FEDERATED FARMERS ANNUAL CONFERENCEPrime Minister
nternational Hotel, New Plymouth
Agriculture in New Zealand has a great future.
We are standing on the brink of a whole range of exciting new opportunities for producers and processors of agricultural products.
You are also standing on the brink of having to make an important decision about the future direction of this country and agriculture in New Zealand.
This is a highly political speech because politics is deeply embedded in the choices agriculture faces.
For too long we have watched commodity prices drop.
Over the last 50 years real agricultural commodity prices have fallen 2% each year.
To stay ahead you have had to reduce your costs. You demanded Government assist you in addressing those costs.
You have grabbed new technologies, sought economies of scale, and cut out costs in getting your product to the market place.
But even with the best will in the world by Government and yourselves, the cost improvement has not matched the commodity price reductions you have faced.
Over the last 20 years your margins have fallen 1% each year.
I'm proud of National's performance in addressing cost issues and access to markets.
Sound economic management has also been fundamental.
Had progress in all three areas not neen acheived the position would have been worse. But we've still got work to do.
Eric Roy and John Carter, supported by other MPs and Minister's along the way, recently travelled over 8,000 km through the provinces. They listened to concerns raised by farmers and people in the rural communities.
Your messages to us were clear.
? keep prices under control;
? be careful with our money by spending our taxes wisely and continuing to pay off debt;
? leave more of our hard earned cash in our pockets by reducing taxes;
? give New Zealanders the best the world can offer at the best prices, and give our exporters the best access we can to overseas markets;
? get rid of red tape; and
? let people sort out their own workplace issues, not have unions making decisions.
We have delivered on these things and with your support we will lock in, and progress these issues.
This matters more than you may think and I will tell you why.
Before Eric went out on his South Island tour, he worked out what a couple of typical farming families might be saving compared with 1990, because of the programme of reform this Government has introduced.
Here's an example. For a sheep and beef farmer with 3500 stock units; $250,000 debt and capital plant of $75,000 he found annual savings of:
? $15,000 on interest;
? $1,710 on plant through reduced tariffs;
? $530 on ACC levies;
? $27,200 on killing charges;
? $520 on animal remedies from parallel importing; and
? $2,868 on stamp duty (using the your own calculations).
This makes a saving of $47,828 a year or $13.66 a stock unit.
For a dairy farmer, the picture is similar. For a 320 cow diary farm, with debt of $370,000 and capital plant of $89,000, the savings were:
? $22,200 on interest;
? $2,029 on plant through reduced tariffs;
? $425 on ACC levies;
? $6,400 on killing charges;
? $280 on animal remedies from parallel importing; and again
? $2,868 on stamp duty.
This makes a saving of $34,202 a year or $106.88 a cow.
Without those cost reductions you could not have survived falling commodity prices, the high exchange rate of the mid-1990s, and the recent difficult climatic conditions. I suggest you cannot afford to have the trend reversed.
For some of your members the drought and flooding has been the worst seen in years.
I know this puts you and your families under considerable stress. I was a farmer myself and I know the frustrations of the ups and downs of the weather cycle - waking up to another day of sunshine when all you want is rain, or the other way around.
Much as we would like to assist, we can not control the weather. But we have worked, with farming leaders, on the things we can change to make a positive for the agricultural sector.
The future will pose similar challenges and choices. Opposition parties have opposed tax reductions and are promising to put taxes up.
We are committed to bringing taxes down. The next step will be a cut to 20 cents in the dollar up to $40,000 from 1 April next year. After that we will move to bring the top tax rate down to 30 cents.
Labour and the Alliance have promised to reverse any such changes. Alliance has also promised to reverse the present tax reductions.
Tariffs paint a similar picture. Opposition parties have promised to slow the removal of tariffs and revisit parallel importing. This would simply put up your direct costs.
Farmers should demand to know which products Jim Anderton would impose tariffs on - vehicles, chemicals, tools, fuel?
Tariff increases on these products would do great harm to provincial and rural towns in New Zealand.
Watch indirect costs as well.
The most obvious example is their promise to get rid of the Employment Contracts Act. Strikes in New Zealand cost a relatively small $1.9 million last year.
The Opposition will return us to the days before the ECA when strikes cost us $55 million a year.
