1999 Dairy Expo, Claudelands Showgrounds, Hamilton

It appears I've drawn the short straw, fronting up to this audience after what has been a very pleasant lunchbreak, but I'll do my best to keep you awake and interested for the next 30 minutes.

People often ask me as the Associate Minister for Food and Fibre, in what way is the Government looking after the farmer these days?

They want to know what the Government is doing for the rural communities, for the dairy and sheep farmer, the wheat grower, the orchardist and the berry fruit farmer?

What I invariably reply to them is that there is no significant difference today between how the Government should treat the farmer and how we should treat the local dairy shop owner for example.

We see both traders as business people, and our aim is to provide the most productive working environment we can for both individuals.

What's important to the rural businessman is also important to his town and city colleagues, whether you are in the same business or not. An open economy with reduced compliance costs and improved trade prospects are critical.

Here are some of the fundamentals this Government has worked hard to achieve.

A free and open economy
Competitive employment market
Low and stable inflation
Low interest rates
Competitive exchange rates
These fundamentals are significantly different than what we had ten years ago.

As just one example of the ways farmers have benefited from the new micro economic picture, we can look at interest rates.

In real terms the average farmer now pays $11,000 a year less in interest rates, than they did just over ten years ago - a figure most of you would agree is not insubstantial.

Farmers and rural producers have also enjoyed, along with the rest of the country, significant tax cuts over the last three years.

The tax cuts have pumped billions of dollars back into the economy.

Money that is circulating and is helping to generate new growth opportunities in the rural sector.

Farmers have also been spared the spectre of a capital gains tax or the re-introduction of death duties - two taxes with the capacity to severely disadvantage farmers.

We don't have these taxes at present, but there is no guarantee that they won't return under some future Government.

What I would like to do today is outline my thoughts on the future for farming.

Perhaps the most significant change of the last twenty years in farming has been the decline of the family farm. It is a trend that has not only affected the business of farming, it has also had a major impact on rural communities, and the social aspects of farming life.

When I first went farming in 1972, it was common to see Dad, Mum and a couple of kids working and living together on a farm that had passed through the family for several generations.

These properties typically farmed around 2000 stock units, and provided sufficient income for the family. This often included private schooling for the kids and a relatively high standard of living.

It was a time when farming looked and was prosperous, when families could be confident of providing a future income for their children through farming, and when New Zealand's position in the international agricultural marketplace was more assured.

Now, we have no such complacency.

Over the last 25 years we have seen the size of the average farm increase significantly.

Between 1988 and this year the average sheep and beef farm increased by 90 hectares.

Over the same period the average dairy farm increased by 22 hectares.

Dairy farmers on average are now milking an extra 83 cows - our farms are getting bigger and they're carrying more stock.

At the same time, the number of farms in New Zealand has been steadily declining post war and this trend has increased since deregulation was introduced in 1984.

Take for example your industry.

In 1984 around 15,900 dairy farms were in existence. In 1996 there were 14,700 dairy farms, and this year that number is expected to fall to 14,600 dairy farms.

This is despite more than 1000 sheep and beef farms being converted into dairy farms, displacing 2.1 million sheep and beef stock units in the five years to 1998.

The answer lies in the number of smaller dairy farms that have been amalgamated to adjoining dairy farms or have ended up in new land use.

Declining farm numbers are even more dramatic in sheep and beef farming. There farm numbers have reduced from 22,000 in 1984 to an estimated 17,000 this year. That is a reduction of nearly one quarter. Put another way, of say 20 farming families in a district in the Wairarapa hill country in 1984, now only 15 remain.

The decreasing farm numbers reflect both the significant land use changes we have experienced in New Zealand and the increasing size of farms.

Now we see hill country being converted into forestry, prime finishing country being converted into dairy land, farms being converted into viticulture, and farmland surrounding cities and towns being converted into lifestyle blocks.

Farms are also constantly being amalgamated into neighbouring properties.

But the changes in land use and farm size are only part of the story, the other part of the story is declining commodity prices and their impact on the viability of the family farm.

I believe that we are going to continue to see the size of viable stock units increasing, and one of the strongest reasons for this is declining international commodity prices.

I have a few slides that dramatically illustrate this point.

The following prices are in real terms using 1996 dollars as the base year.

