STAYING CLEAR OF THE ROLLERCOASTER

CHRISTCHURCH

President Andrew Orbell, delegates, ladies and gentlemen,

Thank you for your invitation to address your annual meeting.

I am sure you all know much more about the deer industry than I, and it's possible that I know something more than you on the new political environment that has inevitably emerged after New Zealand's first MMP election, so I will spend some time on both issues this afternoon.

The story of the deer industry is the story of a progressive industry expanding at the expense of more traditional pastoral farming.

At present 257,000 hectares are involved, carrying some 2.2 million deer.

This is quite a rapid development when you consider that in 1980 there were only 80,000 farmed deer.

MAF estimates there will be 2.7 million deer by the turn of the century.

When you study the gross returns it is easy to see why there has been such dramatic growth.

MAF estimates that the gross margin in 1997 for breeding and finishing weaners is $92 per stock unit - which compares very favourably with dairying.

So the reason for the expansion of the industry is clear.

Next you have established a clear vision of where you want to position the industry.

You have put a clear and objective marketing plan into place, and you have backed your product with a defined quality programme.

Your next challenge is to collectively manage the growth that you are now facing and develop new opportunities.

Your outgoing President, Andrew Orbell, had some interesting observations on the subject of growth in the deer industry in your annual report.

The fact that you are alert to the pressures that growth in product will create is a constructive beginning.

As an outsider it appears that the only options are to seek to slow the growth or speed up the development of markets.

I am reminded of one of my first difficult issues as a young Under-Secretary of Agriculture many years back.

I was confronted with a weighty report from the apple industry which showed that markets for New Zealand apples really didn't exist overseas and that the Government should pay orchardists a grant to pull out trees in excess of local demand.

I still recall my response - namely that I wasn't going to licence individual apple trees, so there would be no grant and the industry had better go and establish markets.

Something they did with great success and the industry is vastly larger today than in 1976.

You as an industry will decide what steps are necessary to retain a healthy industry.

You are dealing with the issues associated with success.

So when Andrew Orbell says that deer farming can do without the undue growth that you're all part of right now - and that you must all be part of the disciplines that go with any successful business - then he opens up very interesting questions, the answers will be equally interesting to those in and outside the industry.

There's no doubt you have the makings of a great business and your prospects of building a market and commanding a premium for quality products must be good.

Having noted the difficulties associated with rapid growth, I do believe that in many ways your business is showing the way ahead for farming.

There have been some very difficult times for more traditional agriculture with world product prices from many markets being very low.

Some like sheep meat have recovered; beef looks brighter; the outlook for wool is still gloomy and the outlook for dairy exports, given the wide variety of products the industry now markets, is predictably more mixed but returns will be down from the record high of last year.

If you look at the overall state of pastoral farming, you see some interesting trends.

Over the last ten years, we've seen the total number of sheep and beef stock units drop 16 per cent, and the per hectare stocking rate drop seven per cent, which implies a land use change of nine per cent.

And what's being done with that land?

The trend's pretty clear.

In the 1993 to 1994 year, forestry has displaced 236,000 stock units, and the outlook suggests that by the end of the decade, it will have displaced as many as 1.75 million stock units.

And I'm sure you won't be surprised to hear, given the dairy gross margin of $90 to $95 per stock unit against $30 to $40 for sheep and beef, that we've seen nearly one thousand new dairy farms created.

The decline in stock numbers is to some degree compensated by significant productivity gains.

In the last ten years, sheep numbers have dropped 30 per cent, but over the same period, lambing percentages are up, carcass weights are up, total mutton production per wintered sheep is up, and the processing sector has turned out productivity gains as well.

Look at beef, and you see the see a similar story.

Total cattle numbers slightly up, and beef production up significantly more.

And a look at the profitability figures which show a similar trend.

The top 20 per cent of sheep and beef farms have 45 per cent more gross revenue and three times more profit than the bottom 20 per cent of farms.

The key driver for profit is high stock performance. Productivity pays. And so does added value.

So again you are leading the way by adding value to your exports and going for the top end of the international market.

In the long run, there's no doubt that we'll be backing a slow horse if we try to service low and middle priced markets.

We'll be beaten, inevitably, by low-cost, lower quality producers in other parts of the world.

Your challenge is to continue to work on lifting productivity and being market and customer focused - ours in Government is to keep working for fair access to markets.

We face stiff competition in the world markets not only from other nations' products but also from various barriers to trade erected by other countries

The Government is working, as I'm sure you know, to achieve free trade access for all our exported agricultural products.

In the shorter term, we're working to secure market access and minimise distortions for farm products caused by export subsidies, and high tariff and non-tariff barriers to trade.

In particular, we are doing what we can to keep up the momentum on APEC, and we are always looking for opportunities to further trade liberalisation.

A more open world trading environment is an essential component of Government's planning for the ongoing growth of the New Zealand economy.

Farm and industry leaders who have long urged successive Governments to open up the New Zealand economy must be pleased with New Zealand's very high ranking in the report released yesterday on 'Economic Freedom of the World 1997'.

New Zealand ranked third overall behind Hong Kong and Singapore.

