SOUTH CANTERBURY FARMERS IRRIGATION SOCIETY LTD AGM

TIMARU

Special Guests, Ladies and Gentlemen

The primary industry is very important to our economy. And water is very important to our primary industry. If we want to pay for those social goals of health, education, social welfare and social cohesion someone has to earn the money first in the private sector.

I have heard some say that agriculture doesn't matter much. Well, they are wrong. Agriculture, while as a proportion of the economy is smaller than it used to be, is still very important to our nation's welfare.

In 1996 agriculture based exports earned New Zealand over $11 billion of a total export effort of about $70 billion. Forestry products added over $2.2 billion and fishing $1.2 billion. The agriculture sector contributes around 14.5% of GDP with over 230,000 jobs or 16% of the workforce employed in the sector. And of course, every dollar that agriculture earns from overseas is then spent many times within the domestic economy. This is particularly important for provincial economies such as South Canterbury's. In short, the agriculture sector continues to be very important to New Zealand.

Today I want to talk to you about the farm gate and what happens on either side of it. The things that farmers can directly control on their side of the farm gate and the things that go on, on the other side of the farmer's gate. Both have an impact on farmers' standards of living.

Beyond the Farm Gate
I believe that farmers deserve the opportunity to evolve and progress their industries in a carefully managed way so that their standards of living can improve. To help this happen we need to free things up in the agriculture sector. Parts of it are currently restrained by legislation and attitudes from adapting to the changing world around us. Capital, labour and technology are not constrained by national borders. We need more investment, more innovation. Being good at commodity trading simply isn't good enough. Selling commodities to others to add value doesn't give our farmers and growers a good return or lifestyle, unless they can continue to reduce the costs of producing those commodities faster than their competitors.

Farmers and growers have done their part on their side of the farm gate, in general. They have changed, invested and innovated. You in your district, have an opportunity to invest further and innovate more with your Opuha Dam investment which I will talk a bit about later. The result - increasing production. It is this increasing production that has driven the increase in dairy export returns, for example. But beyond the farm gate, farmers are not getting the accountability, transparency or performance that they deserve and pay for. Perhaps there is room for more progress.

Farmers know that having a monopoly supplier of any service, in general, does not work in their interests. Having a monopoly supplier of marketing services is a risk.

Agriculture and horticulture must shift away from being production driven and get better market driven signals back to producers. Investment has to go into differentiated product into the market place. We need to move away from commodities to branded consumer products. This doesn't mean we shouldn't produce more, but rather that we should be producing more of what the person who eventually pays for our products, - the consumer, wants.

Forestry and fishing have made some impressive gains over the last few years as they have invested and moved up the value chain.

Role of Government
We all know that it is vital that we increase the size of our economic cake. Growth is very important. So what is the role of Government in this, particularly beyond the farmgate?

Government does not create wealth, it merely transfers it at a cost so we need businesses of all types to invest in people, jobs and ideas to add value. Good government does have a role to play in making the size of the cake bigger but getting a bigger government doesn't give a bigger economy.

Government needs to continue to work on a trifecta of areas. The first part of the Trifecta is to reduce the size of Government in the economy. Since the early 1990s we have progressed from 42% of GDP to about 34% this year.

To achieve this, we need to continue to privatise sectors that are not core Government activities. In the recent budget, the Treasurer announced the privatisation of Government Property Services, and some small power stations and signalled that other assets may be privatised on a case by case basis. I believe other activities owned by Government need continual reassessment, including local government assets, such as power companies, airports and Local Authority Trading Enterprises (LATES).

Secondly, we need to continue to contract out services that private enterprise can do better. Papakura City Council is to be congratulated on their leadership in this area. It is a good example of what can be achieved for both ratepayers and the community. It creates a win - win situation by lowering rates and improving services. Some of the wishy washy so called "do gooding" councils would do well to follow suit.

Thirdly we need to continue to improve Government's efficiency in the core roles that it still undertakes. There is still room for improvement in both central and local government.

This Coalition Government's programme has contained increases in Government spending to $5 billion. All other outcomes from last years coalition talks would have resulted in far greater spending plans. Further tax reductions are planned and we are carefully managing key macro settings and providing a stable economic environment which, in recent months, has seen the exchange rate corrected to a more comfortable level for the export sector.

