of houses in Britain or Australia, which, incidentally, are regularly advertised for sale in Asian newspapers.

“We also detect a hardening of Labour’s position on foreign investment in farmland, despite there being no research on whether it is a problem or not. We are equally concerned with the government’s laissez-faire attitude and wrote last year to Ministers requesting research.

“Before we go soft or hard on foreign investment, should we not first have the data?

“A mistake here will do untold economic damage affecting every kiwi because there are billions of reasons to get foreign investment policies right and each reason is called a dollar.  Especially with our exports cracking the $50 billion barrier in the year to March.

“We are further worried that the NZ Power initiative could increase costs on businesses while a stringent Emissions Trading Scheme in tandem with Resource Rentals, will put a Sword of Damocles over the productive sector’s head.

“Aside from the political digs that could easily be returned with interest, there are certainly aspects we’d like to get more detail on from Labour,” Mr Wills concluded.

On balance the conclusion from this is that farmers have a lot more to fear from Labour whether or not the monetary policy would work which many doubt.

Among those is BNZ economist Tony Alexander:

. . . Labour would broaden the target of monetary policy to include trying to get the external accounts in balance over the economic cycle. That is fairly meaningless and can be ignored just as previous additions of words such as “avoiding unnecessary volatility in interest rates, the exchange rate and output…” had basically no impact on policy implementation.

More significantly Labour propose giving the Reserve Bank a new tool, specifically the ability to alter

contributions to Kiwisaver accounts as a means of influencing the pace of household spending growth, therefore economic growth and therefore inflation. They hope that use of this tool would mean less reliance upon interest rates and therefore less upward pressure on the exchange rate and perhaps even a small structural decline on the theory that a higher average level of contributions to Kiwisaver would lead to a reduced average level of interest rates.

There are many implications of Labour’s policy.

  • Long tern Kiwisaver returns will be reduced as savers are forced to buy more shares when prices are high and fewer when they are low.
  • Volatility in the sharemarket will rise.
  • Investors will have extra incentive to purchase residential property, thus pushing house prices higher.
  • Overseas debt will tend to be boosted.
  • Bank profits will rise. . .

Reduced returns from Kiwisaver, increased share market volatility, more investment in property and higher overseas debt are big negatives and many will see higher bank profits as something which shouldn’t be encouraged either.

He goes on to say the policy could encourage more debt as well and adds:

. . . The policy as proposed by Labour is a valiant attempt to mitigate the impact on exporters of the monetary policy tightening cycle and they should not be criticised for trying to make a positive contribution to our economic growth in this way. But the policy is not backed by any research as to how it would work and how effective it would be, and if Labour were to defy the polls and hold power after September 20’s general election, implementation would likely be a long way off. The bastardisation of the generally popular Kiwisaver scheme also does not seem an optimal route to take. . . 

In other words, on balance, the policy is a dog.


IMF backs govt, warns against change

April 2, 2014

The International Monetary Fund is backing the government’s economic prescription.

Confirmation from the International Monetary Fund that New Zealand’s growth prospects have improved and that its macro-economic framework remains sound is a welcome further endorsement of the Government’s economic programme, Finance Minister Bill English says.

As the IMF notes in its concluding statement issued today, New Zealand’s economic expansion is becoming increasingly embedded and broad-based. It forecasts annual economic growth will increase to about 3.5 per cent this year.

“It’s encouraging that the IMF has again noted that our macro-economic framework remains sound and provides policy space to respond to adverse shocks,” Mr English says

“In particular, it concludes the Government’s focus on returning to surplus next year will help to preserve its favourable standing with external creditors against New Zealand’s background of relatively high net foreign liabilities.

“I also agree with the IMF that New Zealand faces some risks, including globally from any downturn in the fortunes of China and the rest of Asia, and on the domestic front from issues around housing affordability.

