Leadership In The Food And Fibre Industries

  • John Luxton
Food, Fibre, Biosecurity and Border Control

Taranaki Federated Farmers Provincial Conference New Plymouth

Ladies and gentlemen, Taranaki Federated Farmers members, President Kevin Thomas, guests...

An old political adage says "a week is a long time in politics". Tell me about it

From the perspective of my Bowen House office long-range forecasting could be only very kindly described as an imprecise science.

Economists invariably have a completely different story to tell every six months, as do weather forecasters, and political pundits.

Last October the Government was being written off by political pundits. Labour was going to "sleepwalk" to victory in March.

March has come and gone and the pundits are remarkably less confident now.

Why? Because so many of our public perceptions of the political process are superficial and way off the mark.

Many New Zealanders do not recognise good government when they have it.

Expectations that those who so many cynically dismiss, can wave a magic wand and take away the pressures on New Zealand of global change.

What National has done for the rural sector In 1990 National became the Government.

Since then we have balanced the books from a predicted $5 billion deficit in 1993, paid down a crippling public overseas debt to a net zero, cut taxes by over $100 a week for the average household and tamed inflation. New Zealand farmers, businesses and homeowners now enjoy the lowest interest rates in 30 years.

We did all this by concentrating on the basics - sticking to the knitting.

New Zealand, perhaps more than any other country on earth, is a trading nation. It's prosperity is dependent on the performance of its export industries and it has been our job to assist make New Zealand one of the most competitive investment environments in the world.

Labour market reforms, shipping deregulation, electricity reforms, the planned roading reforms, are all things which help farmers, New Zealand's export earners, to keep an ever increasing share of the pie that they create.

Last year we saw the proof of the pudding. As the global economic crisis struck economies across the globe, the New Zealand economy performed as it was supposed to in such circumstances. Our exchange rate declined making New Zealand exporters more competitive. Thanks to overseas confidence in the Government's economic stewardship lower interest rates soon followed and the economy is now bouncing back strongly.

Yesterday the National Government delivered its 9th budget. Treasury and the Reserve Bank are largely in agreement on what the future holds. Growth of 2.9% is forecast this year and 3% next year.

Some will criticise the Budget for being boring. But in my mind this is not a criticism. If it is relatively free of surprises that is because it is intended

to be. Surprises are not good for business. Business wants, indeed needs, certainty.

In keeping with recent history the Budget contains more micro-economic reforms designed to further improve exporter competitiveness.

Elimination of stamp duties has been something New Zealand farmers, and Feds, have been lobbying for for a long time. Over three years New Zealand's farming and commercial businesses will save $224 million from this change, enabling them to further grow their businesses and create more jobs and greater wealth.

We have also announced our intention to further enhance the competitiveness of New Zealand businesses by lowering the corporate tax rate from 33 cents to 30 cents as soon as circumstances allow.

The Labour-Alliance bloc on the other hand are planning to raise taxes! That will harm rural New Zealand by reducing investment.

Food and fibre - capitalising on our natural advantage New Zealand began the 20th century as an agricultural product exporting nation. Now as the end of the century approaches New Zealand remains an agricultural exporting nation.

Of $20 billion in exports annually, roughly $15 billion is attributable to the Food and Fibre sectors.

Selling meat, wool, milk, fruit, trees and fish. This is where New Zealand makes its money.

The reasons for this are no great mystery. New Zealand's strength in agriculture derives from obvious reasons. We have advantages, not least of which are the skills of our farmers and our inherent climatic advantages.

National is committed to the course of enhancing the prospects of New Zealand's export industries and its farmers.

That's why when I took on the agriculture portfolio the title of the job was changed to focus on food and fibre, the products of the marketplace.

The name change, reflects National's vision for the future of New Zealand agriculture, that of providing what the consumer wants.

New Zealand exporters have proved they do not need export assistance schemes, or tariff protection to survive. They have shown they thrive in the low interest rate, low tax, low inflation economy that this Government is committed to delivering.

Our job in Government is to provide the best environment for further growth.

The best environment for any business is a profitable one, which is why we have concentrated efforts on reducing input and compliance costs for business.

By far the best thing we can do to enhance business competitiveness is to lower taxes and we have done that too. And, provide an appropriate and safe regulatory framework to facilitate, not inhibit, innovation. This includes secure borders to ensure New Zealand's natural advantages are not undone through carelessness or sabotage.

But the task of good government in this area is not easy.

As the row over genetic modification of food is demonstrating, the pace with which crises can develop in the food industry could not be said to be slow.

The world we are living in is changing. And fast.

Economic realities As a food producing nation among the serious threats and opportunities we have to contend with are the economic realities:

- we live in an increasingly borderless world;
- there are a number of trade opportunities and challenges. APEC and the WTO remain a key priority for the Government, with the prospect of delivering considerable opportunities for exporters, but also containing risks; and
- technological advances and challenges, particularly in the area of genetic technology and its relationship with consumer views on genetically modified food;
- and the biggy, ever declining commodity prices.

Commodity prices

For New Zealand the only path to prosperity is through change and adaptation.

If we keep following that line down over the next three decades as commodity producers, prosperity will likely become a distant memory.

We need to generate new kinds of food and fibre products and grow new markets. We need to cultivate these markets, develop secure supply chains and ensure delivery of top-quality goods and services to our customers.

It is often said by critics that the Government is naive in its views about world trade reform.

New Zealand farmers vs European farmers New Zealand is well positioned.

Where European farmers and, to a lesser extent, US farmers are on the verge of huge upheaval as their subsidy regimes are reformed and hopefully dismantled, New Zealand farmers have already completed these structural reforms.

