Speech: Federated Farmers - fielday in Fairlie

Speech Alert
2 December 2009

Farming forward

Speech by Don Nicolson, Federated Farmers President, at the Meat & Wool New Zealand Monitor Farm public fielday in Fairlie.

Thank you for the opportunity to talk to you about our great industry and its future.

I am reminded of an Australian quote that refers, somewhat pointedly, to the state of the Kiwi economy and the Kiwi psyche.

“Poverty in paradise is still poverty.”

We have undoubtedly slipped behind our trans-Tasman cousins but agriculture remains the exception. It’s galling to see Dr Brash’s 2025 taskforce ignore our massive growth in productivity, only to suggest Fonterra should become a listed company with the Government acting as cheerleader.

I don’t think farmers will buy that.

Farmers are canny businesspeople as we have proved, yet our sector deserved a grand total of just 24 words in the 150 pages that made up the 2025 Taskforce Report.

So perhaps in light of what many will consider to be a blast from the past, let’s go back in history.

In 1988, the late David Lange said:

"Farming is a sunset industry and manufacturing and tourism will take its place."

In 1990, Harvard Professor Michael Porter said:

"New Zealand exports in a range of structurally unattractive and therefore low profit industries."

While you’ll see from Dr Cullen and Mr Key that we are back into vogue, some still pine for a tomorrow that never was.

Then in recent days, Dubai, that city state of gleaming towers, seems to be an economic mirage with its debt of some 325 percent of GDP.

Given the revisionary comments of Dr Cullen and the Prime Minister, perhaps Mark Twain would have commented:

"The rumours of agriculture's death have been greatly exaggerated."

Yet to go forward, we need to face up to some bigger trends.

There are threats and opportunities that we need to adapt to or we will become extinct. Since the fall of the Berlin Wall, we have seen massive geopolitical, technological, economic and social changes. The world is speeding up for the very reason that email didn’t exist as it does today. The notion of waiting for the mail has been reduced to a few seconds.

The pay phone is basically redundant, as the mobile phone has moved from corporate brick costing thousands, to a disposable consumable. New technologies, such as voice over internet protocol, or VOIP, may see the landline and even mobiles usurped. Downloading, uploading, outsourcing and off-shoring are reflective of a globalised world.

There are structural shifts from rural to urban, from large to smaller families and from starch to protein but power continues to move from the producer to the consumer. The advent of social marketing means an asymmetric connection between us, the producer and those we ultimately sell to. Connectivity fuels greater expectations.

Environmentally, we are seeing a confluence of food supply and cost, water scarcity, animal welfare, air quality and carbon coming together. Food miles is a distortion built on an illogical fallacy that if something is ‘local’ it must be ‘better’ for the environment. What we need are the two ‘Ms’ – measurability and marketing.

We need solid measurement then a marketing of the results.

Yet we can now add crisis - debt, solvency and credit. Excessive debt funded consumption has seen the United States brought to its heels.

Just look at Y2K, Avian Flu, H5N1, climate catastrophes. The only constant we have is change. Resilience is our ability to roll with those changes and prosper.

Commentators love to look at tiger economies, whether Ireland or Singapore, and apply that economic mix to New Zealand's economy. We can thank God we did not emulate Ireland, Iceland or Dubai.

Back in the early 1990s, there was a study into New Zealand’s competitiveness by Professor Michael Porter. Professor Porter’s advice was to, template like, say everything we do would lead us down an economic gurgler and what we needed is manufacturing, services and tourism.

Yet New Zealand could never become the next ‘silicon padi' or a ‘Switzerland of the South Pacific' because that’s not part of our psyche. We don't have an institutional, intuitive grasp excepting a few niche successes.

Yet policy still seems inculcated in the past view that ‘agriculture is in eclipse’ and the future is something else.

In terms of merchandise exports, the agricultural sector remains the economy's backbone. We are becoming a more, not less, important contributor.

The inescapable lesson to draw is that successful economies don't copy, they leverage out of what makes them unique. What makes us truly unique is agriculture. It’s our true single competitive advantage. New Zealand is to food what Nokia is to mobile telephony.

So here’s a new take on Professor Porter’s prescription:

"New Zealand's geopolitical position and export profile makes it attractive in a resource hungry world. There is massive scope to develop a number of highly profitable companion industries leveraging of its agricultural base."

Here's some numbers that highlight New Zealand's opportunity:

• The current global population is 6.7 billion people
• 60 percent of humanity lives in the Asia-Pacific region
• Over the next 40 years, the global population will increase to over 10 billion people
• New Zealand currently produces enough food to feed over one percent of the world's population or four percent of the developed world

On land, the mineral wealth locked up is estimated at $140 billion – if we have the confidence to extract it. In Southland alone, there is a 650-year supply of ignite at a rate of consumption of two million tonnes per year.