“As the IMF notes, the Government’s steps to help alleviate housing supply bottlenecks and the Reserve Bank’s measures to tighten mortgage lending and to raise interest rates should help to ease house price pressures.

“The Government’s fiscal deficit reduction programme is also expected to take some pressure off the exchange rate, as the IMF acknowledges.

“So this latest report on New Zealand confirms we remain on the right track to build a faster-growing economy and to manage the global and domestic risks that might come our way,” Mr English says. “That’s important if we are to support more jobs and higher incomes for New Zealand families.”

Support for the National-led government’s prescription is also a shot across the bows of the opposition parties which want to change it with higher taxes, higher spending and meddling with the Reserve Bank.

 


Inflation hurts

March 13, 2014

Question of the day:

It was prompted by Labour’s threat to meddle with the Reserve Bank.

Inflation effectively cuts wages by reducing buying power and it erodes the value of savings.

Some Labour MPs were in government in the 1980s when inflation was nearly ten times higher than it is now and interest rates were in the mid to high 20s.

Have they forgotten, have they no influence on their caucus or do they just not care?


Explosion or erosion

March 13, 2014

Yesterday morning Chris Trotter called the election for National unless something hugely dramatic happens between now and polling day.

In the afternoon Justice Minister Judith Collins had to apologise for not being as open as she should have been about her trip to China.

This morning, the Reserve Bank  is expected to announce an increase in the Official Cash Rate which will lead to an increase in interest rates.

That won’t come as any surprise when the OCR has been at a record low of 2.5% since March 2011.

It will be welcomed by those who get income from interest-bearing investments. It won’t be appreciated by the many more who have mortgages, even though interest rates will still be well below the 11% we were paying when Labour lost the 2008 election.

Neither of these are hugely dramatic and are unlikely by themselves to have much impact on the polls when Labour continues to be divided internally and confused about which coalition partners it would choose.

The odds still favour National, but when even a day can make a big difference, six months is time for an even bigger one.

Erosion over time can do as much damage as an explosion.


OCR unchanged for now

January 30, 2014

The Reserve Bank has left the Official Cash Rate at the record low 2.5%.

New Zealand’s economic expansion has considerable momentum. Prices for New Zealand’s export commodities remain very high, especially for dairy products. Consumer and business confidence are strong and the rapid rise in net inward migration over the past year has added to consumption and housing demand. Construction activity is being lifted by the Canterbury rebuild and by work in Auckland to address the housing shortage. Continued fiscal consolidation will partly offset the strength in demand. GDP grew by 3.5 percent in the year to September, and growth is expected to continue around this rate over the coming year.

While agricultural export prices are expected to come off their peak levels, overall export demand should benefit from improving growth in the global economy. However, improvements in the major economies have required exceptional monetary accommodation and there remains uncertainty about the timing of withdrawal of this stimulus and its effects, especially on emerging market economies.

Annual CPI inflation was 1.6 percent in 2013, and forward-looking measures of firms’ pricing intentions have been rising. Construction costs are increasing and risk feeding through to broader costs in the economy. At the same time, there appears to have been some moderation in the housing market in recent months. The high exchange rate continues to dampen inflation in the traded goods sector, but the Bank does not believe the current level of the exchange rate is sustainable in the long run.

While headline inflation has been moderate, inflationary pressures are expected to increase over the next two years. In this environment, there is a need to return interest rates to more-normal levels. The Bank expects to start this adjustment soon.

The Bank remains committed to increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point. The scale and speed of the rise in the OCR will depend on future economic indicators.

This gives a little breathing space before what is expected to be an increase in the OCR and subsequent increases in interest rates.

The message in this statement is clear – it’s not if there will be an increase but when.

That doesn’t just mean an increase on interest it will almost certainly put pressure on the value of our dollar.


LVRs introduced for good reason

October 3, 2013

Reserve Bank Governor Graeme Wheeler explains why it was necessary to impose lower loan to value ratios on banks:

 Many New Zealanders consider purchasing a house to be a rock solid investment, and assume that house prices will continue to rise steadily, having never seen a bear market or experienced rapid rises in mortgage rates.