(Overhead) Just on the exchange rate, if we look at the TWI over the last few years we can see that if the solution to improving farmers' returns beyond the farmgate was to reduce the value of our dollar, then we should all be millionaires. The dollar does have an impact, and you will notice it has now dropped quite a lot. Today it is at its lowest level for three years. However it is not the only aspect or ingredient for success. Too often the exchange rate is used as an excuse for poor performance by those who take our product at the farmgate to move to the market.

Similarly, calls for increased spending will only result in higher interest rates, exchange rates and eventually tax rates. Being in Government means taking some hard decisions. This Government is containing spending, despite lobbying by well organised professional groups, and is still on track to reduce tax below 30% of GDP.

The second leg of the Trifecta is to free things up more.

We need to have a free, open and competitive economy to lower society's costs and allow the productive sector to get on with the job. We have seen many benefits from competition in sectors such as telecommunications, airways and supermarkets. We have brought in postal deregulation, are undertaking tariff reforms and moving further on energy and occupational regulation reforms.

But there's still a need for further reform. We still need to free things up so that we get the investment that we need to get things done. We need to free things up so that we get the innovation that we need. We need to free things up so that business is not constrained from doing things because of unnecessary regulation and compliance costs. My ministry is working hard on this issue. It is especially important that we free things up in education, immigration and employment areas so that we can improve the skills and expertise of our work force.

This coalition government is delivering. For example some current initiatives include:

In my own portfolio, Commerce, we have two major reviews underway which will directly impact on the cost of doing business. The Post-2000 Car Tariff Review will be completed by end 1997 and other Tariffs by early next year. I know how keen farmers are to reduce tariffs because they understand that they are additional costs on them. For example currently tariffs cost about $3000- 4000 per average new car. We want cheaper cars for New Zealand's families and businesses.
I now have a Quality of Regulation Interventions paper in the Cabinet process, looking at ways of reducing compliance and regulatory costs
Commerce is also reviewing a range of specific pieces of legislation including

Resource Management Act 1991, by 1 December 1997
Building Act 1991, by 1 March 1998
Health and Safety in Employment Act 1992, by 1 December 1998
Privacy Act 1993, by 1 July 1998
Human Rights Act 1993, by 1 July 1998
Meat Act 1981, Dairy Industry Act 1952 and related legislation governing food safety, by 1 March 1999

As the Minister responsible for competition policy we are looking at whether we can improve parts of the framework, for example in penalties and remedies.
Minister of Energy, Hon Max Bradford, is reviewing the competitive arrangements in the electricity sector with a view to increasing competition in both retail and wholesale markets.Review due for completion December 1997
Minister for the Environment, Hon Simon Upton, is reviewing implementation of the Resource Management Act and, along with Commerce, its impact on compliance costs
Minister for Local Government, Hon Maurice Williamson, is reviewing the role and functions of local government.
Minister of SOEs, Hon Jenny Shipley, is continuing with the sale of non-strategic commercial assets
Hon Jenny Shipley, as Minister of Transport, is reviewing options for delivery of roading services to improve the quality of the roading network and its ability to support growth. Interim Officials report is due November 1997.
These are just a few items on our very busy work programme.

And as I mentioned before, we need to free things up in and for the agricultural industry. If we are to have growth, we cannot afford to have out biggest export earner constrained by statute from receiving additional investment in processing and marketing. Farmers deserve the opportunity to evolve, expand and progress their industry structures in a carefully managed way so that their standards of living can improve.

The third part of the trifecta is to continue to push in the international arena for free trade.

We need to continue our push in the international arena for freer trade through the likes of the Cairns Group, APEC, WTO and Bilateral free trade agreements. These are currently being worked on with the likes of China, the USA and South American countries. We need to have better access to markets and we are getting it. Although not as fast and as much as we would like.

The Prime Minister along with Don McKinnon are currently in the UK, and Lockwood Smith is in Asia pushing that agenda.

Recently we have passed the Trans Tasman Mutual Recognition Arrangement and have signed a new Australia New Zealand Government Procurement Agreement (NNZGPA) giving more ready access to government purchases on both sides of the Tasman, a market worth over $30 billion. Improved air transport arrangements have also been negotiated with a range of countries

This Government's economic growth programme has made and will continue to make progress, despite political sideshows that sometimes appear in the media. And this is despite the biggest constitutional change in our country's history for over 150 years. We have done remarkably well to make the transition with as little turbulence as we have. It should not be forgotten that whilst some say we may be in a recession, we are still running at roughly 2 - 3% growth which is higher than our peak growth for many years.