Beef prices: 1970 - 497 cents per kilogram, 1998 - 164 cents per kilogram
Lamb prices: 1950 - 439 cents per kilogram, 1998 - 249 cents per kilogram
Wool prices: 1950 - 2,285 cents per kilogram, 1998 - 335 cents per kilogram
Milksolids prices: 1950 - 802 cents per kilogram, 1998 - 335 cents per kilogram
Butter prices: 1980 - 4,086 cents per kilogram, 1998 - 1,602 cents per kilogram
Cheese prices: 1980 - 4,781 cents per kilogram, 1998 - 2,067 cents per kilogram
Apple prices: 1950 - 153 cents per kilogram, 1998 - 37 cents per kilogram
What are New Zealand producers doing to survive the situation?

One initial response has been an increase in off-farm income, most notably from rural women, but increasingly from rural men also.

Ministry of Agriculture and Forestry figures show that the average off-farm income for sheep and beef farms has increased five-fold from $1,498 in 1988 to $7,685 in 1998. As a percentage of the average farm's gross revenue, off-farm income has increased from 1.3 percent in 1988 to an estimated 4.5 percent in 1999.

While alternative sources of income have been essential to many farming families, I believe we must look for other solutions to the problems we face in the agricultural sector. Simply sending more and more families off the farm and out to work, I do not believe is sustainable in the long-term.

Farmers have also responded by reducing input costs such as labour, fertilizers and chemicals, and reducing capital expenditure. Certainly efficiencies and savings can be made in these areas and they should not be overlooked. However, ultimately cost cutting will not provide a long-term sustainable solution either.

We need to develop more efficient ways of producing products, and many of us already are.
We need to accept that our competition is no longer only the mainstream producers who have been in the international marketplace for years. Several, developing countries are now coming on stream entering the export field. This will continue to increase the world supply of commodities, driving prices down.
We need to continue to develop our marketing strategies, building closer relationships with customers and always aiming to be market driven rather than production driven. We need to be flexible, innovative and dedicated to excellence.
We also need to accept that this decline in commodity prices has meant that many family farms now can not support the labour resource they once did, and accept that this will mean still further changes in rural communities. Farms will continue to get larger.
We are starting to see farmers turn away from putting their capital into the land, and investing instead in technology and farm equipment.
In some cases we are seeing land-owners and farmers separate themselves out as individual entities. We will see the rise of professional land-owners and investors and professional farmers. The farmer's interests in this case will be in stock and plant and they will typically lease land.

Of course, this is already happening in your industry as it has been for many years, Sharemilkers in the dairy sector are leading the way in separating land ownership from the business of farming. The proportion of dairy farms operating as sharemilkers has risen from 25 percent in 1992/93 to nearly 40 percent in 1997/98.

Many people who own land will soon become specialists investing solely in the land, and leasing it to users. The diary industry has revolutionized the way here - and I am sure sheep and beef farmers will follow suit.

It's a scenario not all of us find comforting, but I believe it will be the way of the future and we need to be flexible enough to consider this reality and the new opportunities it brings us.

By freeing up capital currently invested in farmland, farmers of the future will be able to invest more in improving production technology to keep pace with their international competitors.

They may also choose to invest in sectors that have nothing to do with agriculture - or even for that matter with New Zealand.

An ability to spread investments would spread risk and income. In turn this would greatly reduce individual farmers exposure to the risks associated with farming such as commodity price fluctuations, dollar fluctuations and adverse climatic events.

Lets face it, farming carries risks, and many farmers who have invested in land, plant and stock are possibly over-exposed to them.

I would now like to spend a little time outlining how important agriculture (and horticulture) continue to be to New Zealand.

There is not one Government politician who would dispute the value of our agricultural industry in the 1990s.

In 1997, pastoral based exports made up 44 percent of all the goods exported out of New Zealand. Our total agricultural exports made up 53 percent of all goods exported.

But this figure has declined.

In 1987, pastoral based exports made up 57 percent of all goods exported and total agricultural exports made up 65 percent of all exports.

What we are seeing is a decline in the dominance of agricultural production in New Zealand's exports.

Most notable in the agricultural sector has been the replacement by dairy over meat as New Zealand's leading contributor to exports. As lately as 1992 meat exports were in fact greater than dairy. Since than there has been a dramatic change with dairy contributing $4.15 billion in exports in 1997, compared to meat at $2.75 billion in the same year.

Another interesting trend is the rise of forestry as a major contributor to export earnings. By the year 2002, the Ministry of Agriculture and Forestry estimates forestry exports will have increased to $3.61 billion. In its "Vision 2025" strategy for the forestry sector, the New Zealand Forest Industries Council has growth targets of forestry contributing more than 14 percent to New Zealand's GDP, and a staggering $14 billion in exports. These foresters are in no doubt that they want to be New Zealand's leading export earners.