Over the past 25 years, however, many wealthy countries have experienced periods of substantial decline in house prices.

Falling house prices erode homeowners’ equity, while mortgage lenders experience losses on their loan portfolios. The resulting stress in the financial system can have long lasting adverse effects on the economy. For borrowers, it can mean years of spending cut-backs to rebuild savings. The greatest impact is on borrowers, often first-home buyers, who recently entered the market with the least equity. In the United States, real net household wealth for the median household fell 39 percent from 2007 to 2010, and a quarter of America’s mortgage holders owed more on their houses than what their houses were worth.

Our concern is that excessive increases in house prices in parts of the country, if unchecked, pose increasing risk for the financial system and the broader economy. High and rising house prices increase the risk and potential impact of a major correction in house prices, and consequential loss to lenders. In a severe downturn, such losses would be expected to significantly reduce banks’ willingness to lend. Similar views about the risks from our overvalued housing market are expressed by the IMF, OECD, and the major international credit rating agencies.

New Zealand’s house prices are expensive, based on international comparisons of house prices relative to rents and to levels of household income. And our household debt levels relative to disposable income – having doubled over the past two decades – are also very high.

Could New Zealand experience a sharp fall in house prices? While not anticipated, our economy is not immune to such risks. The world economy still faces major challenges and, if global growth slows markedly, or if China’s financial system experiences major difficulties, it would quickly feed into the New Zealand economy and housing market.

House prices are rising rapidly in Auckland and Christchurch for two reasons: housing shortages and easy credit. It is critical that issues around land availability, zoning restrictions and high building costs are resolved and that the housing targets in the Auckland Accord are achieved. It is also important that credit expansion is restrained to be more in line with housing supply. Restricting lending to borrowers with low deposits can help reduce the upward pressure on house prices, especially as banks have been competing aggressively for borrowers with low deposits – with this borrowing accounting for 30 percent of new mortgage lending.

Some suggest that loan-to-value restrictions should be applied regionally, especially around Auckland, or that we should exempt buyers of lower-priced houses.  We considered both options.  However, regional restrictions would be hard to administer and would shift housing pressures outside wherever the boundary is drawn.  Exempting low-priced housing would be a recipe for rapid increases in the cost of such housing. Broad exemptions to other groups such as first home buyers would substantially undermine the effectiveness of the restrictions in reducing house price inflation.

While new for New Zealand, such restrictions have been introduced in 25 countries, and are currently being deployed in Canada, Israel, Korea, Norway, Singapore, and Sweden. Most countries adopting such restrictions prohibit high loan-to-value lending. We have opted for a more flexible approach, which still allows banks to do some high loan-to-value lending. Nor should such moves be seen as permanent. Restrictions will be removed when there is a better balance in the housing market and less risk that their removal will reignite high house price inflation.

While the Reserve Bank’s mandate is to promote financial stability, there are clear implications here for housing affordability. Over the next two years interest rates are likely to rise in order to restrain an expected increase in broader inflation pressures. We currently expect that the official cash rate could increase by 2 percent from 2014 to the beginning of 2016. This could result in interest rates on first mortgages of 7-8 percent. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required.

We are keen to see house price inflation moderate significantly and, in doing so, reduce the risks to the financial sector and the broader economy. Speed limits on low deposit lending are designed to help achieve this. Loan-to-value restrictions are expected to give the Reserve Bank more flexibility as to when and how quickly we have to raise interest rates, but the more fundamental solution to reducing pressure in the housing market lies in addressing the issues around housing supply.

We had good equity, well over 50%, in our farm until the ag-sag of the mid 1980s hit.

Stock prices and land values plummeted, North Otago was plagued by drought and to compound our problems inflation and interest rates soared.

At one stage we were paying more than 25% for seasonal finance and our equity had disappeared.