Remember in this same period (1991 to 1998) the cost of processing dairy products fell dramatically. Killing charges fell by $8.50 a unit.
The promise to repeal the ECA is a huge danger to these gains in the productive sector. That, along with the fact that the moderates like Angela Foulkes, are being moved out of the union movement, should cause alarm.
Those in the productive sector, of which agriculture is the major player, are the wealth creators for New Zealand. You need to be able to do business in a timely and effective manner.
The Resource Management Act is a case in point.
After extensive consultation we have introduced the Bill to reduce unnecessary delays and costs in the administration of the Resource Management Act. I know your organisation is not totally happy with the outcome, but it does achieve a workable balance between competing interests.
I note in passing that Labour and the Alliance voted against the Bill, totally opposing this move to reduce your compliance costs.
The Government is committed to continue to give New Zealanders the choice of the best that is available. Choice and competition encourage innovation and help to keep prices to the minimum.
Changes in the accident compensation, parallel importing and the electricity industry are four recent examples where the Government has moved to increase competition.
I have already mentioned the direct tangible benefits to you of some of these changes.
But we have not stopped there. The Government has changed the law so Local Government spending has to be much more clearly justified. This is making it easier for ratepayers to see where their rates are going, and to question poor quality expenditure.
Where competition is not possible National insists on full information disclosure, and a credible threat of regulation. This is difficult and complex work.
I am outraged that Labour and the Alliance will not support measures to bring down electricity prices by bringing monopoly line companies under control. A price freeze is no solution when price drops are probably and justifiable.
Every New Zealander must understand that Labour has blocked Government efforts to bring down power prices. Labour and the Alliance have put politics in front of consumers' interests and, I believe, New Zealanders will make them pay for it!
So far I have touched on three areas where Opposition parties will take New Zealand back on our hard-earned gains: economic management, competition and choice, and labour relations.
There are five others areas of similar concern I draw to your attention - education, social policy, welfare, security, and foreign affairs and trade.
Rural education has blossomed under the new funding and management system. The Opposition stands with the teacher unions, who want to bring control back to the centre. We stand with parents and teachers, freeing them to make their own choices for their area.
In social policy we are working to solve problems early, putting resources at the top of the cliff. It requires the Government to dare to say some people need support and need to change. They say that's judgmental. We call it common sense.
Welfare that works - we believe New Zealanders need to be encouraged to strive for wellbeing and independence. They have created dependence and victims. We are rolling this back.
Secure communities - we believe New Zealanders have a right to their safety. They talk tough and vote soft. Meanwhile we're getting crime rates down in New Zealand and more police on our streets.
Government is also clear in our stand in foreign affairs and the benefits of trade. We work on our relationships. They pay dividends. Opposition parties talk of re-imposing tariffs and claim the steam has gone out of freeing up trade.
New Zealand's agriculture sector cannot afford a Government that is not clear about its trade goals.
Market access is a major challenge for rural industries. These are not problems that are solved overnight. They require persistent pressure over long periods. We are making progress. National is committed to freeing up trade access for New Zealand exports into all markets.
APEC and the coming World Trade Organisation round offer opportunities to advance the cause of trade liberalisation. With National you have both a Prime Minister and a International Trade Negotiations Minister with strong rural backgrounds.
By contrast, Labour Leader Helen Clark does not believe as much effort in APEC should be placed on freeing up trade access.
Jim Sutton doesn't want the President of our largest market to come to New Zealand. The Alliance does not support free trade at all, and want to re-impose tariffs.
Anderton's support for tariffs instead of tax increases will be a direct tax on exporters. Provincial and rural New Zealand will bear the brunt of the "new way" approach. It is an old way, tried and failed, and I challenge the agricultural leaders of this country to reject it.
Having said this we have been through a very frustrating time on Meat tariffs to the U.S.
We were furious that the United States took this measure - and we will, along with the Australians, be taking them through the WTO disputes process. This process has begun.
We did everything possible to try and make the Americans see sense on this issue. My only satisfaction is that our intervention reduced the proposed impact, all be it that it didn't eliminate it.
I call on the farmers to remain committed to the U.S. lamb market that has grown from $38 million in 1994 to $138 million in 1998. These tariffs, while frustrating, are short term. The potential of the lamb market is still very significant over the medium term and is very likely to grow.
