Keeping agriculture competitive: Carter

Speech to National Party 2006 Annual Conference

Good morning.

The ever-present threat to any export industry is that new, lower-cost producers will compete their way into our markets, driving down prices for all producers.

To cope with that threat requires continual innovation in agricultural techniques and a strong focus on keeping our domestic cost structure as low as possible.

Essentially there are two domestic players responsible for what happens to the agricultural sector in New Zealand: the industry itself, and the Government.

We have every reason to be confident about our agriculture industries: they are technologically innovative; it is a sector that has achieved and sustained high productivity growth in recent decades; and by virtue of operating in fiercely competitive international markets, it is highly focused on controlling costs.

But what the sector can’t control is what the Government does to it.

It is worth noting that Labour now no longer has a farmer in its caucus or on its list. And with minimal representation over the past two terms, it is no surprise that the Government is the prime source of cost pressures on agriculture.

The next National Government will need to give a major focus to reducing the cost pressures that Labour has inflicted.

We must do that, because international competition is getting tougher.

New Zealand farmers have to produce a quality product that will be in demand in the supermarkets of London or Tokyo, and it must be one that arrives on those supermarkets shelves at a price competitive to similar products produced by nations with which we compete, such as Brazil or Australia. It really is that simple.

If we establish a cost structure that means that other countries are able to produce product of similar quality, but cheaper, then the outlook for New Zealand agriculture, and therefore the total economy, is indeed much less attractive. That is the path to New Zealand incomes continuing to fall behind other countries.

It’s already a serious problem. Witness the number of New Zealanders currently establishing themselves in dairying in Australia. They make this rational economic decision because the costs of farming in Australia are lower, the payout is higher, and the price of land and entry costs of share capital are considerably lower than in New Zealand.

The threat of South America is also real. Enormous chunks of quality land in countries like Brazil are being developed for intensive agriculture. The infrastructure necessary to sustain more intensive agriculture is being created, and, more importantly, they are moving towards a robust political system which is delivering the stability that has until now been lacking.

The ability to control the cost of doing business in New Zealand is something National must deal with. It is our job to demonstrate to the sector that we have the determination to cut the costs Labour has imposed.

Consider just a few examples:

ACC
Accident insurance rates for self-employed farmers are now 140% higher than in 1999, when competition was available to the market. Labour has reimposed a state monopoly on the provision of accident insurance for no other reason than an ideological dislike of private enterprise’s ability to provide this insurance cover.

Accident insurance should be no different to any other form of insurance, provided there is statutory security around the requirement to have such cover, and to a certain quality.

The most price-competitive way of making this cover available to any industry is to let the insurance market compete for this business. It worked before.

Kyoto
The Kyoto Protocol similarly threatens to impose significant cost on New Zealand agriculture - a cost that is not going to be inflicted on competing farmers elsewhere around the globe.

I acknowledge greenhouse gas emissions, but a solution will not be found unless major emitters like the United States, China and India, are prepared to be involved. Any solution must be global, must be based on sound science and economic analysis, and must have benefits that outweigh the costs. The most likely solutions will come from technological innovation.

For New Zealand to rush to sign the Kyoto Protocol, and thereby be the only country in the southern hemisphere with the commitment to reduce greenhouse gas emissions was absolute folly.

For a Government to start talking about fart taxes, carbon taxes and then later have to abandon them shows just how much thought went into New Zealand’s ratification.

Local Government
Local Government and the current rating regime impacts more on New Zealand agriculture than it should do. This is significant because of the regime we currently have for meeting the costs of rural roading other than our state highway network.
I have been talking with caucus colleagues about a review of how we pay for our roads. I think there is a merit in looking at paying for local roads – i.e. non-state highways – on a usage basis rather than through local government rating.

That way, the actual users are paying more towards the cost rather than it being foisted on the agricultural sector.

The Local Government Act of 2002, which delivered to councils the Powers of General Competence, has also meant the functions of local councils have dramatically increased.

Many councils are in the process of delivering double-digit rate rises to ratepayers, and it is the legislation under which they operate that is largely to blame. Solutions lie in redefining and then limiting the role of local councils.

DOC
I move now to the issue of the Department of Conservation.

Currently through the land tenure programme in the South Island and Labour’s plan to purchase a number of high country parks, we are seeing the amount of land under DOC control rise to around 50% of the South Island land mass. 300,000 hectares has been added in the past five years.

This comes at a significant cost. If any land is taken out of productive agriculture and retired into the DOC estate, then New Zealand clearly loses the economic benefit the farming of that land has delivered.

But more importantly, the significant ongoing costs of maintaining that land, particularly in weed and pest control, are being completely underestimated.

New Zealanders need to have a serious debate about the quantity of land in the DOC estate, and recognise the ongoing cost of such a ‘lock-up’ policy.

Water
Making good use of water is the next major debate we face in New Zealand agriculture.

In an area like Canterbury, the debate over recent months has been whether water demand has now reached available supply. This is not the question we should be asking. There is an adequate supply of water if we are prepared to think on a larger scale and adopt storage solutions.

The Opua Dam in South Canterbury is an example of what can be achieved - economic benefit with more intensive agriculture, further processing and a profitable local port operation at Timaru.

Add in electricity generation and a lake for recreational use. But the real win-win was for the environmentalists, who before the development of the dam had a seriously degraded river. Now, with minimum flows assured, the fishermen and other river users enjoy a vastly improved resource.

It is National’s duty to ensure its policy and subsequent legislation enables entrepreneurial expertise to bring schemes to fruition. An endless series of discussion documents will not do.

Nor will anything of magnitude happen under the current Resource Management Act, the piece of law that must be the priority for the incoming National Government to amend.

I have spoken today about the sort of things that a government with will and determination can control. But I want to conclude by noting a factor that is hugely important for agriculture, and that is the cost of crude oil. Fuel is a vital ingredient for New Zealand agriculture, both on farm and in transporting and processing of produce beyond the farm gate.

But where we are at even more significant exposure, compared to many other countries, is our geographic isolation. That means the costs we incur transporting our products to overseas markets is proportionally higher than for many other competing countries.

For most of us, the oil shocks of the 70’s are distant memories.

However, it is worth looking at the effect on agriculture’s profitability at that time. For years following the 1979 shock, agriculture suffered severely and net farm profitability fell dramatically.

This should be a reminder to us that addressing the cost factors we can control is absolutely vital in the current environment. It was interesting to note the recent prediction by Reserve Bank Governor, Allan Bollard that oil prices will decline over the next six months.

I don’t know on what basis he made that prediction, but it is worth noting that oil prices have since moved higher, no doubt influenced by the tensions in the Middle East.

I am not by nature a pessimist. Having farmed for over 30 years, the last few years have been good.

But for continued profitability we need to watch carefully the costs hoisted on the farming community. They are businesses like any other.

Central government plays a critical role in this. No law, regulation, or intervention should ever be passed or imposed unless it can be fully justified. Unnecessary law creates unnecessary costs.

This core area is something the next National Government must watch carefully.

Ends

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