Had the stock firm to which we owed so much had pushed us to sell we’d have been left with nothing but debt.

Fortunately for us there was safety in numbers and few farm sales were forced. We eventually farmed our way out of our problems and the policies the opposition still describe as “failed” dealt to inflation and interest rates.

The experience taught us some very valuable lessons which those criticising the Reserve Bank’s policy, don’t understand.

Labour’s threat to the Reserve Bank’s independence and stated intention to exempt first home buyers from loan restrictions show no concern at all for the stability of banks and the danger of borrowing too much.

Interest rates are very low now. A small increase would add a significant cost to servicing a big mortgage, unforeseen costs, which always arise, would put further pressure on budgets, make paying off capital more difficult and increase the risk of losing most if not all equity if property prices fall.

The bank can’t do anything about land availability, zoning restrictions and high building costs but it can address easy credit and it’s doing so to protect the financial system and broader economy.


Labour’s poster-boy would be property mogul

October 1, 2013

The Reserve Bank’s mortgage lending restrictions take effect today limiting the amount of high loan to value ratio mortgages banks can make.

The aim is to take the heat out of the housing market.

It will help protect borrowers from losing all their equity should house prices fall.

It should also keep interest rates down which will also take some pressure off the value of our dollar both of which benefit us all.

The opposition have no interest in any of that good news and Labour found a first home buyer to tell his can’t-buy-now sob story:

. . . Labour leader David Cunliffe met would-be first-time buyer Kanik Mongia, 23, in central Auckland today. . . 

Mr Mongia, an IT consultant was looking at properties in the $400,000 to $500,000 range in south Auckland or Mt Wellington.

“If it’s good enough I could live in it, otherwise it could be an investment property.”

Mr Mongia said he has been looking for four or five months and has enough saved for a 10 per cent deposit. . .

Labour think we should compromise the Reserve Bank’s independence because a 23-year-old wanting to buy a half million dollar house now has to save a 20% deposit before he can get a mortgage?

This isn’t a family in need of a home, their poster-boy is a would-be property mogul.

The story doesn’t say how long he’s been working. If he went to university it  might only be a couple of years, if he didn’t it could be five. Either way saving $50,000 is to be commended but that doesn’t make his case a good one to criticise the LVR policy, especially when he might be using the house an investment property rather than a home.

. . . But Mr Key this afternoon told reporters he had seen Mr Cunliffe “parading around” with first home buyers, but Mr Mongia should bear in mind that interest rates were currently very low which would make a big difference in what he paid for a house.

“Under National they’re paying $20,000 a year less in interest on their mortgage than they otherwise would have done under Labour.”

He also pointed out Mr Mongia had suggested he may buy a home as an investment property.

“Well I hate to tell them but the person they’re standing next to – David Cunliffe – is wanting to put a capital gains tax on that very property they were talking about buying.” . .

A CGT has had no impact on house values anywhere else, it won’t here especially when family homes are exempt.

Labour is using this issue to criticise the government but it’s reserve Bank policy not government policy and the government – correctly – values the bank’s independence.

Mr Key also said it would be wrong for the Government to interfere with the Reserve Bank.

“Overall, we’ll need to let this thing run. The Reserve Bank has the independence to do that and the Government shouldn’t interfere on that front.

The bank’s independence is a major contributor to the stability of our economy. Labour’s threat to influence the bank is also a threat to the economy. It would push up interest rates which would make it harder for people with, or wanting to have, mortgages.

It would also take the lid off inflation and push up the value of the dollar which would hit export income.

There’s a clear choice here – lower interest rates and inflation and no capital gains tax under National or higher interest rates and inflation and a CGT under Labour.

The former will do much more to make housing more affordable than the latter.


Rural round-up

May 8, 2013

Reserve Bank watching farming sector after drought adds more stress –  Paul McBeth:

The Reserve Bank is “carefully monitoring” an already highly indebted agriculture sector after the recent drought in the North Island is likely to more strain on already stretched balance sheets.

