Good morning and thank you for inviting me to speak to you today.

I would like to acknowledge your President Don Nicholson, Councillors and your Chief Executive Conor English.

Federated Farmers has come a long way since the New Zealand Farmers Union was formed back in 1899.

A hundred and ten years in the business of representing New Zealand farmers is a very impressive record.

But today I don't want to look back - I want to spend time looking at the future of New Zealand farming.

To do this, we need to look first at the current economic situation. To be blunt, it is bleak - both here at home, and for our key trading partners.

The economies of the EU, the United States and the UK are all forecast to shrink by more than three percent this year.

Japan's economy will contract by at least six percent. And only last week, Treasury's economic update concluded that the New Zealand economy will contract by one percent this year.

If this isn't enough to concern our exporters, we now have the Europeans and the United States raising the ugly head of protectionism in a misguided attempt to protect their own farming industries.

Having said this, I am optimistic about the New Zealand economy in the medium term, and this optimism springs from my absolute confidence in the ability of New Zealand farmers to compete.

Our sheep farmers had their recession last year, and are now enjoying substantially better prices than we have received for some time.

We need to acknowledge though that a significant part of the improved price is due to the supply of lamb from New Zealand being at its lowest level for years.

A succession of droughts, poor returns and earlier buoyancy in the dairy sector has meant that our export lamb numbers will be about 20 million this season, down six million on last year.

The dairy industry is clearly under some pressure as it has seen a rapid turnaround from $7.90 to a Fonterra prediction of $4.55 next season.

Again, I am confident that this correction is short-term, but I acknowledge that some farmers will clearly struggle.

There has been a huge expansion of indebtedness in rural New Zealand, with it doubling to $45 billion over the last five years.

Most of this indebtedness relates to the dairy sector, and the financing of a rush of dairy conversions.

I am concerned - this is why I have called two meetings with the major rural lenders, but what I'm happy to report to you is an absolute commitment by these lenders to New Zealand agriculture.

There are some farmers under extreme pressure but some of the recent media language is, in my opinion, extreme.

As the world moves through the current recession and economies start to recover, demand for New Zealand product will improve because we have many advantages over competing nations.

Firstly, we are an unsubsidised true market.

Some time in the future, the Europeans and the Americans will have to realise that subsidies are unsustainable and expensive.

Secondly, we have world-class expertise in agricultural management systems.

We are regarded internationally as the most efficient converters of grass to protein.

Thirdly, we have a huge natural advantage of water. The topography of this country means we get plenty of rain.

It doesn't always fall in the right places at the right time, but with a sensible approach to water storage, solutions can be found.

And, finally, we have farmers who are renowned for experimenting with a drive to increase productivity. Look at the record of our productivity growth in agriculture over the last twenty years.

While the rest of the economy increased productivity by 1.1% each year, agricultural productivity grew by 3.2% per annum.

But can we be smarter, more innovative and flexible to achieve even greater productivity?

Primary Growth Partnership
I argue yes, and this is why the Government announced the Primary Growth Partnership in the recent Budget.

For the past twenty years, the productivity increases I've outlined were achieved on the basis of research done even earlier.

PGP is a government-industry partnership that will invest in significant programmes of research and innovation to boost New Zealand's primary sectors.

It is not about ‘business-as-usual'. This is an ambitious project and has ambitious scope.

The initiative provides $190 million of government funding over four years.

It will start at $30 million this year, rising to $70 million per year from 2012/13 onwards.

Funding will be increased as industry shows capacity and the need to spend even more.

With a matching commitment by industry, up to $140 million will be invested annually.

A real feature of PGP is how it has been closely developed with industry. It is unashamedly industry-led and simple in its structure.

PGP will focus on results, not on bureaucracy.

The next challenge we face is, of course, the Emissions Trading Scheme.

The good news for all of you is that the previous Labour Government's Emissions Trading Scheme will not survive, provided we get the numbers in Parliament.

As you will be aware, a select committee has been reviewing the ETS and we are still awaiting its report.

In the meantime, we have delayed some of the strategic dates which the forestry sector had to meet under the current legislation.

I can't pre-empt the select committee conclusions, but it is my guess we will end up with an ETS, and a far more balanced one.

The Prime Minister has always said that his government would not put environmental requirements ahead of our economy.

I know your specific concerns are around agriculture. Again, we must wait for decisions to be made, but you can take comfort from the Prime Minister's statement that alignment with Australia will be critical.

Australia has signalled that agriculture will be included in its Emissions Trading Scheme - but in 2015 at the very earliest.

My advice to you is don't get fixated on when agriculture may or may not enter an ETS.

The more important question is at what level any grandparenting of emissions will start, and how quickly any grandparenting would be removed.

This is certainly an area I have been focusing on and will continue to do so to ensure that agriculture is treated in a fair, realistic and economically sensible manner.

NAIT
You have asked me to address the issue of NAIT.

In the latter part of last year, there was considerable criticism of National Identification and Tracing, much of it coming from Federated Farmers.

