The right balance

Good morning, thank you for inviting me to speak to you this morning.

Last year I congratulated you on the exceptional growth of your industry - an average of 24 percent a year for the past 20 years.

In July last year, you reached the celebrated one billion dollar export mark.

This was impressive considering the economic backdrop.

But I know your industry faces significant challenges.

Growing pains are clearly evident. Constrained growth is forecast over the next couple of years while there is a period of rebalancing.

I note that the theme for your conference is "What Comes Next?"

In your annual report, your chairman Stuart Smith refers to the importance of getting the balance right.

He is talking about balancing supply and demand as a precondition to growing value and ensuring profit.

In government, we are also concerned with rebalancing.

As Minister of Agriculture I've identified three major rebalancing areas that are crucial to moving the primary sector forward.

The first is around the economy. The second is around trade destinations. And the third is the positioning of all of New Zealand's primary products.

Let's start with the economy - first and foremost we need to lift our economic performance.

The reason this is so important in my area is because our export sector, the way we earn our way in the world, actually went into recession in late 2004.  A full five years before the global financial crisis.

There are two reasons this was masked:

• The first was our nation's continued obsession with property investment.
• The second reason was the huge increase in government expenditure under Labour.

To correct this balance, the Prime Minister has charged all Ministers with economic portfolios to fire up our sectors. He wants to see the trend reversed and the growth we so desperately need, delivered.

The primary sector, which accounts for 67 percent of the export sector can, and must, perform a lot better.

The Government has a big role in encouraging growth. That is why recent changes to the tax system, our innovation programme, including the Primary Growth Partnership and our infrastructure programme, including sorting out our water resource, really matter.

The second rebalancing area that needs focus is where we trade.

In 1970, 85 percent of all primary exports went to the then three richest countries in the world - United Kingdom, Europe, and Japan.

Today, less than 12 percent of our total exports go to these three regions. It's also worth noting that they are no longer the powerhouses of the world, but the economies with the greatest challenges.

New Zealand now exports to 233 countries. But more importantly, we have repositioned our export industries to the next generation of powerhouse economies.

China is now our second largest trading partner.

With our Free Trade Agreement, tariffs for New Zealand wine will be phased to zero on 1 January 2012. Our exporters will have a significant advantage over international competitors who will continue to pay tariffs between 14 and 20 percent. 

When I was in China in March I visited a small shop in Harbin, Northern China, which sold only New Zealand wine. In the first 12 months it imported $200,000 worth of our wine, in the second year it budgeted to import $2 million. This is staggering growth.

In April this year a joint delegation of New Zealand officials and your industry spent a week in China.

The key objective of the visit was to expand New Zealand wine sales into China. 

The challenge we have is to make sure the Chinese middle class gets a taste for New Zealand wine. Because that middle class is huge.

Of China's 1.3 billion people, at least 250 million earn the same per capita income as the average New Zealander, so they can afford our premium products.

The final rebalancing area, and one that some producers still need to get to grips with, is we are no longer a low cost producer.

We won't, and shouldn't, attempt to compete against other countries on price. In your game, let the Aussies have the budget market.

We must play to our strengths, which is producing a premium product backed by reputation.

I think this is something the New Zealand wine industry understands well.

I want to now address the rebalancing you face in the wine industry - eroding profits for vineyard and winery owners.

The Ministry of Agriculture and Forestry recently completed monitoring of vineyards in Marlborough and Hawke's Bay.

It confirmed that last season was the most financially challenging since its detailed monitoring began in 2004.

The impacts of grape oversupply and the world recession are certainly hitting hard.

I am aware of a spike in winery receiverships in Hawke's Bay, Marlborough and Central Otago.

There will likely continue to be rationalisation in the industry in the short term.

As an industry, you know this. And I must commend you on attempting to manage these challenges very carefully.

I admire the cohesive and united way your industry works.

The result of the levy vote earlier this week is an example of your commitment to the big picture and the future of New Zealand wine.

Unity of purpose is one of the driving forces behind your sector's success in the global marketplace.

Another area in which we need to find the right balance - and this is an important one for both you and me - is biosecurity.

Consider this amazing statistic - 175,000 items a day come across our borders.

As more people and goods enter our country, the potential for harmful pests and diseases to arrive increases.

A huge amount of money, three quarters of a billion dollars, is spent annually on biosecurity in New Zealand.

Government is reviewing the way biosecurity risks are managed to balance shared responsibilities and benefits.

This is not about spending less on biosecurity, but about more effective border control.

We believe industry/government partnerships will mean we can all appreciate the risks and the potential costs of any incursions.

We must continue to find new ways to manage biosecurity risks more efficiently and there is no doubt teamwork is critical to success.

Earlier I mentioned the importance of innovation in reaching this Government's growth goal.

It is so critical that we have dedicated big dollars to fostering innovation across the primary sector.

An exciting development is the Primary Growth Partnership. 

To date, there has been $164 million in government funding committed to five industry projects, which when combined with industry contributions, total around $366 million spent on innovation.

This is very significant money, in fact the biggest primary sector innovation spend in decades.

I note there has been some interest shown from the horticulture sector, although few formal applications.

I do encourage the wine industry to take advantage of the funds available and come up with ideas for a partnership that will contribute to achieving your goal of $2 billion by 2019.

I want to finish on the subject of water.

There is no other lever with as much potential for growth in the primary sector than water.

It is our liquid gold.

As you've no doubt heard - wine is for drinking, water is for fighting over. Certainly that is the recent history.

In New Zealand we've always had plenty of water and perhaps this is the reason it hasn't been managed well.  But as demand increases and allocation reaches its limits, this Government is looking at better management of our water resources.

This is all about efficient distribution, better allocation, and most importantly water storage.

An example that brings the storage issue to mind is in my home patch of Canterbury where 96 percent of fresh water flows straight to sea.

Getting water management right will stimulate economic benefit for generations, and it is a most obvious creator of wealth, growth and productivity in the primary sector.

To conclude, I am aware of the financial challenges the wine industry faces.

But I am confident your long term future is sound.

Over the next 40 years the world's population is expected to increase from six billion to nine billion.

As a producer of premium products our target will be the upper and middle classes - the 50 million people in the future that can afford, and are prepared to pay more, for high quality food and beverage that is backed by integrity and reputation.

Like your chairman has said, reputation is your industry's greatest asset. Every bottle that bears the words "New Zealand wine" must enhance that reputation.

The future is your opportunity.  Grab hold of it and let's all make your excellent industry even better.