The central bank has previously flagged concerns about the high level of indebtedness among farmers and its dairy concentration, and warns the recent drought could “expose financial vulnerabilities” across the sector, according to its six-monthly financial stability report.

“Parts of the agriculture sector in particular remain quite leveraged, and progress in reducing debt loads in recent years has been fairly limited,” the bank said. “For these reasons, the Reserve Bank will be carefully monitoring developments in these markets for signs that systemic risks are increasing.” . . .

$15 Million Investment In Lactoferrin Production For Infant Formula:

Synlait Milk is investing $15 million to upgrade its Special Milks Drier at Dunsandel as it looks to further tap into the $15 billion a year demand for infant formula in China.

The investment will enable Synlait Milk to become one of only two manufacturers in the world to produce lactoferrin as a spray dried powder, and will also allow the Company to manufacture dairy ingredients to a pharmaceutical standard.

Lactoferrin is a bioactive protein extracted from milk that provides significant antibacterial protection and other health benefits for people of all ages. It is in demand globally for health foods including infant formula and adult nutritional powders. With the new capability, Synlait Milk expects production to reach 18 metric tonnes within four years of commissioning in late 2013 to early 2014. . .

Benje Patterson finds that pasture-raised Kiwi cows are highly productive specimens living in a sweet spot:

When we talk about the dairy industry in New Zealand, we tend to focus on how farmers are going, however, we rarely stop to think about the plight of the cows they milk.

Over the past decade, these dairy cows have become increasingly indebted and the number of other cows they are forced to share paddocks with has also increased.

This article examines how dairy cows have responded to these conditions, and if their underlying financial positions compensate them for all of their hard work. . .

Telford open day:

About 70 southern dairy farmers will hear the first year results of an industry research project at the Telford Farm Training Institute open day on Wednesday.

Dairy NZ senior scientist Dr Dawn Dalley said three different approaches to farming cows over winter are being trialled to help farmers maximise their performance and minimise their environmental impacts.

She said one approach uses a largely traditional method while the second introduces several innovative measures, including calving the herd two weeks later so the cows return to more pasture cover, reducing the need for supplementary feed. . .

Meat Industry Excellence Gisborne & Te Kuiti meetings:

Following the enormous success of its Feilding meeting, Meat Industry Excellence (MIE) is holding additional meetings in Te Kuiti and Gisborne next week.

“As both Gisborne and Te Kuiti are major sheep producing areas, it is important that they be given the opportunity to be part of the meat industry’s change process,” says John McCarthy, MIE Executive Member.

“The MIE initiative is based around the premise that the industry model is broken.

“The ‘Boom and Bust’ model is not serving any of its participants well and needs serious attention if sheep and sheep farmers are to have a future. . .

Meat farm environmental impact steady – research:

New research suggests the environmental impact of sheep and beef farming in New Zealand has remained steady over the past 20 years despite a big increase in productivity.

AgResearch scientist Dr Alec MacKay has compared sheep and beef farm inputs – livestock and fertiliser – with the outputs of meat, greenhouse gases and nutrients.

Dr MacKay said he found huge eco-efficiency gains. . .

Vintage 2013 Keeps Marlborough Winemakers on Toes:

• Cooler Nights Ensure Aromatic Expression
• Pinot Noir Described as “Sensational”

Marlborough winemakers were kept on their toes, during what has been described as one of the most “intense” vintages ever experienced in the region. However no one is complaining about the quality of the fruit harvested in 2013.

After last year’s lower than average yields, Marlborough benefited from more ideal flowering conditions in December. While there has been some variability throughout the region, crop levels are described as being nearer to average this year – which will help to overcome the shortage of wine experienced in 2012.

The drought that impacted on most of the country, did not affect Marlborough. Instead timely rain events allowed the vines to stay healthy, without the fruit suffering disease pressure. . .


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