On becoming Minister, and fully aware of the second business case study that is underway, I asked Don Nicolson to at least allow this to be completed so we could have reasoned debate in light of all the information.

I want to thank Don for his cooperation, and when the business case is completed - which I understand will now be in August - I am happy to accept all arguments for and against proceeding with NAIT, before any final decision is made.

But I want to be upfront with you. Having visited Australia this year, and having seen the way it has embraced its National Identification and Tracing, if Australia can use its scheme to gain more access against New Zealand product, I don't think it would hesitate to do so.

Biosecurity - Tb Management
Staying with biosecurity, I want to discuss one of the leading pests of concern to many farmers: Tb.

Keeping on top of Tb in New Zealand is an expensive activity. The current budget for managing Tb is around $82 million per year.

Many of you will be aware that the law requires the future direction of the Tb Strategy to be reviewed.

Leading up to the review, a lot of work involving various organisations has been going on to assess possible options for the Strategy.

As part of this process, the Animal Health Board has recently asked cattle and deer farmers to provide their views on an option that combines keeping a focus on reducing the rate of infected herds - while also reducing the size of "vector risk areas", where infected wild animal populations risk spreading Tb to herds.

The Animal Health Board will be putting out a proposal for public comment, and I look forward to hearing the views of farmers and others on the future direction of the Strategy.

Water allocation
Now moving on to two other areas I want to talk about - water infrastructure and the high country.

I consider that water storage and allocation is one of the biggest issues facing the agricultural sectors, and New Zealand more widely.

I congratulate Federated Farmers for your very similar views, and for airing them frequently!

As I said earlier, New Zealand is blessed with an abundance of rainfall and clean water. The problem is that it doesn't always end up where we want it - and when we want it.

This Government has signalled that we intend to address the country's infrastructure deficit. The National Infrastructure Advisory Board has been announced and amongst its six members is Dr Terry Heiler, CEO of Irrigation New Zealand.

Terry is there for a reason. He is there to help me pound on relentlessly that the quickest productivity gains to be achieved in this country will be through expanding areas that can be irrigated.

New Zealand currently irrigates 600 thousand hectares. But a further 1.9 million hectares could be irrigated.

This must be done, particularly as New Zealand agriculture faces more difficult summer seasons as a result of climate change.

Recent public comments from the Prime Minister and myself should leave you in no doubt of this Government's absolute commitment to support increased development in water infrastructure.

High Country Issues
I want to touch on a specific South Island issue now - tenure review. The treatment of this relatively small group of farmers under the previous Government was disgraceful.

In essence, it's a matter of who you believe can do the best job - farming families who live and breathe the high country, or a government department run by Wellington bureaucrats.

National backs the farmers any day.

We are currently reviewing Labour's high country objectives and expect a paper to go through Cabinet shortly.

This will set the parameters under which National will operate. It will restore confidence in the tenure review process and fulfil the intent of the 1998 Crown Pastoral Lands Act.

We still have to tackle the issue of high country rentals. The high country farmers took the Government to court, and good on them for doing so.

The Minaret case decision is imminent, but regardless of who wins, it presents my government with huge challenges.

I will tackle these challenges which ever way it goes.

Meat Sector Study
Finally, I want to mention the Meat Sector Study launched last week. As I said then, and I say it again, change in the meat sector will only be lasting if it is driven from within the sector.

But I also made it clear the status quo of the meat sector cannot remain and it needs to change for the good of all farmers, and indeed all New Zealanders.

Following the launch of the study I met with senior meat sector representatives to generate debate within the industry about where it heads from here.

Federated Farmers was, of course, included.

Discussion was robust and productive. It is hopefully only the beginning of a process by which the meat industry - processors, farmers and other stakeholders - takes steps to work together for their mutual benefit.

It makes sense for one company to do all it can to stay ahead of its competitors, but when there are opportunities for collaboration that allow all parties to benefit without losing their independence, these should be explored.

Farmers also have a role to play in collectively driving the future strategic direction of the meat industry.

Farmers own the vast bulk of the assets in the sector: not just through farm ownership but also through their shareholdings in co-operative and non-co-operative processing companies alike.

I challenge you all to think about where you want this industry to be in 10 to 15 years' time.

I am not going to dictate how the industry should proceed, and neither does the meat sector study lay out a plan of action for industry.

Solutions need to driven by industry, for industry.

Conclusion
I want to conclude now by saying that despite New Zealand being caught up in the worst global recession since the 1930s, I remain realistic - and optimistic - about the future of farming.

By moving away from the traditional focus on production and looking instead to innovation to raise productivity and meet changing consumer demand, New Zealand farmers will be much better placed to deal with the challenges of the next 10 years.

But this will not be easy.

It will require you as farmers to adopt new practices abandon old ways of thinking and embrace different farming methods.

This will be a challenge, but when I look at the history of New Zealand agriculture and New Zealand farmers, I am confident that each and every one of us can meet that challenge.

For our part, the Government is committed to ensuring New Zealand farmers stay at the top of the global game.

I wish you all the best for the remainder of your Conference, thank you.