Federated Farmers Speech – November 17 2010 Final

A Time for Leadership in Agriculture

Hon Damien O’Connor Labour Agriculture Spokesperson

Thank you for the invitation to speak to you here today. Since taking over the role of opposition spokesperson for agriculture from Jim Anderton, I welcome the opportunity to highlight the fact that Labour has an agriculture and rural affairs spokesperson and I am lucky enough to have that role.

Since my days of share milking, tourism has consumed most of my focus but I have always retained an appreciation and passion for agriculture and the industries that have built and grown this country to the first world nation it is today. We have built that wealth and reputation off the backs of our parents, grandparents and great grandparents who worked incredibly hard long hours in relative isolation.

We have now moved to an era of a highly urbanised society where less people have a direct link to the land and the overwhelming majority of young people think milk comes from plastic containers. There is a gap in understanding of our primary production systems, how and where it occurs and the sacrifices that are still needed to be part of our industries.

The Labour Party has never been considered by the vast majority of the farming sector to be its natural party in government. The sunset industry comment by a certain famous Labour PM certainly didn’t help that. However I am proud to say that many of the major changes in our farming systems have been initiated and guided by Labour governments to the benefit of both NZ and farmers themselves. In the 1930s’ the Labour government introduced a guaranteed minimum price for milk to help dairy farmers survive the abuse by the many buyers of their milk. In the 1950’s the Labour government formed the Dairy Board to bring some cohesion to the buying and selling of our export butter and cheese. In 1984 the incoming Labour government removed subsidies, a difficult change at the time and but one that moved the NZ farming sector into a market led production system able to advocate for more open and free trade throughout the world. In the early 2000s the last labour government, at the request of the sectors deregulated the dairy industry and the pip fruit sector. The underlying belief from the sectors was that open competition would drive innovation, growth and higher returns to primary producers – more about that later.

I believe it is time for the next Labour government to make the same leadership calls and offer some major changes that will allow our farming sectors to survive and thrive into the future.

I am currently in the process of pulling together ideas for agricultural policy that we will campaign on leading up to the election next year. I have been meeting with many industry representatives and farmers to ensure that policies are based on sound evidence and a knowledge of what happens when farmers are given the best incentives and assistance to grow the country’s wealth and income. There are issues like water, skills and training of staff, branding of NZ’s produce, better infrastructure such as roads and broadband, but these changes need to occur along with some structural alterations to economic policy.

To start with, Labour has already announced that we will change the Reserve Bank Act to force the governor to consider more than inflation. Rather than just focusing on how it can steer inflation between a narrow target band using the very blunt and limited instrument of official cash rate setting, the Reserve Bank Governor will have to consider the welfare and sustainability of the export sectors with any changes made. We believe this will reduce the rounds of interest and exchange rates hikes and dives that have crippled the confidence and then viability of many in the export sectors. That volatility cannot be sustained by export sectors that need long term investment, need more certainty of income and an end to exploitation by trading banks charging exorbitant interest rates.

The next major consideration must be the level of debt across the primary sectors and how this can be managed down to better enable farmers to make a decent living, get a fair return on their investment and transfer on their enterprise to the next generation of keen energetic and skilled farmers. The cold hard facts are that total debt is around 46 billion dollars, funded mainly through foreign equity managed through trading banks with the interest paid by farm production. This flow of capital has funded and fuelled appreciating land values way beyond that of any increase in farm gate returns with the resulting declining equity, reduction in profitability and for some loss of viability.

The KPMG Agribusiness Agenda report earlier this year stated NZ is no longer a low cost production model. Our traditional and natural advantages through the use of rainfall, nitrogen fixation, hard work and good breeding have been replaced by intensification, supplementary feeding, mono species pastures, nitrogen fertilisers and foreign labour. That means farmers need more money directly from the market place to pay for these increasing costs and remain viable.

There are other significant but less structural issues that also deserve leadership and change if we are to be a truly sustainable industry, in economic, environmental and social terms. These are also the other areas where we are formulating policy to provide some leadership and direction for the future.