As I said earlier, first we need to get the economic fundamentals right. We must maintain:

A free and open economy
Competitive employment market
Low and stable inflation
Low interest rates
Competitive exchange rates
In this regard, we have made huge progress.

More pressing now is the need to improve returns to New Zealand's agricultural and horticultural sectors.

A critical component of improving returns is market access, and there is no better access than free trade.

During the Prime Minister's recent visit to the United States the issue of a free trade agreement with US was again raised. The Prime Minister received an encouraging message from President Clinton, that New Zealand should continue to pursue such an agreement.

Of course an agreement is likely to take quite some time, and there are many factors beyond New Zealand's control that must first fall into place. Nonetheless, the potential benefits of having free and open access to the largest economy in the world are so great that we must continue to pursue such an agreement as a matter of priority.

Americans consume 500 million kilograms of butter each year. But, because of trade restrictions, New Zealand has just half a percent of that market.

Americans consume three billion kilograms of cheese each year. Again, because of trade restrictions, New Zealand has just half a percent of that market too.

In Canada, the Uruguay Round means we will have access to a whole 3% of its butter market by the turn of the century. But we can only sell our butter to the local state trading enterprise. It marks our butter up 60% before on-selling it. Canadians get over one third of the value of our butter.

Essentially, we're locked out of the North American market for one of our key export products.

It's not that much better for butter in the world's second largest economy of Japan. Japan has granted access to the whole world of just 1,800 tonnes. If you want to sell more than that you face tariffs of an astonishing 600%.

In Europe, we're also hit by dairy tariffs. The EU takes a big chunk of the $500 million in tariffs our Dairy Board has to pay each year, before it can pay anything to you as farmers.

But it's not just butter.

When it comes to the EU high-quality beef market, quotas mean New Zealand is restricted to a miserable 300 tonnes.

But New Zealand can make a difference to unlock the full potential of these markets. We have a tremendous opportunity this year with APEC, the most significant international trade conference ever in New Zealand, to improve our trade access.

Retaining quota access and pushing international trade policy through forums like the Cairns Group, APEC and WTO is critical to our future.

At the moment tariffs are being removed painfully slowly.

There is general consensus among many of our trading partners that we need to dismantle many of the trade barriers that still impinge on our businesses.

Put bluntly, the current state of play with tariffs and the free trade situation in agriculture is far from where New Zealand would like it.

In New Zealand's view, the next World Trade Organisation agricultural negotiations must focus on substantial and progressive reductions in support and protection for agricultural goods.

We want to move the debate forward to significantly improve the market access New Zealand has for our agricultural products.

Our best chance of progressing this comes with the APEC meetings here in New Zealand this year.

Our role as chair of APEC gives us a position of substantial influence, or as the Americans put it "boxing well above our weight class".

We're determined to build on this role, to improve economic co-operation in the region, to reduce barriers to trade and to ensure that the people of the Asia-Pacific region share the benefits of economic growth.

APEC also presents a challenge to the WTO trading system, in terms of being a vehicle for promoting free trade.

By hosting APEC this year, we're uniquely placed to influence the next WTO round of negotiations, as APEC leaders meet in New Zealand just prior to the WTO Ministerial meeting to launch the next round of talks.

New Zealand has never before, and probably never will again, have quite the same opportunity to shape the global trade liberalisation agenda.

We achieved a credible and heartening outcome from APEC '98 in Malaysia - but this year we can do even better.

I'm confident that our positioning and the timing are right, and that we can achieve significant improvements in many areas. It will not be easy though. Japan, for example, still has some way to go to unshackle itself from the protectionist policies of the past.

Financial pressures in much of Asia, Russia and more latterly Brazil continue to make countries cautious about liberalising trade.

What has been clear from the economic turmoil of the past 18 months, is that countries with open economies and minimal government interference have faired far better that their 'protected' counterparts. Countries like Singapore, Hong Kong and New Zealand have experienced nothing like the upheavals that have occurred in Malaysia, South Korea and Indonesia. And, of the Pacific rim super economies the United States has weathered the economic storm far better than 'protected' Japan.

The message to protectionists overseas and here in New Zealand should be crystal clear.

What New Zealand producers are asking for is the opportunity to compete on an equal basis. I have every confidence that, if given this opportunity, New Zealand business people, especially New Zealand farmers, will be successful and prosperous.

Right at the start I said people often ask me as the Associate Minister for Food and Fibre, in what way is the Government looking after the farmer these days?

Well, through responsible government the economic fundamentals are now sound.

Given this, I believe the single most important thing the Government can do for farmers in 1999 is secure access to markets. And, that is exactly what we will be working damn hard to do.

Thank you.