Dairy Farmers of New Zealand meeting, Wellington

Hon Jim Sutton Speech Notes 17 June 2002

Dairy Farmers of New Zealand meeting, Wellington

President Charlie Pedersen, ladies and gentlemen: Thank you for the invitation to speak today.

Last year, when I spoke to you, your industry was on a high. Payouts were good, prices were high, the dollar was low. It's a bit different now.

A tightening of the commodity cycle and a rise in the value of the dollar has coincided with increasing protectionism around the world. That is ultimately going to result in lower prices for farmers in New Zealand. Already, Fonterra and the other milk companies are warning of much reduced payouts.

I have spent four of the past six weeks flying around the world, promoting our trade interests. It has given me an opportunity to assess the current state of the world trading system.

Generally, I am optimistic.

There is a genuine will to complete the Doha Round of trade negotiations by 2005 as scheduled, and a growing consensus that there can be no round that does not deliver to the developing countries that now comprise a clear majority of the World Trade Organisation; and that agricultural trade reform is at the centre of it.

Developing nations are learning to use their voices in international meetings, and that is good for us, as we have similar goals. Most developing nations have as their main industries agriculture, textiles, and fishing ? the areas that are most often excluded from international trade.

Freeing up trade in these areas will help us.

Most recently, I have been at the World Food Summit: Five Years On meeting in Rome. This meeting gathers all the members of the Food and Agriculture Organisation of the United Nations in an effort to reduce poverty around the world.

A key issue at this meeting was food security.

New Zealand's view is that food security is best ensured by building an open trading system, so that people can obtain the food they need from a diversity of reliable established sources, if drought, flood, disease, or political instability disrupt their normal supply.

While there are significant things happening overseas, there are also important things happening here as well.

The last time I spoke to you, the industry was in a state of ferment. We were all wondering if Fonterra would get off the ground.

Well, it did.

There was a lot of doubt, and in some areas ? such as the future of overseas quota management ? we're still ironing out a few issues.

Fonterra's first result has been a record payout to farmers, but that won't be happening this year.

There is one area in which I want to commend Fonterra.

I want to congratulate the company for its moves to address a major environmental concern - the impact the dairy industry has on water quality.

I figure that's probably one of two environmental issues dairy farmers have - the other being the Kyoto Protocol. I'll answer questions about that later, but my key concern today is water.

Agriculture uses 77% of abstracted water in New Zealand.

There are many issues around the use of water - it has economic, food safety, human health, and trade implications as well as environmental and cultural considerations.

While water is regarded as a public good, most abstraction is for private economic benefit. This is leading to increasing public tension about the use and quality of water.

Regional Councils have primary responsibility for day-to-day water management. Being democratic organizations, they tend to consider that largely within the context of maintaining existing established uses. More diffused social or economic issues or potentials do not always get equal consideration.

There is currently no national overview, nor any provisions for establishing national priorities for water allocation or water quality issues.

The current total of 500,000 ha of irrigated agricultural and horticultural land produces an annual net gross margin of $1billion over the equivalent dry land options. Recent work commissioned by MAF indicates a further 300,000 ha will be irrigated by 2010, and a total potential irrigable area estimated at 2.56m ha. There is significant economic benefit to New Zealand if this irrigation expansion continues, provided that environmental and community concerns are addressed.

Much of that increase in irrigated land is for your industry, which has taken off in Southland and Canterbury, areas that were not traditional dairy regions.

We all need water - for farmers, water is life. It's what helps us produce some of the finest food and other agricultural products in the world.

But however important our farming is - and the Government recognises how important farming is - we in the farming sector are not the only ones that use water.

Others in our community want to use water as well, and that means we have a responsibility to ensure that our use of water does not damage waterways for others.

Last year, Fonterra, the Ministry of Agriculture & Forestry , the Ministry for the Environment and Environment Waikato (as representative of all regional councils) agreed to work together to achieve clean, healthy water in dairying areas. They have made significant progress.