Water, the source of all life and the driver of all production, has for too long been taken for granted in NZ. We are now starting to realise it’s value for ecological, recreational and many economic uses. While its values relative to all those purposes have yet to be clearly defined, estimates are that the productive value of consumptive water use alone in New Zealand is $24 billion to $25 billion based on the study of productive value of water to users in the Waimea Plains, Nelson

For agriculture water is a bottom line if we are to have a sustainable farming system. We need access to water, not just any water, but to a high quality reliable supply and we need to use it in a way that doesn’t waste its potential for other beneficial uses. It’s not an easy issue, and in my view we struggled in government to solve these difficult issues and move them on as fast as we should have. The challenges still remain. While the land and water forum has reached general consensus on the challenges it has a long way to go to deliver on agreed solutions. While there is direction, some difficult debates have been avoided – such as ownership of water, trading of rights and a formula that offers due merit to all its potential uses. What we do know is that farmers have already lost one debate with hydro generators and many others claim preferential rights to access this valuable resource. The farming sector will have to develop and sell the very strong case for water storage and distribution to expand the irrigation potential of our drier regions.

But we cannot afford to keep capitalising into our enterprises the value of free water when many of these key issues have yet to be properly resolved. The worst any government can do for an industry is maintain an environment of uncertainty and that is currently the situation around solutions for water.

If we accept the KPMG Agribusiness Agenda report and the general wisdom that NZ is no longer the lowest cost producer of food and fibre, then our ability to sell competitively into the international markets must rely on other than lowest cost to our customers. We need to be able to justify to our customers why they should pay more for a NZ product shipped often a long distance to market and with shelf life that can be shorter than its competitors. We simply have no other option than to produce, process and market the best quality, sustainable, nutritious, ethical and safe food in the world. It should be identified with the 100% PureNZ brand to reinforce our reputation which is so vital to our success as a trading nation in the 21st century. We cannot sit back and rely on the reputation, and systems we have used to get us this far, in the naive belief that they will automatically continue to ensure our prosperity as a nation into the future.

Both National and Labour led governments have facilitated structural change across most of the sectors in recent years and now is the time to ask whether the changes have delivered on expectations or on the essential needs of our farming sectors.

Reform was driven by a basic belief that competition drives innovation and in part by an awareness that strategic planning had not occurred in many sectors. Farmers, processors and marketers needed to know where they were going. We have more recently seen a proliferation of strategies from the sectors but some might say without any significant improvement in outcomes.

I put to you that strategies without proper structure and discipline for implementation are nothing more than wish lists from well meaning individuals.

The wool industry is the classic example. With very little to lose, it desperately needs to get in behind one proposal that will unite the industry, its efforts, and its coordination. The alternative is a continuation of the same layered, fractured and uncoordinated system that has overseen the loss of opportunity, the loss of value and the loss of confidence of our once great industry.

The meat industry continues to hold talk fests, send love letters then hate mail and now develop a strategy funded by the tax payer in a desperate effort to save a shrinking ship. The issue of industry structure has not been considered in most of the industry discussion documents and strategies over recent years. This basic flaw in analysis and lack of leadership will continue the division and shrinkage unless intervention occurs.

The pip fruit industry is quietly and desperately drowning. Many who have invested large amounts in the latest varieties have failed to realise decent returns. The shift from one offshore marketing organisation to over 80 has led to the inevitable value destruction that many of us predicted would occur and resulted in a large number of despondent and desperate orchardists.

The deregulated dairy industry has continued to grow off the back of a failing sheep and beef sector but now finds itself saddled with huge debt and facing debates around supply through both the DIRA obligations and competition by the growing number of processing companies within NZ. The unity that has driven growth and value in this industry was guided by sound and firm regulation. Now it will depend upon the collective vision and wisdom of individual farmers and a number of competing companies to continue the growth that has built real wealth for dairy farmers and for the NZ economy in the past.

Historic analysis would indicate that market forces alone are not going to resolve the many challenges facing the farming and horticultural sectors in this country. I met with a delegation of farmers recently who were asking for policies that would direct government to intervene and restructure primary sector debt. That is a huge step for any government, but the request an indication of the level of desperation some farmers are currently experiencing. No one will be quick to put up their hand and admit to an unworkable cash flow budget but the level of concern for both farmers and the banking sector must be getting close to a distressed state.

