Embargoed until 2.50 p.m. 30 June 2011

FARMING: VITAL IN OUR PAST, OUR PRESENT, AND OUR FUTURE

An address to Federated Farmers annual conference

by Don Brash Leader of ACT New Zealand 30 June 2011

Mr President, ladies and gentlemen,

This afternoon you’re enduring a procession of politicians. I’m sure we’ll all be telling you what a great contribution farming makes to the New Zealand economy.

We’ll probably all make the point that exports from the land generated some $23 billion in exports last year, nearly 60% of all exports of goods from New Zealand.

Some of us will acknowledge that, in the decade after agriculture was so abruptly stripped of all subsidies by the Labour Government of the eighties, farming achieved the highest rate of productivity growth of any major New Zealand industry, while over the whole 30 year period to 2008 labour productivity in agriculture has been right up there with the very best in the economy.

And achieved that without subsidies, and with the lowest rate of taxpayer support of any farming industry anywhere in the world.

I was reminded of just how extraordinary that productivity growth in agriculture has been when I visited the Wairarapa last week. I was told by one farmer that in 1946, shortly after the Second World War, it took seven men to produce 300 bales of hay in a day. In other words, one man could produce about 43 bales of hay in a day. Now, one man can produce 2000 bales in a single day – a near 50-fold increase in labour productivity!

If the whole economy had performed as well as farming has over the last 25 years, New Zealand would have living standards on a par with Australia, not well below Australia.

Despite this extraordinary achievement, of which all farmers should feel immensely proud, successive governments have tended to see farming as a sunset industry, important in our past but increasingly irrelevant to our future.

Politicians have talked about riding a Knowledge Wave, about the importance of the creative industries, of movies, and of fashion. They’ve talked about high tech start-ups, and the opportunity to build a back office for the world’s financial industry. And yep, all of those things are good and to be welcomed. Some New Zealand high tech companies are doing some extraordinarily innovative things.

But the foreign exchange earned from exporting movies and fashion garments is tiny compared with the exports from the farming industry.

And yet farming is pilloried by people who should know better.

All farmers get blamed for the environmental sins of the minority.

All farmers are assumed to be incredibly rich and to pay no tax.

All farmers are assumed to treat their animals with total indifference to their well-being.

After the next election, ACT will not be using its influence to re-introduce subsidies for the farming sector. I know you wouldn’t believe me even if I said that we would be doing that!

But to the extent we can influence the policy of the next government – and that depends entirely on how many party votes we get in the election – we will be aiming to achieve three objectives of direct relevance to the farming sector.

First, we will be pushing to get government spending under control. In the first four or five years of the Labour Government’s nine years in office, you’d have to say that they were reasonably responsible, as left-of- centre governments go. Government spending grew slightly more slowly than the economy as a whole.

But in their last three or four years, they started throwing money around in all directions. In the four years to June 2009, national income grew by 20% but government spending grew by an astonishing 43%, and largely as a consequence the government’s budget moved from surplus to deficit.

Much of this increase in spending was of very poor quality. Earlier this month, the Minister of Education mentioned that government spending on early childhood education had roughly trebled over the past five years, from about $500 million a year to about $1.4 billion a year – and yet all that extra money has increased the level of participation at preschool centres by just 1%.

The National Government didn’t create this mess. Labour did. But tragically National has failed to fix the mess.

Why does it matter? Well, most obviously the huge increase in government spending, coming on top of the slow growth in revenue as a consequence of the recession and, now, the cost of the Christchurch earthquakes, is pushing up government debt at the rate of knots.

The Government has been borrowing over $300 million a week, week after week. At that rate, before long you’re talking serious money! That’s equivalent to $300 for every household in the country, every week. But from the point of view of you in the export sector the most serious consequence of all this borrowing is its effect on the exchange rate. When the Treasury sells $300 million of bonds every week, most of those bonds are not sold to Mum and Dad investors in New Zealand, or even to New Zealand-based institutions. They’re sold to foreign investors, and of course those foreign investors have to buy New Zealand dollars to buy New Zealand dollar bonds.

And that adds to the upward pressure on the exchange rate. Yes, export prices in foreign currency have been pretty good lately, and this has shielded the farming sector from the worst effects of the very high New Zealand dollar.