New Zealand needs to constantly work to expand and, where necessary, contest those who intend to hinder the growth of markets.
I am pleased to be able to announce today that we have appointed a roving ambassador, representing agricultural producers, who can take New Zealand farmers' views abroad, to your colleagues in our important markets overseas.
Outgoing Federated Farmers President Malcolm Bailey will fill this position. We want him to talk to farmers in our key markets overseas and to put the case - farmer to farmer - that New Zealand is not aiming to destroy their livelihoods - indeed, we can strengthen them by working together.
I would now like to take you back to my opening comments about the great future for the agriculture sector in New Zealand.
Constantly trying to reduce the costs of doing business is not a sustainable strategy. In the end rural incomes can not be preserved in the face of competition from lower waged economies. They will inevitably catch up with our technology and techniques.
The challenge for New Zealand is to preserve and where possible grow the income from existing rural industries, while rapidly developing new industries using produce from the land. These new industries will need to build on the strengths of our existing rural industries.
To give a sustainable competitive edge over the rest of the world, the new industries will need to exploit and develop the knowledge base contained within the primary sector.
Consumers world-wide increasingly buy produce that is not only high quality and best price, they also consider how they think and feel about its nutritional value, environmental value, health and fitness value, sustainability value, longevity and high performance value.
This will mean new products and industries feeding into new and exciting markets. Greater diversity, more players, significant new investment, a greater premium placed on innovation and better understanding of new market opportunities.
The Government believes this shift in direction is not just an issue for rural New Zealand. Because of the importance of our rural industries to our economy, getting behind this shift and helping it to happen is an issue for all New Zealanders.
Central to this shift is how our producer boards perform. Strategic thinking, strategic planning and strategic action. Right now this is by far the biggest set of innovations on the public agenda. I'm very proud of the way Ministers, industry leaders and farmers have approached this challenge.
In the next few months, every dairy farmer, every kiwifruit grower, and quite possibly every apple and pear grower in the country, will be voting on new industry proposals.
All of those boards have huge communication programmes in hand, to place farmers in a position to exercise an informed vote on issues of critical importance. Make sure you're there. These set of changes are far reaching and present our best chance at making a real difference.
Last year the Government asked producer boards to put forward long-term plans by November 1998, to improve the prospects otherwise facing rural producers.
All of the boards responded. They have all, at a rapidly increasing rate, developed their individual industry proposals to put before their own producers.
The Government, while we place great emphasis on the need to solve the problem, is not in the business of dictating commercial answers to any rural industry.
The commercial future of an industry is a matter for the people in that industry. Their money is at risk on the consequences of action or inaction.
Each industry has done its own homework, and come up with its own individual recipe for a better future.
The commercial proposals in every case have been developed by the industry concerned. But their proposals inevitably imply changes in the regulatory environment.
So all the industries are coming to Government for changes in the legislation regulating their industry, to let them implement more commercial programmes in future.
Dairy, Kiwifruit and Apple and Pear Board legislation have all been introduced over the last fortnight.
What we are seeing is the transformation of statutory monopolies into commercial monopolies, but with safeguards built in, to protect both minority producer interests and the interests of the New Zealand consumer.
Each industry is taking a slightly different route.
In the last year or two, the dairy industry, inspired by the Government and its own opportunities, has made a big investment in independent studies of its own potential.
The studies conclude that present annual turnover of $8 billion or so can, by adopting the right strategies, be expanded five-fold to something like $40 billion a year.
That's a mind-blowing prospect. It will require a lot more investment than anything which could ever be achieved by dairy farmers acting entirely alone.
The aim of the industry's new proposal is to get critical mass, innovation, commercial discipline and the huge investment they need, without any sacrifice of dairy farmer autonomy.
To achieve that, it wants to merge the co-operatives processing 95% of the total milk supply into one single MegaCo-op, to be owned by its own farmer suppliers.
The Dairy Board would convert to a commercial company owned 100% by the MegaCo-op - something quite intolerable under any form of law the Government could contemplate in New Zealand.
So before it can have any hope of becoming a starter, the industry has had to refine its plan to deal with the competition issues raised by the Commerce Act, for independent adjudication by the Commerce Commission.
Without its authorisation, the plan dies. The industry has to go back to square one, and start again.
