Today, KPMG made a worrying announcement – New Zealand agriculture has “as little as five years before underdeveloped agricultural regions such as South America, Western China and Central Asia’s large scale intensive farming practices erode New Zealand’s cost advantage in producing bulk”.
Not for the first time, it is a warning that our reliance on bulk commodities will be undermined by places that can do it cheaper. Add to that, is that a number of NZ companies are making a good living selling our efficient farming practices around the world. And add to that the fact that the Chinese and others are really adept at taking existing technology and improving on it (do we really think agriculture is going to be the exception?) and our bulk commodity trade looks really serious in the medium-long term – undermined by efficient farm practices combined with cheaper labour costs.
Yes, as John Key and others note, there is a growing demand for food and protein out there. But there is also an increasing supply.
Two possibilities may maintin our edge. One is branding – NZ’s clean, green image – that distinguishes us from other factory farmed, less high quality products from elsewhere. The other is the development of high end processed products from our commodities that we develop through our R&D.
Currently the bulk of our R&D in the agricultural sector, for example, goes towards improving farm output. While this has made our farmers amongst the most efficient and profitable globally, much of this improved farm technology is open-source. In other words, the product of our publicly funded science can be replicated by others.
Increasing our prosperity means getting smarter. We’ve talked about it for a couple of generations, time to up the R&D around increasing value from our primary products.
Five years, isn’t a very long time. We need bold action.
Hi David, you are spot on with your post, yet – in my opinion – don’t quite go far enough.
Adding more value to our primary produce by enhancing it with R&D IP and branding may be necessary, but it will at the same time be insufficient, if the goal is to make NZ a rich country. Best case scenario – it will extend the time we have to compete against these other massive countries by a matter of 5/10/15 years, and even if we accomplish that it will only be enough to hold our standard of living in a solid sideways holding pattern. We know full well that right now, we have to borrow and borrow heavily to maintain our current standard of living, let alone hit the stride we need to improve our standard of living under our own steam.
The only way that NZ can become a rich country – and hence be able to afford the things that we believe that our citizens deserve and our communities need – is by becoming leaders in serious advanced industries and advanced services able to sell to the world. And lets not be afraid of the old bugbears of our relative size and distance; countries like Australia, Hong Kong, South Korea, Singapore, Finland, Denmark, Netherlands and others have grown much richer than us even though they generally were (at one time or another time) considered distant from wealthy markets, primarily commodity goods producers, relatively small in population and poorly developed themselves.
A tonne of NZ milk powder is worth about 8 iPhones (net weight 1.08kg). That makes an iPhone 925 times more valuable than milk powder by weight.
Are we ever going to be able to do enough branding and R&D on a kg of milk powder to make it 925x more valuable and hence equal the monetary value of an iPhone?
Nokia used to manufacture wood pulp and rubber gumboots. Samsung used to be one of Korea’s major exporters of fish, fruits and vegetables.
So a transformation from primary commodity goods to advanced industrial and technological goods/services can definitely be done. However it needs Government to set firm long term policies, priorities, incentives, conditions and goals favouring these economic areas in order to accomplish it. A Clare suggested the perspective must be a minimum 10-20 year timeframe. And as you have already stated clearly the clock is ticking.
And this is not about leaving behind our strategic strengths in horticulture and agriculture; far from it, as you have already suggested, those strengths do need to be built upon as well.
Capital must be allocated productively in this country. To do anything else, including letting hard currency flee overseas on a whim, or be sunk into grandiose monuments or property developments shoots our efforts in the foot.
If we don’t take significant steps urgently as you suggest, we will be well on the way to becoming a developing nation, having to cut costs and cut corners on the basics that our citizens and communities absolutely must have, let alone the luxuries which show that we can really care for each another.
In addition, the fact we can expect to put in the labour hours to produce a leg of lamb, a bottle of wine, or a block of cheese and then ship it across the world and sell it successfully puts a lie to the idea that we are just too far away and too expensive a labour market to compete with other countries effectively toe to toe. That’s more mindset than reality.
National’s idea of an economic plan is to reallocate the tax burden and shift it around a couple of percent, which is akin to a bad joke of course, designed to benefit the few, not the many, and to play a zero sum game of shuffling dollars around. Of course they do have plans to enrichen NZ as well: e.g. through the other primary commodity that they want to start exporting: rock.
The work the Productive Economy Council is doing is definitely relevant.
I know I am simply repeating myself, but lets make NZ a rich country so that we can afford the benefits and facilities that we know that all our citizens and communities deserve, without having to borrow outrageously for them.
