Speech Notes

7pm, 30 August 2002

South Canterbury Dairy Farmers meeting, Timaru

Chairman, Mr Smith, ladies and gentlemen: I'm delighted to be here tonight. The growth of the dairy industry in my electorate and throughout New Zealand is something I take great pride in. These days, few people even in Wellington think that agriculture is a sunset industry or dismiss it as part of the old economy.

On the contrary, it is now widely accepted that agribusiness and the biologically-based industries are at the heart of the New Zealand economy of the 21st century. They have the scale, global marketing capacity and scientific and technical skill-base to drive much of our future economic growth.

Fonterra is a significant player in the South Canterbury economy.

Its desire to ship the products from Clandeboye out through Timaru Port was one of the major determiners in Maersk Shipping line's decision to start a weekly service at Timaru.

There has been a lot of media heat around Fonterra at the moment.

I think you can expect such media scrutiny ? warranted or unwarranted ? to continue. Fonterra is now New Zealand's largest company. It earns 20 per cent of all our export income. When a company is that big and that important to all New Zealanders, you can expect a lot of interest and speculation in what it is doing ? or not doing.

On the whole, I think Fonterra is doing well.

Back in December 2000, when the establishment team for what was then Global Dairy Company came to me with their proposal, I said that they had an ambitious timetable, one I was not sure could be met.

As you remember, we had two huge dairy companies, Kiwi Dairies Co-operative and New Zealand Dairy Group. They had long histories, and distinctly different corporate cultures.

All that meant that the new company has had to have brand new procedures and systems, rather than using the tried and true. One can expect hiccups in that situation. I have had no indications that the board and management of Fonterra are ignoring those hiccups.

Also, I do not see anything sinister in John Roadley's resignation as chairman. There is no reason not to take at face value his explanation. He got the people from KDC, NZDG, and the Dairy Board working together. They worked vigorously, long and well to set up Fonterra. That establishment has happened and now he sees it as time to pass over the reins to people who intend to be in there for the long haul.

Fonterra has some major decisions to make as it progresses with its international initiatives and joint ventures, and it is entirely appropriate that these decisions be made by board members who intend to be around to see the results.

There will always be debate about the extent to which the co-operative dairy company model allows all commercial opportunities to be effectively exploited.

I believe that the co-operative model is still appropriate for most of the New Zealand dairy industry. Farmers have every incentive to scrutinise the performance of the board and managers of dairy co-operatives because their whole financial livelihood depends on it, and they decide who to vote on to the co-operative boards.

However, dairy co-operatives must continue to evolve, they must search out new ways of developing high value niche markets, as well as to profitably process and market the high volume, production-driven commodities. They must be open to the appointment of new external directors that can provide new information and skills and identify new opportunities.

They may have to access external equity to exploit new opportunities, for example in spin-off and subsidiary companies, and in joint ventures. And should they be a bit slow, they will find dynamic new competitors snapping at their heels.

I am optimistic that Fonterra will be a company we can all be proud of in New Zealand.

The Government's main contributions to the dairy industry are in trade negotiations, biosecurity and research and development investment.

New Zealand dairy farmers have benefited from two recent seasons of record payouts, resulting from good overseas prices and a favourable exchange rate. I also believe that the prosperity of agribusiness as a whole owes a lot to the removal of market distorting subsidies in the mid-1980s, and to our market access negotiations, particularly in the Uruguay Round. This has meant that New Zealand agribusiness has focused on markets and customers and this is paying dividends.

We are now facing a downward swing in the commodity cycle, a downturn in economic growth in some key markets and increased protectionism and export subsidisation in some countries. The economic and fiscal impacts of this reversion to more familiar price levels will be significant.

While the Government cannot influence the short-term fortunes of the dairy industry, it can contribute to a longer-term environment in which the industry can prosper. Over recent months I have devoted a lot of my time to promoting our trade interests internationally.

Internationally, there is growing recognition that liberalisation of trade benefits the world economy as a whole. The rising tide lifts all ships. There is a general will to complete the Doha round of trade negotiations by the end of 2005 and agricultural reform is at the heart of these negotiations.

Most discussions about trade liberalisation focus on direct benefits from market access. However, one of the great benefits of trade liberalisation has been the learning it encourages, the access to new ideas, and the focus on customer needs rather than on distorted market signals.

Fonterra and other dairy companies not only have to perform in the market-place but in the communities in which they operate, and the industry's response to environmental issues will be fundamental to this. I'd like to commend Fonterra and other parts of the dairy industry for their willingness to address concerns about the effect dairying has on water quality, and for a constructive engagement with government on the implementation of the Kyoto Protocol.

We are all aware that there is increasing conflict for water among competing agricultural, recreational and environmental uses.

Last year, Fonterra, MAF, the Ministry for the Environment and Environment Waikato, representing all the regional councils, agreed to work together to manage water quality in dairying areas. A key objective is to ensure that dairy effluent does not damage water quality, so that our rivers, lakes, wetlands and estuaries can also be quality recreational and fishing environments, and so that their biodiversity can be maintained or enhanced.

The Government can support the dairy industry's response to water quality issues, for example through education and advice rather than relying on regulation alone. I believe industry self-management will be more effective in achieving positive environmental outcomes than reliance on a rules-based regime imposed by regulatory agencies. We should regard the rural community as the answer, rather than the problem.

Climate change resulting from human activities is not a hypothesis, it is a matter of overwhelming scientific consensus. To be honest, I think we can all see the results just by looking out the window. Weather patterns in New Zealand have changed.

Climate change, and the overall health of the atmosphere, is now the biggest global environmental issue. If this generation does not act, our descendants will have to bear the consequences.

Climate change is not only an environmental issue, it is also an issue of economic security. Climate change can lead to more frequent extreme climatic events such as floods and droughts, and biosecurity threats from subtropical pests and diseases.

The major single source of New Zealand's greenhouse gas emissions is methane and nitrous oxide from pastoral agriculture. The Government's policy package to respond to the Kyoto Protocol exempts the agricultural sector from charges or other penalties which would arise from these emissions. This will shield agriculture for the first commitment period.

However, this shielding of pastoral agriculture is conditional on the sector being willing to invest in research aimed at reducing agricultural emissions. Such research is also likely to generate other spin-offs such as improving animal productivity and feed conversion rates, and perhaps lead to more precise and efficient fertiliser application.

New Zealand stands to be a net economic beneficiary from the Kyoto Protocol. This is because of the credit we potentially gain for carbon sinks, and because it will create new business opportunities by raising international demand for new technologies and encouraging energy efficiency.

Thank you for the opportunity for me to speak to you tonight. I wish you all the best for the new season and beyond.

Thank you.

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