This government is committed to further improving export competitiveness in New Zealand's export and agricultural industries.

This we know is the path to prosperity, both for the regions, and for the country as a whole.

Everything we are doing is designed to help our exporters, and by virtue of its dominant part in the scheme of things our rural economy.

Producer Board reform A key component to our strategy to deal with these unpredictable forces is the Producer Board reform strategy which we launched in the 1998 budget.

Many of our current producer boards date back to the 1920s. Since then each of them has undergone numerous metamorphoses and each is seen as successful but they also increasingly constrain innovation and diversity.

Looking in the statute books there have been at least one and sometimes more Dairy Amendment Acts every year - which as often as not authorise retrospectively what the industry has already done.

Back in the 1920s and even in the 1950s and 60s this was arguably acceptable. Agriculture was the New Zealand economy so why shouldn't Parliament spend a lot of its time debating it.

Now it's a different matter.

In the case of the Labour and Alliance parties most of the membership and MPs are a little hazy on what producer boards are, let alone what should be done with them.

Fortunately however there are many wiser heads who do know what producer boards are, and who also know where they want to take them.

As I said at the beginning of this address a week is a long time in politics. Two years is an eternity.

Back in mid 1997 my colleague Dr Lockwood Smith and I found ourselves being reported saying that Dairy Board reform was "inevitable".

This was an example of Government showing leadership and vision about the need for change. An issue Parliament is so often accused of lacking.

It would be churlish to suggest the response from many dairy farmers was not hostile. It was.

Since then however the debate has moved on hugely.

From the beginning of the debate one of the key reasons for change was to avoid political risk posed by an urban dominated MMP Parliament. For as long as the industry remained dependent on a legislative framework it would remain beholden to Parliament.

Initially the board and industry leaders did not buy into this argument. More recently however the idea of not having to come and see the Minister in order to get anything done, appears to be gaining a following.

From my Government's perspective what we want is something farmers want too. That is certainty. We, like farmers, want certainty that the Dairy Industry will continue to perform its role as the powerhouse of the New Zealand economy.

I have welcomed the Dairy Board's announcement of the plan to build a mega co-op. Not because I think a mega co-op is necessarily the best option, but because it is clearly an idea that has widespread industry support and because it provides a pathway to the future.

I also welcome it because it will enable the issues that the Government sought to have addressed at the beginning of this process, namely, governance, the export monopoly and exit rights for shareholders, to be addressed. Clearly there are also important public policy issues and the Government welcomes the opportunity to evaluate them and work through them with the industry.

Most importantly of all however I welcome it because it is an example of an industry coming to me, and telling me, how it wants to let go of its Parliamentary apron strings.

The objective of the producer board reform plan unveiled in last year's budget was to facilitate New Zealand's agricultural industries to develop for themselves an industry structure suited to the business challenge of the 21st century.

They were encouraged to find structures which would address the considerable threats and opportunities posed by an accelerating pace of change in their markets.

A little more than a year later I believe the Dairy Industry is well on the road to achieving that. The Meat and Wool industries pose a different challenge to that of the Dairy Industry.

I recently attended the Meat Board's AGM and was, I have to say, disappointed at the turn-out. Out of an estimated 25 - 30,000 odd levy payers, 12,000 are registered to vote. Of these, less than 200 turned up and around 1000 participated in the postal ballot on the remits.

From this it is apparent that key decisions about the future of these boards, owned and funded by farmers collectively, are being made by between three and five per cent of those affected.

In this regard the role played by Federated Farmers Meat and Wool Section is crucial. The thoughtful, well consulted and well constructed report produced by the section under the direction of Past Chairman Eddie Orr last year was very gratefully received in my office last year.

While some may regard the multiple consultation rounds as cumbersome, they are in fact necessary to achieve buy in to what is finally decided upon.

As I speak the Wool Board is about to embark on another consultation round and the Meat Board is planning a referendum. As discussion continues, the key issues that need to be addressed are becoming increasingly plain.

For a start, the Government's objective in this whole reform process has now been refined into a single, concise and simple statement.

The overall objective is to improve the economic performance of each industry sector, with particular focus on:

In the case of the non-trading boards (Meat, Wool, Game Industry):
- accountability;
- and lower costs.

And in the case of the trading boards (Dairy, Apple And Pear, Kiwifruit)
- investment and innovation;
- accountability;
- and lower costs.

Thus far we have not found a great deal of disagreement with this.

But pretty soon we get into some more curly questions.

At the top of the list we have the formal structure for the new boards. Following consultations with farmers last year The Wool Board, and then soon after, the Meat Board, announced that they were keen to become incorporated societies.

The Government's view on this is that the boards may well have put the cart before the horse.

The Government's guiding principle on future structures in all primary industries is that, "form should follow function", meaning that the first question requiring an answer is what should the new board/industry association do? What its legal form should be, will then follow from the answer.

Which brings us to the second big issue requiring your consideration.

What functions should be funded by industry levies in general, and compulsory industry levies in particular?

Federated Farmers thinking on this is largely in line with the Government's view. In general, commercial activities are best funded through commercial means. So far, my officials tell me, several of the boards remain keen to debate this point.

While a week is ordinarily a long time in politics, over the next six months leading up to the election the weeks will be getting even longer.

During that period my colleagues and I will continue to concentrate on the basics. Good government requires leadership and we will continue to supply it, just as we have done for the last nine years.

Today our quality food sector and our top line fibre producers must focus on the consumers' wants and needs, and on the marketplace.

Beyond 2000

Today's global market demands that as governments cannot control flows of capital, skills or technology as they used to, neither should its legislation prevent innovation, new investment or farmer choice in their business future.