Speech Notes

19 September 2002

Institute of Primary Industry Management meeting,

Wellington

Ladies and Gentlemen: thank you for the opportunity to speak with you tonight.

This is my first speech as Associate Agriculture Minister, and I welcome this opportunity to talk about our dynamic primary production sector ? truly the heart of our economy.

The figures in MAF's briefing paper to the incoming Government are extremely clear.

· New Zealand pastoral agriculture provides 50 per cent of our total exports;

· 87 per cent of agricultural production is exported;

· 13 per cent of the population is involved on the farm or in processing and marketing agricultural production;

· agriculture provides 17 per cent of gross domestic product from only 13 per cent of the population; and

· in the past 15 years, agriculture has grown at 4 per cent a year, much higher than the economy as a whole.

There are still people out there who perceive the primary production sector to be competing in price-driven food and fibre commodity markets.

In fact, agriculture and forestry industries encompass agritech, animal remedies, software, machinery, biochemicals and nutraceuticals. A major part of New Zealand's high value manufacturing and processing is directly dependent on agribusiness, including processing, packaging, agritech equipment, machinery and software.

The agribusiness and forestry sectors in New Zealand have the scale, global marketing capabilities, technical skills and natural resource advantages that not only make them core to our domestic economy, but also provide New Zealand with the platform for future growth and for diversification into new and non-traditional markets. The enthusiasm with which New Zealanders' are prepared to embrace new crops and techniques of growing older ones is indicative of an innovative farming and forestry sector. Last month, the Prime Minister unveiled an ambitious plan for the Government and our country in the Speech from the Throne.

The Labour-led government believes that the appropriate mix of policies can, over time, return New Zealand to the top half of the developed world.

We see New Zealand as a land where diversity is valued and reflected in our national identity; a great place to live, learn, work and do business; a birthplace of world-changing people and ideas; and a place where people invest in the future.

In February, the Growth and Innovation Framework was published, to set out a framework within which higher sustainable growth can occur. Achieving that higher growth will require careful attention and energetic promotion of the key elements of economic transformation: human capital development, investment, innovation, export promotion, and business and regional development. Investment needs to be attracted, in particular, into areas of innovation, which can add value across a broad sweep of industry sectors. The government has decided to concentrate on three key competency areas: arts and culture, information and communications technology; and the one of most interest to you as people interested in primary production: biotechnology.

The full potential of our economy will only be realised if we build on our sources of natural advantage and deepen the competencies that are associated with them. Biotechnology, one of the three identified areas of strategic priority, is an area of both natural and acquired comparative advantage for New Zealand. Developing that means working with the primary production sector in agriculture, horticulture, and forestry.

By no means all of biotechnology research involves genetic research, and by no means all of the latter involves genetic engineering or modification.

Last parliamentary term saw a considerable amount of restructuring within primary production, and this term is looking to be the same.

While Fonterra beds down as New Zealand's largest company, reform is now pending in the wool industry, and changes are happening in the meat sector.

Labour party policy on producer board reform is quite clear: reforms must be producer-driven and supported, they must be fair to minority interests, and they must be in the national interest.

So far, the wool industry has held a referendum which backed proposed restructuring.

Cabinet will shortly be considering policy on this, and then legislation can be drafted. I know Agriculture Minister Jim Sutton wants to see that legislation introduced into the House by the end of this year.

The Wool Board would like the legislation to be passed by July next year ? which will be an extremely tight deadline.

Wool is a significant export earner for New Zealand, and it is important that this industry has the most efficient and effective structures to help it develop in the future.

Meat is going through a substantial review process at the moment. A result of that was announced yesterday, with the chairmen of SheepCo and Meat New Zealand announced they had signed an agreement on behalf of their respective Boards, to work together to establish a new organisation to collect and administer levies on wool, sheepmeat, beef and goat meat.

They argue that they by and large they share a common constituency, and that this reality must be reflected in the industry good structures of the future.

Now there will be a period of significant farmer consultation and business planning leading up to a farmer vote around the middle of next year over the future of beef, sheepmeat and wool levies.

Time will tell how that will develop.

Other industry restructurings include the deregulation of the Hops Industry, which is currently before the House, and restructuring the deer industry and the inclusion of kiwifruit exports to Australia under the Horticultural Export Authority, both which are awaiting legislation.

Much has been made of the decline in farmer confidence in recent months.

I guess that when world price falls for some commodities are taking you off a 20 year high in real profits, and you are asked if you expect things to be better or worse next year, you would have to be very strange to say "better".

Generally, however, farmers are in a sound position.

A lot has been spent on repairs and maintenance around farms. Fertiliser sales are high. The productive capacity of many farms has been restored after being run down during the 1990s.

Continued investment, both directly on the farm and indirectly through proposed wider irrigation schemes and other technological developments, seem likely to ensure farming remains a profitable career for many years to come.

International prices are holding steady in most sectors, and while the New Zealand dollar is expected to strengthen against the currencies of our major trading partners, there are still positive signs in the market.

