The danger of ‘one trick ponies’

Wed, Aug 07 2013

The latest Fonterra debacle holds many lessons.

One is that all companies chasing profit screw up, whether they build dams, frack for oil, mine coal, or create software. Why? Corners get cut. And not necessarily because of deliberate malevolence. Rather, because the competitive pressure is so intense — do it faster, cheaper … bury mistakes.

But perhaps most importantly, the Fonterra mess exposes the enormous risk inherent to a country — and, by analogy, a province — being so dependent upon a single source of economic wealth.

For New Zealand, the silver bullet is dairying, which represents 13% of our export value. We annually sell about $2 billion in dairy products to China. As a columnist in the staid National Business Review observed today:

“We are, as an economy, totally reliant on one company for wellbeing.

This, then, is the heart of the matter. Forget the grubby pipe and the botulism. Put aside the PR debacle of sitting on the news for months and then holding a press conference with no information.

That we are utterly reliant on one source for our income is the real catastrophe here.”

The danger of being what some call a ‘one trick pony’.

And that doesn’t even speak to the damaging spillovers as the NZ brand is tarnished globally across the board. Here are just three accounts, from literally over 4 million found when one googles ‘Fonterra botulism China’, that illustrate the reach of this body blow. From The Guardian, the New York Times, and China Daily.

Here in Hawke’s Bay, whenever one attends an official forum on regional economic development, 99% percent of the discussion is consumed by hand-wringing over the perilous state of our farming-led economy and ways to save it (or conversely, blue sky fantasizing over its limitless future … if only we had a dam).

The recent Winder report on Hawke’s Bay’s socioeconomic performance advised that the region could be more prosperous if it were able to “diversify and significantly deepen its economy” and “insulate itself to some degree from the cyclical nature of primary production”. By “cyclical” he was talking about things like commodity prices and the weather.

But perhaps we should add the foibles of Fonterra pipe cleaners and the edicts of alarmed Chinese politicians.

An investment of probably $300 million in a CHB dam (which requires an additional $300 million in CHB farmer investment — read borrowing — to hold water) is a bet on the one trick pony.

It’s not at all clear that a dam serving perhaps 150 farmers (assuming 100% uptake) is the best way to advance the region’s farming sector or make it more resilient, let alone serve as the best way to invest in growing a more diversified and sustainable Hawke’s Bay economy.

But leaving aside the critical need for diversification and higher paying jobs, just consider the goal of more farm production.

Some make the case that a more modest investment in land care in the region would deliver more bang for the buck, improving food production and quality while naturally increasing the water storage capacity of our soils.

Or, consider what’s happening in Palmerston North, where $250 million will be spent over 12 years to create a new food science hub called “Food HQ”. This is an imaginative collaboration between Massey, AgResearch, Plant and Food, the Riddet Institute, private companies and two local councils. I’ll bet the researchers at Food HQ will be paid heaps more than our packers and pickers.

Our Regional Council has no such imagination … hey, but we do have a MOU with Massey!

Time to re-boot. ‘Same-old’ ain’t going to get the job done.

Tom Belford

ENDS

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