If we had the confidence, which Ravensdown and Solid Energy seem to, then converting that into urea has the potential of turning New Zealand from an importer into an exporter of urea - generating the equivalent of $15 billion in export equivalent income each year.

As you can see from the slide, we also happen to ‘own’a vast amount of the sea floor – no less than 5.7 million km2. That is equivalent to two-thirds the size of the Australian continent. That includes the 1.7 million km2 more we gained this year from UNCLOS, which is equivalent to the size of Libya.

The estimated mineral wealth off the 4 million km 2 that comprises our Exclusive Economic Zone has been estimated by Canterbury University at half a trillion dollars. Half a trillion dollars.

The new seafloor added this year contains hundreds of billions of dollars more if we have the confidence and the technology to exploit it.

Let's look at how public policy could assist in developing the New Zealand economy.

Aquaculture:

20 percent of the diet for 2.6 billion people is fish. While Fish &Game’s Bryce Johnson says we shouldn’t try to feed the world, I say, why not?

Capture fisheries (going to sea with nets) is struggling to meet the needs of a growing population that will hit 10 billion people by 2050.

Yet aquaculture could be worth up to $2.2 billion to the New Zealand economy, according to Ernst & Young. And that could be conservative. Norway exports $4 billion worth of salmon and $500 million worth of trout each year.

New Zealand’s coastline, at 15,134 km, is the tenth largest on earth and is 60 percent the size of Norway’s and three-quarters that of the USA.

In the EU, trout farms harvest some 203,000 tonnes of trout each year – half of the volume of our lamb exports. Trout could be farmed in-land in artificial ponds except the law prohibits it – New Zealand is about the only country on earth to ban trout farming.

I ask why? Demand for fish protein is set to surge in the next four decades. We need the RMA. Fisheries Act and Conservation Act amended.

Minerals:

Catching the lucky country means rapidly unleashing our mineral wealth. New Zealand has on-land reserves estimated at some $140 billion. Around $700 billion more lies on the seafloor in our territorial waters.

Getting it is almost a trillion dollar question.

There are significant legal and technological challenges, as most of the mineral wealth on-land lies in the conservation estate. Yet modern mining practices make it feasible to have low impact exploration.

Can we have our cake and eat it too? This is a test for whether New Zealand wishes to catch up or fall further behind.

Off-shore mining is in its infancy, yet the skills developed for oil and gas exploration are being applied. New Zealand has deep unforgiving waters so exploration will rely upon prices rising to make the cost justifiable.

The two overall challenges are; the political will to confront environmentalism and the technology to get at it.

Agriculture/Horticulture:

Backing the economy’s backbone with water storage is vital.

In the Canterbury region alone, there is enough water storage potential to fill the equivalent of around 650,000 Olympic sized swimming pools. That has the potential to irrigate a further 325,000 hectares of land – expanding suitable productive land in the Canterbury region by a third.

Water can then be combined with pasture renewal and thanks to modelling by BERL, we know that it will result in increased farm-gate values for sheep and beef farms as high as 18 percent and 15 percent for dairy farms – increasing pastoral agriculture's direct contribution to GDP by $800 million with the total effect on GDP more like $2.2 billion.

Pasture doesn’t last forever so renewing pasture needs to be a part of strategic land management.

Yet new pastures, crops, animal species and techniques won’t invent themselves. We currently spend around 1.2 percent of GDP on Research & Development. Our peers like Denmark, however, invest 3 percent. This is about the future and the tools we need to mitigate emissions, whether it’s carbon or nitrogen.

Rural Broadband is to agriculture and horticulture what electricity was to the last century. It is an enabler and frankly, there’s gross market failure in rural areas. Yet, as an enabler, we can dream of applications and inventions it will unlock. It is also central to reducing the remoteness of rural New Zealand and it’s thanks to our efforts in cajoling the Government that an additional sum of $250 million was secured for rural broadband.

This is all about playing to New Zealand's core competitive advantage.

New Zealand has a primary production focused economy but while it is our backbone, there has been limited leverage into the thousands of products and industries that support agriculture. Food happens to be the world's biggest business.

Some criticism of farm practice is well deserved but much is a legacy from the 1970s and ‘80s.

On many farms, effluent is now recycled as fertiliser and we are working to use technology and riparian plantings too. Councils though, still discharge to water and in some communities, it's not even treated.