Because 87 per cent of New Zealand's agricultural production is exported, we need to have a strong international focus in order to maintain our living standards here.

For the year to March this year, export earnings were about:

· $7.2 billion from dairy and casein products;

· $4.5 billion from meat and meat products;

· $2.1 billion from wool and animal co-products;

· $3.65 billion from forestry products; and

· $2.2 billion from horticultural products.

The next twelve months are going to be busy on the international trade front, as we work hard to continue negotiations that will see the Doha Development Round to a successful conclusion and as we work hard to increase our exports and markets.

New Zealand will be working hard with trade allies such as Australia, the Cairns Group of agricultural trading nations, and developing nations to influence the consensus decisionmaking of the World Trade Organisation.

Trade does benefit all our citizens, whether it is through increased earnings directly, or through the benefits indirectly received from Government services funded by extra taxation.

The last World Trade Organisation negotiations, the Uruguay Round, put $11,500 a year extra every year into the pockets of meat and dairy farmers. We have hopes that the Doha Round will be even better for us.

Most discussions about trade liberalisation focus on direct benefits from market access. However, one of the great benefits of trade liberalisation has been the learning it encourages, the access to new ideas, and the focus on customer needs rather than on distorted market signals.

Agribusinesses not only have to perform in the market-place but in the communities in which they operate, and the sector's response to environmental issues will be fundamental to this.

This issue is highlighted in the debate about water use.

Agriculture is by far the dominant user of allocated water in New Zealand. Seventy-seven per cent of all water allocated by regional councils in New Zealand is used by agriculture. The vast majority of that is used in irrigation.

This high proportionate water use in agriculture and horticulture is not unique to New Zealand. And it is not reflecting wasteful rural uses, but rather the continual evapo-transpiration requirements of actively growing plants.

Such a high proportion of New Zealand's water being used in agriculture inevitably results in close public scrutiny of how we manage and allocate water and how effectively we use it.

The economic contributions from irrigation are considerable. MAF has calculated on 2002 values that the approximately 500,000 hectares of irrigated land in New Zealand are returning $1 billion a year on a net gross margin basis over and above the net return from that same land if it were in dryland farming systems.

But equally, irrigation in seasonally dry areas is allowing farmers to change land uses and giving them the control to produce to quite tight specifications for product quality. Irrigation has become integral to rural change and community development in those areas.

We are all aware that there is increasing conflict for water among competing agricultural, recreational and environmental uses.

We all regard water as a public good, and we jealously guard our right of access to it. The more polarised our views become, the more difficult it is to identify wise counsel and agree on compromise. I think we've all seen this in what's been dubbed the "dirty dairying" debate.

Last year, Fonterra, MAF, the Ministry for the Environment and Environment Waikato, representing all the regional councils, agreed to work together to manage water quality in dairying areas. A key objective is to ensure that dairy effluent does not damage water quality, so that our rivers, lakes, wetlands and estuaries can also be quality recreational and fishing environments, and so that their biodiversity can be maintained or enhanced.

The Government can support the dairy industry's response to water quality issues, for example through education and advice rather than relying 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. We should regard the rural community as the answer, rather than the problem.

Questions about the adequacy of our water supplies leads us to consideration of climate change.

Climate change resulting from human activities is not a hypothesis, it is a matter of overwhelming scientific consensus. To be honest, I think we can all see the results just by looking out the window. Weather patterns in New Zealand have changed.

Climate change, and the overall health of the atmosphere, is now the biggest global environmental issue. If this generation does not act, our descendants will have to bear the consequences.

Climate change is not only an environmental issue, it is also an issue of economic security. Climate change can lead to more frequent extreme climatic events such as floods and droughts, and biosecurity threats from subtropical pests and diseases.

The major single source of New Zealand's greenhouse gas emissions is methane and nitrous oxide from pastoral agriculture. The Government's policy package to respond to the Kyoto Protocol exempts the agricultural sector from charges or other penalties which would arise from these emissions. This will shield agriculture for the first commitment period.

However, this shielding of pastoral agriculture is conditional on the sector being willing to invest in research aimed at reducing agricultural emissions. Such research is also likely to generate other spin-offs such as improving animal productivity and feed conversion rates, and perhaps lead to more precise and efficient fertiliser application.

New Zealand stands to be a net economic beneficiary from the Kyoto Protocol. This is because of the credit we potentially gain for carbon sinks, and because it will create new business opportunities by raising international demand for new technologies and encouraging energy efficiency.

But the mechanisms we use to implement our commitments under the protocol will have impacts on much of the primary production sector.

I feel your organisation has an important role and ability to operate as a bridge or umbrella, reaching out across different areas, pulling together information and disseminating it. I'd like to encourage the institute in its work, and I'd like to thank you for the opportunity for me to speak to you tonight.

Cathie Bell press secretary Office of Hon Jim Sutton (and Damien O'Connor) phone: 04 4719855 or 025 998467

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