The United States was fourth, the United Kingdom was seventh and Australia was tenth.

New Zealand was the only industrialised country to be given an A rating in the report.

New Zealand was also noted as the country that made the most improvement between 1985 and 1995 - rising from 60th place to third.

All pretty impressive stuff.

But one thing I have learned is that the need for constant improvement in the framework of Government policy never stops.

The focus may shift, the emphasis may change, but the work must go on.

Our country is now some way through a fundamental transformation.

The economy is already around 20 per cent bigger than it was six years ago in 1991.

Growth has moved faster here, in that period, than in any other developed economy in the western world.

We are moving through the trough of the current business cycle and that the growth rate at present of around 2.5 per cent could go a little lower before we lift to 3.5 - 4 per cent again in the next year or so.

Supporting that, we can point to interest rates on the way down, a relatively stable exchange rate and improving international conditions.

The growth we've seen in the last six years is far better than anything we saw in the fifteen years before that.

From 1977 to 1991, we averaged only 1.2 per cent a year.

Since 1992 growth has averaged 3.7 per cent.

So we've lifted our performance, and we can take some pride in that.

But we must now work to maintain it.

The rest of the world is not standing still.

Much of the reason we performed so well was because the quality of many our economic policies led the world.

If you take a look at countries in Asia, Latin America and even Europe, you'll see that many of them are coming along the same path we've taken.

And it's paying off for them.

For this year and next year, world average economic growth is forecast at more than four per cent.

If we want to keep our competitive edge then the quality of our economic policies will have to continue to lead the world.

With that in mind, I'd like to quote you this line from our Coalition Agreement:

In it we said the Coalition would provide:

"sound stable government on an agreed basis, implementing orthodox economic policies in line with or better than the best international practice."

The policies that encourage sustained growth are no mystery.

The Asian Development Bank recently published a very interesting study on this.

They looked at the factors that gave those successful Asian economies such impressive growth figures.

The conclusion was clear: factors such as geography, abundance of natural resources or initial income, had a very limited effect.

Far and away, the greatest contributor to their performance was sound government policy.

And it identified four specific policy areas:

an open economy;
prudent fiscal policy;
public sector and regulatory efficiency; and
high quality education.
In each of those areas, we're keeping up the momentum.

We're moving further on reducing or eliminating tariffs.

We're committed to policies which will yield strong fiscal surpluses and get net debt under 20 per cent of GDP by the year 2000, from a high of over 50 per cent GDP in the early '90s.

We're working on more ways to reduce compliance costs

And we're investing a significant part of the extra $5 billion in spending on education.

That's all part of the strategy to continue the growth path that New Zealand is on.

The New Zealand economy has now experienced growth for 17 quarters in a row.

If we continue to move forward on the track we've followed for the last few years, we will see the economy become the high-value, broad-based and competitive model we all hope for.

And I'm confident the Coalition Government's policies will enable this to happen.

I have to say though, that if you were only to take your guidance from the somewhat over-excited news coverage - you could be forgiven for believing that coalition government has entailed high drama, low dealing, and little progress.

In point of fact, the unspectacular and predictable business of government has been going on away from the headlines quite satisfactorily.

But the news coverage tends to focus on the froth and not the substance.

So for a moment let's look at the big picture.

MMP and coalition government is a new and challenging area of policy development.

In my view, when New Zealanders voted for the MMP system in 1993 they were at least in part voting against the pain and disruption caused by the reform process.

In part they were voting for a new constitutional framework which would change the House of Representatives forever.

They were voting for a new political order; one which took wider and more diverse considerations to its very core.

New Zealanders in 1993 voted for a new political order, which would give rise to new voices - new forces in Parliament.

We achieved that new order when we formed the National/New Zealand First Coalition.

I know now that many would prefer the old order of single party Governments, but I have to say that's gone forever.

All future Governments will be Coalition Governments.

The formation of Coalition Governments will always require give and take on policy issues.

No one party is going to have all its policy accepted.

Compromise is and will be required on some issues just as you and any organisation have to make concessions in order to reach a common policy.

It happens everywhere.

The Coalition Government we formed is a reflection of the new political order.

What I can tell you that in all the areas that matter, this is a Coalition Government whose partners share a commitment to the fundamental principles of sustainable economic development.

But economic growth is not the sole objective.

As I have said in a number of recent speeches, New Zealand must balance the growth of its economic capital with comparable growth in the social capital of the nation.

I would like to believe that by working together we can turn around the negative social indicators just as we turned around the negative economic indicators of the past.

Success in building up social capital is of equal importance in developing New Zealand in a way we can all be proud of.

We've managed in these years of reform to make economic growth more of a steady track upwards, and less of the rollercoaster ride it once was.

Times change, and there will always be some unexpected difficulties, but in general we can plan for a better future with much more certainty than we've ever had before.

The good news is that we're going into a new century with burgeoning world markets and a competitive edge.

If we just keep ourselves focused on what is important and keep our goals clearly stated, then we'll be able to post some very good results indeed.

So I wish you well for the coming year.

You have brought your industry along to this position by applying skill and foresight. I 'm sure you'll put that skill and foresight to good use in the next twelve months.

Thank you.

ENDS