There is risk to New Zealand's brand from these urban impacts. That said, we can look at some major policy issues we will face over the next decade:

• License to farm –This will increasingly gain traction, given our fixation with licensing everything from real estate to charity collectors. This is the focus of Horizons Regional Council’s One Plan, which has so far consumed $12 million of ratepayers’ money. Other regions are watching and waiting and if the plan is implemented, it will lead to policy makers telling farmers what and how to farm. Being consent based, it will lack flexibility and removes the flexible innovation that typifies farming.
• Water quality –This ties into the license to farm as ‘evidence’ of the need to control and manage farmers and farms. Some regional councils are using devious means where others work constructively – it’s no surprise where the improving water quality is to be found. Winning hearts and minds means making urban New Zealand aware that is has as much impact on water by way of human sewage and industrial discharges. In the background of this is the spectre of water trading.
• National Animal Identification & Tracing (NAIT) – This ties into the Emissions Trading Scheme by having a real time census of farm animals. It is also a possible double-whammy of costs on farming with the ETS. It reflects an international trend to supply chain management. Meat & Wool pledged sheep will not be in NAIT, removing any biosecurity argument. Federated Farmers believes in tracing as a voluntary market-led solution but opposes compulsion that will impose extra compliance and transfer any marketing compliance onto us, the suppliers. I ask you, where’s the price premium?
• Biosecurity – There has been a 51 percent real term increase in Vote Biosecurity between 2000 and 2009, yet is it 51 percent better? There is degradation at the front line and a bloating in the rear as well as a bloating of compliance. The strategy seems more flight than fight.
• Size of Government –In real terms, $30 billion more of our dollars is being consumed today than it was back in 2000. This affects our interest rates as fiscal policy kneecaps monetary policy – imagine what $30 billion back in the pockets of Kiwis would mean.
• Reforming the RMA then using it effectively – Compensation in the RMA is a must, as is enshrining the property right. That said, National Environmental Standards provide a means to create nationally consistent rules, as opposed to the hodgepodge of permitted activity rules we all farm under today.
• Local government funding – I ask, is it time for a Poll Tax type reform of local government funding in order to move away from a reliance on rates? In the year to March 2009, rates increased three times the rate of inflation at 8.4 percent - this is not sustainable as the increasing members of Federated Farmers’100k club testify to.

Yet climate change opens doors, as well as closes them.

Federated Farmers takes cold comfort that our behind the scenes lobbying may save each New Zealand farmer some $27,000 per annum from 2030.

While the Federation wished to see the entire ETS scrapped and certainly agricultural gasses removed, we also worked to reduce the worst of the ETS impacts. Farmers, like all New Zealanders, will be paying more for direct energy and liquid fuel use from July 1 2010, yet the cost against base production for transport, processing and distribution will filter back to us.

With the global and policy environment changing, there are opportunities for new technology and industries to be developed by way of research-led solutions. New Zealand's farmers will have to change and adapt to meet consumer preferences and demand. This will open new doors and close others.

The Global Alliance concept is a strong marker for the future and there is talk of a US$10 billion fund into which we will contribute $50 million. That sort of money, if put into research, would boost R&D for climate change to 0.033 percent of GDP, very close to the 0.05 percent target we would like to see.

That said, the ETS and carbon foot printing studies will be completely useless unless consumer labelling and marketing kills the food miles deceit. The Government ought to be talking up our credentials and not talking them down. We have an awesome story to tell but is anyone promoting it in our markets?

From the agricultural sector's perspective there is a holy trinity in the offing – more production with fewer inputs, generating less emissions

If agriculture is enrolled in the ETS, the technology cupboard is currently bare. Millions of years of ruminant evolution cannot to be corrected in a few years.

So we are putting to the Government our shopping list for the Copenhagen talks that will create a successor to the Kyoto Protocol.

Agricultural gas emissions should be excluded, but if they are to be included, then it needs to take a global and not individual country perspective. Efficient producers like New Zealand must be able to ‘over emit’ given we ‘over produce’ food on a world scale.

After all, only 6 percent of what is produced is consumed locally.

We need international funding for the Global Alliance concept to tackle emissions arising from the agricultural sector. That’s a big fund and recognition New Zealand provides a laboratory for the rest of the world.

There must be the ability to count pre-1990 forests as permanent forestry sinks, with the inclusion of non-forest crops, plantings and grasses for credit purposes. Riparian plantings, shelter belts and trees not covering a third of a hectare do not currently count.

Our emissions profile is accordingly overstated.

Yet, there’s scope for the inclusion of non-plant based carbon sinks like wool. The inclusion of leathers and hides is one way to provide an alternate carbon store and give the moribund wool industry a new lease of life.

We also wish to secure flexible land use to facilitate use of productive land, transferring permanent carbon sinks onto non-productive land.

There must be global standardisation of foot printing methodologies to give consumers the confidence to trust labeling and to stop Food Miles dead in its tracks.

Finally, we’d like to see our territorial seas and Exclusive Economic Zones recognised as permanent carbon sinks. We have the seventh largest on earth and the seas provide the largest carbon sinks on earth.

It’s a carbon sink and it’s ours, so why doesn’t it count?

So overall, we have a tonne of opportunities in the next five years to take agriculture forward. Federated Farmers is relevant and rearing to get New Zealand farming.

ENDS

© Scoop Media