The importance of agriculture to the New Zealand economy

25 February 2014

The importance of agriculture to the New Zealand economy:

New Zealand occupies 26.8 million hectares, with pastoral agriculture ( dairy, sheep/beef & arable farming), occupying some 10.8 million hectares or 41 percent of our land mass.

Unlike any other OECD nation, New Zealand is very much an agrarian economy, albeit, a highly evolved and sophisticated one at that.

Primary industry exports, including forestry, horticulture and fisheries, account for 72 percent of our merchandise exports.

Only last week, the New Zealand Minister for Primary Industries, the Hon Nathan Guy, announce that this year, the value of our primary exports is expected to increase NZ$4.9bn. to $36 billion.  The target is to reach in excess of $60bn by 2025.

For a rural population of just over 580,000 people and an on-farm that is considerably less than that number, we help to produce enough food to feed 40 million people.

New Zealand is the world's top dairy exporter and accounts for a third of the world's dairy trade, despite being only the eighth largest in terms of volume.

Similarly, we produce around six percent of the world’s total sheep meat, but account for over half of the international sheep meat trade and nearly three-quarters of the lamb meat trade.

The New Zealand farm system is low carbon pasture based by high yield.  It is typified by a heavy use of innovation and automation.  It is also backed by science sustainably continuing the ‘Green Revolution.’

Between 1990/91 and 2011/12, dairy productivity has increased by 163 percent, beef/veal by 22 percent and while lamb volumes are down 9 percent, that belies a 45 percent decline in the national flock.

StatisticsNZ’s Labour Productivity statistics shows that labour productivity within agriculture has increased 3.4 percent each year.  It is the driver of New Zealand’s overall labour productivity growth.

Technology, better animal genetics and husbandry as well as human capability lie behind this successful.
While New Zealand farmers have increasingly swapped beef and sheep for dairy cows.  This has been a market led response as you will see shortly but has not come at a huge environmental cost. 

The New Zealand Ministry for the Environment reported mid-last year that over 2000-2010, 90 percent of our waterways either had stable or improving water quality.

How 1984 changed farming in New Zealand forever:

The subsidies that applied here, before 1984, came about as New Zealand tried to defend itself from the shock of Britain joining the European Union.  New Zealand was a very different country back then.  It was incredibly closed and heavily regulated in a command and control like manner.

In the 20 years to 1984 there was an inexorable expansion of production grants, taxation schemes, including incentives for land development, as well as government supplementary product payments, fertiliser subsidies and loans at below market interest rates. The level of assistance rose from 15 percent of output value in 1979 to reach 33 percent by 1983. 

After 1980, as external markets deteriorated following the oil shocks, farm incomes were supported through supplementary minimum prices.

By 1984 New Zealand farmers were receiving so much assistance that our competitors were talking about taking action against New Zealand exports.  Subsidies had encouraged over-production. We had rapidly gone from 50 million sheep to 70 million including land totally unsuited to sustainable livestock production.

In 1984, nearly 40 percent of the gross income of New Zealand sheep and beef farmers came from government subsidies. 

Yet 1984 saw the election of a reforming government who introduced wholesale reform and a return to market principles.  These reforms came at the behest of my organization, Federated Farmers.  We saw there was no future unless we ended what had become cancerous policies.

Reform came rapidly as “cold turkey.”  Almost overnight pastoral farmers went from 33 percent of their gross incomes being subsidised to nil.   
Price support was phased out
Input subsidies abolished
Market interest rates applied to credit
Concessionary rural farm loans terminated
Government funded rural lending was progressively brought in line with market rates.

New Zealand agriculture moved rapidly from an average OECD producer subsidy equivalent (PSE) of 18 percent in the period 1979 to 1986, to less than 1 percent in 2012.  The OECD average for member countries in 2012 was 19 percent so as you can see New Zealand continues to lead by example. 

Did this cause a mass exodus from agriculture and an end to family farms? Not at all. While it did create a tough transition period for some farmers, a large number did not walk off their land as had been predicted. In the end, just one percent of the country's farmers could not adjust and were forced out but they were replaced.  Others forced out have subsequently returned.

The vast majority of our farmers proved to be skilled entrepreneurs -- they restructured their operations, explored new markets, and returned to profitability. 
When the subsidies were removed, it turned out to be a catalyst for productivity gains. Farmers cut costs, diversified their land use, sought nonfarm income, and developed new products. They became more focused on pursuing activities that made good business sense instead of chasing a subsidy.

New Zealand place in global food security:

As a farmer there are several things which keep me awake at night.  There is adverse weather events, there is biosecurity and now there is a third, food security.  

Henk-Jen Brinkman, of the United Nations Peacebuilding Support Office, has called food insecurity “a threat multiplier”.  He says it creates a “vicious cycle from violence to food insecurity and from food insecurity to violence that needs to be broken”. 

That is a huge role for farmers the world over but especially New Zealand, as a world leader in low carbon/high yield agriculture.  One instructive read is produced by the Woodrow Wilson International Center for Scholars and is called "Harvesting Peace: Food Security, Conflict, and Cooperation."  

Our global leadership on low carbon/high yield farming can be seen in the New Zealand based Global Research Alliance on agricultural greenhouse gases and the Pastoral Greenhouse Gas Research Consortium.

To help spread the word a New Zealand-led initiative was announced last year by our Primary Industries Minister, the Hon Nathan Guy.  This follows a paper presented to the World Farmers Organisation by Federated Farmers.

New Zealand will fund a programme for farm leaders to travel to New Zealand on an agri-tech study tour.  This is New Zealand helping to boost global food productivity while helping to reduce global agricultural greenhouse gases.  This study tour concept is a chance to formally fuse scientific, trade and technological knowledge.  

New Zealand farming companies are already investing, abroad taking our know-how and adapting it for local conditions in the Americas as well as Asia.

The biggest impediment we run into is protectionism, trade barriers and the like.  

Last year, Beef+LambNZ put the cost of tariffs on New Zealand’s red meat exports alone at $19,000 per farm.  Extend that to our other primary exports and you get an idea as to what tariffs are costing not just us, but all New Zealanders.  

In developing economies, tariffs and subsidies are an insidious poverty trap.  While there are positive initiatives like “Aid for Trade,” which has mobilised over US$200 billion in funding since 2005, ‘rich nations’ are spending much, much  more than that on farming subsidies.

Ending trade barriers and subsidies is not just an economic imperative, but a moral one.  The cost of failure will be conflict exasperated by our ever changing climate.  
Given two of the world’s most challenging issues are food security and climate change, allowing those countries that can produce food more efficiently to trade more freely with the less efficient food producers makes sense

New Zealand and my organisation, Federated Farmers, has much to offer.