Their goal is to minimise the impact of dairying on New Zealand's streams, rivers, lakes and wetlands so that they are suitable where appropriate for fish, drinking by stock and swimming.

They have agreed to finalise an Action Plan, with clear objectives and measurable performance targets, before the end of this year.

Priorities for the Action Plan will be · fencing streams and rivers, · providing stock crossings at critical points, · fencing significant wetlands, · appropriate disposal of dairy shed effluent and · managing nutrients applied to farms.

The Action Plan will build on existing industry and local government initiatives already underway throughout the country.

The principles guiding the development of the Action Plan are that it should: · acknowledge the lead role of the dairy sector; · be applicable throughout dairying areas in New Zealand and · be able to be adapted for different situations to reflect catchment characteristics; · contain actions, each of which would make a real difference, recognising that greater benefits will be achieved when multiple actions are adopted; · be cost-effective; · be practical to implement in the context of existing farming operations; · clearly recognise the practical and financial constraints to implementation timeframes; and · recognise that improved waterways management at the farm scale will generally focus on headwaters, small streams and drains.

The Government can support the industry through a whole range of actions including education and advice. It's not enough to rely on regulation alone. Industry self-management will be more effective in achieving positive environmental outcomes than reliance on a rules-based regime imposed by regulatory agencies.

Fonterra is focussed on performance on a broad basis and is committed to leading the industry in minimising its impact on the environment. Fonterra's participation sends a strong message to the public and to domestic and international consumers that environmental management is an integral and important component of the dairy industry.

Let me assure you, ladies and gentlemen, all this is not some wishy-washy political correctness gone mad.

It is important for your industry, perhaps one of the most important issues you face here.

There are also ramifications in the international marketplace, depending on how well you adjust to domestic environmental considerations.

We get a significant amount of value in the market place from our "clean green image". And let me assure you, New Zealand dairying is a lot prettier, more natural, and more appetite-enhancing than some of your competition around the world.

It is something that increasingly, overseas buyers are looking for because of the pressure from their consumers for safe, high-quality, environmentally sound food. Those buyers require better and more accurate quality control systems and standards.

For us, we do not want mandatory standards to be enforced that essentially imposes other countries' standards and systems based on their environment, not ours, onto the way we do things.

That is one of the reasons why we are working to be at the forefront of efforts to integrate trade and environmental agreements. If we are not involved, then we cannot influence the outcome of those efforts.

Sustainable development is a key commitment of this government, both at home and overseas.

The government is committed to providing a liberal and rules-based trading environment. In all trade and economic agreements we negotiate we will be careful to ensure that the government's ability to regulate as it sees fit for the protection of New Zealand's environment is not compromised or encumbered.

Agreements to advance international environment objectives sometimes need to be reinforced by trade measures. New Zealand will work to ensure that the WTO continues to show proper respect for internationally agreed rules for the protection of the environment.

New Zealand wants a sustainable international trading system which maximises the opportunities for all countries to participate in the global economy.

Ladies and Gentlemen: food production is one of the most difficult areas in which to work. Not only must you work hard to ensure your animals are productive and that they produce the best possible milk at all times.

You have regular business concerns: you have to balance this year's profits with next year's tax bills, maintenance needs, and staffing requirements.

You have environmental concerns: you must also ensure that the animals do not damage the enjoyment of the environment by your neighbours.

That's a lot of demands on you. And you do it all without the subsidies that other farmers around the world - including Australia - get. But New Zealand farmers, especially our dairy farmers, are recognised around the world as top performers.

Governments in other countries treat their farmers as pets, lapdogs at which they toss subsidy treats.

Farmers in New Zealand stand on their own two feet.

You have a good industry. I am proud to have been able to help facilitate restructuring that I believe will ensure international competitiveness and benefits for shareholders well into the future.

ENDS.