Labour absolutely must become, IMHO, the party focussed on making New Zealand a rich country with the aim of sharing that wealth and the benfits/opportunities which come with it with all of our citizens and our communities. And to do so in a way which both leverages and is congruent with, the best values we hold as New Zealanders.
If you have time, please do read “Reclaiming Development” and/or “Bad Samaritans” by Chang, who is a Cambridge University economist.
“A Clare” lol late night typo soz = Clare Curran of course.
You want bold action?? Bring the value of the dollar down. It will make it cheaper for overseas buyers.
@ Martin – yes, a short term, tactical action to consider. One that China uses to support its exports. But bringing the dollar down as an action in isolation will also simply encourage us to take the easy near sighted route: to sell more undifferentiated primary produce cheaply overseas, not to develop advanced industries and services. And having a lower dollar means that technology, plant and machinery that we need from overseas to build advanced industry will become more expensive.
Good post, David, you’re right we don’t want China milking us for profits.
KPMG’s report makes effectively no mention of looming fossil fuel depletion, which will have significant effects on agriculture, and as such is not worth the digital ink spilled in its creation.
I could be unkind and summarise it as:
- less regulation (particularly of water)
- careful of that ETS!
- more science (=GMOs)
- public money (on R&D and infrastructure) for private gain
…
- Profit!
But then I have only read the exec summary and skimmed the rest.
One bit that truly pisses me off is:
“A mature conversation on genetic engineering is required”
…because the previous discussions, where little real evidence has been produced regarding the benefits and safety of GMOs, and where the public has clearly said they don’t want them and are concerned at the impacts on our brand, wasn’t mature? Or wasn’t the “right” answer, try again?
We do need bold action, you’re right. What will Labour do with these difficult issues if elected next time around? (‘Cos your track record ain’t too flash either, to be honest).
Perhaps we have yet to learn from Kiwifruit. Remember when the market for export was huge but they exported the plant and expertise for short term gain and now many other countries sell kiwifruit. Our market is only a shadow. (Still called that by Italy, Chile and others.)
I think Rod Oram was this morning on Nine to Noon talking about the urgency of Adding Value even to milk powder.
Yeah, about 5 years. After that and exporting/importing from/into NZ will start to cost too much.
So, we really need to develop our high tech economy now.
To kiwifruit and others that readers here identify, add wool – being covered right now on RNZ: 8.40am, Wed 21 Apr 10, see for eg:
“Crown Institute AgResearch says it has no choice but to shut down most of the country’s remaining wool research, because neither farmers nor the Government are willing to pay for the work.”
The present Govt must not let us lose our competitive edge, but build on and help us lead further.
What takes many generations to build must not be destroyed by omission or neglect in one electoral cycle.
A swift plan to restore a Forward Fund/equivalent or going further must be put in place urgently now. As a taxpayer, I would like the taxes I pay be invested in such worthy initiatives for the Country’s economy.
And make sure as many jobs and our graduates & workers come back or develop their research, science and technology careers here on New Zealand soil. And for them to raise their families here.
And the government and farmers have declined to fund further R and D on sheep wool – the result is that scientists and technicians with years of experience and knowledge have lost their jobs – farmers can be so short-sighted.
Sector interests are necessarily narrow and can be short-term.
Hence, Govt leadership is needed that looks further and gathers & reconciles the wider range of interests for the overall collective and long term benefit of economy and society.
Can’t rest on one’s laurels for trade and international competitiveness. Can’t rely on market to give all the correct signals and incentives. Each Govt of a country needs to shape and steer the investments and incentives.
And NZ had better quickly find its feet and race ahead!
Good luck to us
AgResearch lays of 35 scientists and engineers. What the?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10639655
This is not the best start now, is it.
@ Gary Jones: right. Without good career choices, people may want to raise their families here but too many will decide against it because the careers and the pay are somewhere else. That makes all of us poorer.
@ JANicol soz, didn’t see you already noted this.
Yes, the announcement of the laying off of 36 wool scientists and technicians today speaks volumes about the seriousness of our science funding. This will affect our core science around follicle research and muscle biology as well as the fibre product end as well.
It seems that AgrResearch needs industry partners to get funding from the Foundation, but none are available. That’s pretty shortsighted of the industry, but surely the Govt can see the value of needing to maintain this industry. Downturns are a good time to up the R&D, think of new products.
Thanks for the expansive lines Loota, agree pretty much entirely. And yes, it seems that the lessons from spreading kiwifruit to our competitors are not being heeded. Not that we can stop technology leakage – our public, agricultural research is rather open-source by its nature – but it will reduce that 5 years KPMG talks about even further.
The Govt smiling and waving off experience, skills and talent at the international airport departure lounge is not an option.