That's just one of the four separate hurdles this proposal has to jump, before it can be implemented.
First, the co-operatives have to agree to join the MegaCo-op. That requires a 75% majority of the producers supplying each co-operative.
Secondly, the industry has asked the Government to pass a dairy industry restructuring bill, which sets the regulatory environment for the reformed dairy structure.
The legislation will spend six weeks in a select committee for submissions. If the House doesn't pass the Bill, the reform is not implemented.
Even if the Bill is passed but the Commerce Commission refuses to authorise the amalgamation, or the co-ops decide not to amalgamate, or dairy farmers finally vote no, then the legislation dies.
The industry goes back to square one.
Finally, about October or November, dairy farmers throughout New Zealand will vote on a constitution for the MegaCo-op to ratify all this.
Unless 75% of them vote yes, again, that ends the proposal.
Opposition parties describe this 15 month programme to date rushed and want to delay it. I say if farmers are ready to move, we should not wait a day longer than is necessary to improve farmers' incomes. Demand that Parliament does not hold these industries back.
The kiwifruit industry has a different set of problems, so it has come forward with a different set of answers.
There is no MegaCo-op proposal. Kiwifruit has a supply chain of orchard management, pack houses, coolers transport and insurance.
About five major groupings are already deeply involved in the packhouse/cooler/transport/insurance chain, under a variety of ownership.
One is a listed company, a couple are private companies, some are co-operatives.
The people involved are generally growers, though not all are growers.
So kiwifruit has a different starting point. The five groupings already compete from orchard to shipside. They are not merging. Nobody wants them to.
The kiwifruit industry proposes that growers will, directly and indirectly, put directors on the board of Kiwifruit New Zealand. It will be the regulatory body and watchdog of the industry.
Kiwifruit New Zealand will delegate all commercial and marketing tasks to a commercial company, Zespri.
Zespri will be owned by growers, and freely tradable among growers, but unlike dairying, they will not be linked to the volume of fruit a grower supplies. Unlike dairying, Zespri will for the time being retain its present single export desk.
Obviously, single-desk operations always involve some risks. Counter-measures have been set in place to keep any risks to manageable levels.
Proposals for the apple and pear industry are, generally speaking, very similar to the restructuring plan put forward by the kiwifruit people. Their grower-owned commercial and marketing company is called ENZA.
There are just two big differences from kiwifruit.
The Apple and Pear Marketing Board has a very large onshore investment in cool stores. It considered selling, but in the upshot, opted deliberately to keep all of them.
A single-desk marketing operation is placed in a very dominant position if it also owns most of the cool stores. It controls the onshore flow of fruit.
So three things have been agreed to mitigate that:
? The Board has to put those onshore assets into a separate subsidiary.
? The subsidiary must be run at arm's length from ENZA, as if it were separately owned, with a lot of transparency.
? As for kiwifruit, ENZA takes legal ownership at the ship, not the coolstore. The onshore chain will be fully contestable from 1 October 2000.
Again, I'm proud of progress. Some industry players, nine months ago were condemning this Government. Now having worked with them, they are providing overwhelming support.
Opposition parties banked on us failing. This Government has vision and commitment to moving New Zealand ahead. I leave you to make a judgement on other parties but choose carefully in November when you vote for the future direction of the country.
The Government has taken quite a lot of stick in the past for encouraging producer boards to think more constructively about the future. All kinds of motives have been attributed to us.
All of these industries have moved a long way since November, but there is still work to be done. Federated Farmers, producers and industry leaders must continue to work to find solutions in meat and wool in particular. They deserve the credit. They have made their own decisions, and they are working flat out for progress.
Rural industries face a huge transformation as they move into the competitive and more innovative world of the new millennium. I want to see them succeed, and so should every New Zealander.
They continue to be a major part of our economy. They are an essential part of our growing living standard in the future. Production, international competitiveness, productivity, and excellence must be our hallmark.
Finally, thanks for the work Federated Farmers does on behalf of the industry. Agriculture in New Zealand has a great future. It relies on good performance and dare I say it good Government.
National is the only party that has a record that backs reduction in costs for the productive sector and aggressive promotion of market expansion.
Producers in New Zealand need to back these gains by backing the Government.
That is in your hands at election time. I ask you to remember our performance and I seek your strong and decisive support.