Normally it would be up to the government and the minister of the day to be fronting with solutions but I have seen very little of that from the National Government. There has been an expression of concern and a commitment of tax payers’ money to the challenges facing a couple of sectors. However astute analysis indicates the Primary Growth Partnership funding will do no more than support some of the major players in sectors while failing to get the coordination needed, particularly in the meat and wool sector projects.

The National party in opposition was scathing of the 700 million dollars appropriated by Labour to the Ministry of Agriculture and Forestry with a one to one commitment from industry that would have resulted in 2billion dollars of support for innovative research, science and technology projects. The $190 million Primary Growth Partnership replacement was slow to start and in a desperate attempt to get runs on the board allocated in a way that in my view is destined to fail. We have been unable to get details of the proposals and performance criteria that will be used to judge whether the funded schemes will deliver for NZ tax payers.

As farmers you know the value of a dollar invested and what you expect from that money. I say to you that close scrutiny of the PGP project allocations would fail to meet your basic levels of fiscal prudence and astute long term investment. The celebration last week of 10years of Sustainable Farming Fund projects rightfully identified the multitude of projects and innovations that have made significant change across rural industries and communities. An expansion of that scheme would have been a far better way of supporting innovation in agriculture if the National government was determined to take back the 700 million dollars allocated under Fast Forward to pay for tax cuts.

So what then would the next Labour Government do for agriculture? While our policy process is yet to be complete and so no firm policies can be announced today, there are a few clear needs emerging.

Firstly, water needs to be sorted. Issues around allocation rights, quality, and ecology all need to be properly assessed. The public needs to be convinced of the potential for water storage to deliver on the values expected and the opportunities available in agriculture. Our policy will be as clear in this area as the water quality that we expect New Zealander’s to be able to drink and swim in. We support metering major water users and charging resource rentals for its use so as to improve economic and environmental outcomes. The use of market-price signals will help to deal with water scarcity and utilisation. Nevertheless we do oppose any water pricing models which would allow individuals to speculate and benefit from selling water.

Second, as with the last Labour government we will be prepared to make changes to industry structures and regulations where necessary and beneficial. But this time incorporate some pragmatic and workable regulations that will bring the coordination needed to ensure economic, social and environmental sustainability for our farmers. The most recent victim of disintegration and no doubt value destruction is velvet marketing in the deer industry. When will we ever learn?

Thirdly, to address the reality of our rising cost of production, NZ has no option other than to push our products into high value markets. We need to utilise the reputation, the quality of our products and the integrity of our systems to obtain higher returns in the market place and deliver them back to the farm gate. Brand NZ must continue to deliver a premium for all products grown and manufactured in NZ to overcome our market disadvantages. A more coordinated and sophisticated evolution of our 100% Pure NZ brand is a good place to start in our quest to be identified as a country that produces the finest quality food and fibre in the world. Country of Origin labelling, needs to be implemented to support this branding strategy.

Fourth, we need infrastructure equal to and better than our international competitors. Quality health care, modern transport options, and high speed telecommunications are required in rural NZ to support the productive sectors. The first area for government investment in the provision of useful broadband should be rural NZ where the wealth is created rather than urban NZ where the votes are counted. Continuation and support for our research and science sectors through the reinstatement of tax credits is essential.

Fifth, attracting and retaining the smartest and keenest young NZers into our communities is the only way of ensuring there is a future for farming and for NZ. There is shrinkage in the number of people entering the system with a real hope of farm ownership. That lack of motivation may lower the commitment to our industries and undermine the passion that has grown agriculture. While foreign labour and foreign investment are useful the issues of ownership, control and direction need to remain in NZ hands. Young NZers are our future and we need the best to be inspired by agriculture, by the opportunity to own your own farm, to make a decent living and enjoy the rural lifestyle, to work with the land sustainably, and to be able to contribute to vibrant and growing NZ economy.

ENDS

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