On the Farmers Side of the Farm Gate
On the farmers side of the farm gate, over recent years, we have seen significant investment, innovation and change. The farmers of 1997 are far more business orientated and efficient than the farmers of 1967. They continually look to ways to reduce costs, to increase revenue and do things better.

Water is a very important part of any farming operation. Without it, not only do paddocks run dry, but also bank accounts. When you are among farmers, probably the most often talked about subject is water, how much rain we had last week, how much we might get next week. Sometimes it is too much too early, sometimes it is too little too late.

Often we wish that we could just order rain just when we want, where we want it, by flicking a switch or turning a tap. It is a dream of many farmers.

Here in South Canterbury you have an opportunity to realise that dream. It is a huge opportunity to take a major stride in your on - farm operations.

I am informed that upon completion the Opuha dam will provide around 98% reliability for water flows at standard water usage rates, if you are fortunate enough to live within the 16,000 hectare catchment of the dam.

I want to talk a little bit with you about this unique opportunity that you have. It is a major investment of over $30 million and a collaborative effort with capital being put up by a number of parties, including $1million from Government.

I know that you have had a bit of a set back with having to reconstruct the dam. However, this is but a temporary set back and I am sure that the outstanding issues surrounding the collapse of the dam will be a satisfactorily resolved.

It would seem to me as an observer, that you as shareholders in the dam, now have an excellent opportunity to increase your production and profitability on your side of the farm gate. It has been suggested that there is an across the board advantage to irrigation of dry land of $250 a hectare in livestock systems.

Past experience in irrigation schemes has shown that:

surety of water equals high performance which in itself equals higher profitability which is all cream of the top
irrigation development requires a major change of attitude towards farming systems and possibly an increase in skill levels required
the transition period into irrigations is always the most difficult. As the system beds itself in and management skills and expertise increase, the productivity and profitability, returns from irrigation always increase over at least a ten year period. The point is made that irrigation always exceeds expectations over time.
With the reconstruction of the dam now being undertaken, the engineering challenges are pretty much behind the project but there is still one major obstacle to be overcome. You now have the challenge of the on - farm development component of the scheme. I guess it isn't much point having the water coming to the farmgate, but not having the infrastructure in place to bring it under the gate and use it to enhance production and profitability.

On farm capital development programmes needs to happen this financial year in order to be able to take water entitlements commencing say September 1998.

Of course you as farmers have to make your own decisions for your own circumstances. But what I would like to encourage you to do is

to get stuck in to feasibility studies and planning for irrigation as it may affect your property
to upskill your knowledge on high performance irrigation farming. It might be difficult to make sufficient money out of irrigation by carrying on what you are currently doing in farming practice.
to make the necessary land use changes required to make the scheme profitable
to set aside the unfortunate concerns about the issues relating to the dam collapse. This is only an engineering failure, it is not an indication of failure of the overall concept.
to take up water as history shows that no one has every regretted irrigation development as long as it was made as part of a soundly based economic decision.
In ten years time, South Canterbury and the individual farmers will look back with pride and hopefully prosperity, at the success of the scheme for yourselves as shareholders, for your community and for the country. This has been the case in all other irrigation development in the history of New Zealand.

Summary
In conclusion, I would like to commend those who have got this scheme off the ground as a commercial entity. The combination of irrigation, environmental enhancement and electricity generation, of which the farmers are likely to be the greatest winners in proportion to capital contributed, is important. The potential downstream (no pun intended) impact on the economy of South Canterbury and the wider Canterbury commercial community is significant.

As I have noted, despite the media sideshows, we in Government are not only seeking to improve things on both sides of the farmers gate, but we are also achieving it.

Interest rates are down
The dollar is the lowest for three years
Underlying inflation is 1%
Growth is about 2.5% at the bottom of the cycle
A 3.1% average growth in the New Zealand economy over the last 6 years compared with 1% average over the previous 15 years
Unemployment is about 6.5%
We are still paying off debt and running surpluses, and at the same time we are spending an additional $1.5 billion on health and $3.5 billion on other initiatives, such as removing the surcharge, asset testing and in other welfare and education areas.

Farming today is more about business, and less about politics. I hope you focus on the business aspect and as farmers look to take up this unique opportunity to control water on your side of the farmgate. We all know that water is the source of life, an essential ingredient for growth. I encourage you to take up the challenge this opportunity offers. Thank you.