But New Zealand needs the export sector to be doing not just well but extremely well at present! Over decades, New Zealand has accumulated massive amounts of overseas debt – indeed, our net indebtedness as a country puts us in the same league as Greece and Portugal. Why? Because year after year (indeed, every year since 1973!) we’ve run balance of payments deficits, and last month’s Budget predicts that we’ll be running deficits for as far ahead as the eye can see.

So we need you in the export sector to be doing extremely well, strongly motivated to produce more milk, produce more meat, and produce more wool.

And the high level of government spending, and the resultant high level of government borrowing, is blunting those incentives by putting upward pressure on the exchange rate.

Actually, the high level of government spending – and government spending today is higher, relative to the size of the economy, than in any year under Labour – has another damaging effect on the exchange rate.

The Reserve Bank is charged with keeping inflation low and stable. But when the government is spending a lot more than it’s taking in in revenue, the Reserve Bank has to keep interest rates at a higher level than would otherwise be necessary. Today, the Reserve Bank’s OCR is lower than at any other time in our history, but it’s still relatively high compared with other countries (with the single exception of Australia). That makes New Zealand an attractive place for foreign savers to invest their money, with resultant upward pressure on the exchange rate.

So that is the first thing ACT would try to achieve of direct relevance to you in the farming industry, getting government spending under control to help ease the upward pressure on the exchange rate.

Secondly, we would seek a root and branch reform of the Resource Management Act and all the bits and pieces that hang off it – like the proposed National Policy Statement on Indigenous Biodiversity.

As some of you know, I’ve been the chairman of the 2025 Taskforce for the last couple of years, charged with providing advice to the Government about how to lift New Zealand living standards to the Australian level by 2025. I’m sometimes asked: what’s the single most important thing to be done if we’re to achieve that goal? I reply that there’s no single thing which will get us all the way there, but the most important single thing to be done in my opinion is to remove the extraordinary obstacles to progress created by the RMA.

I’m constantly regaled with horror stories of the little Hitlers who far too often seem to populate the lower levels of local and regional government, charging for this, complaining about that, throwing their weight around (sometimes in flagrant breach of the law), refusing to grant consents on the most flimsy excuse.

And I’ve already had anguished letters from farmers distressed about the implications of the National Policy Statement on Indigenous Biodiversity if adopted in its present form.

As I probably don’t need to tell you, that directs that local governments ensure that there’s “no net loss of biodiversity of areas of significant indigenous vegetation” (Policy 5); and requires that tangata whenua be fully involved in developing and implementing regional and district plans to protect indigenous biodiversity (Policy 7).

No mention at all of compensation for trespassing on the property rights of farmers. No suggestion that tangata whenua should have no more rights to be consulted than any other member of the community.

ACT believes that if a council wants to restrict your ability to manage your property as you see fit, then, provided that what you are doing on your own property is not directly and adversely affecting others, the council must demonstrate one hell of a good reason for doing so. And if the council does restrict you in a way that disadvantages you financially, it should compensate you.

ACT also believes that local and regional government should have an obligation to consult with all members of the community equally, and not give any kind of preference to one racial group over another. So that’s the second thing of direct relevance to the farming sector we want to do.

And thirdly, and finally, ACT will press for the abandonment of the Emissions Trading Scheme.

Why do we have an ETS? I have to admit I know of no good reason at all.

To be sure, it seems pretty clear that on average temperatures around the world have been increasing. But they’ve been increasing for at least the last 200 years, since the days when the Thames regularly froze over, and that warming began long before greenhouse gases caused by human activity could’ve had a significant influence on the climate.

And we know temperatures were very warm in the medieval period, and in Roman times, when grapes were routinely grown in what is now the United Kingdom. And greenhouse gases could hardly explain that, or the cooling which took place between those warm periods.

Even if a case can be made that human activity is behind the gradual increase in global temperature, it isn’t obvious that an increased temperature is necessarily a bad thing for life on the planet. We know that plant life thrives on an atmosphere high in carbon dioxide – which is why many market gardeners deliberately pump carbon dioxide into their glass houses. And we know that human societies thrive both in Singapore and in Finland, though average temperatures in the two places could hardly be more different.

Incurring the many trillions of dollars in cost which would be involved in any serious global attempt to slow the increase in average temperature would place an enormous burden on all societies, especially those already living on the margins of existence.

And even if it were accepted that human activity is causing the planet to warm, and that the enormous cost of trying to slow that warming is justified, it’s entirely unclear why New Zealand should be at the forefront of that effort, at considerable cost to all New Zealanders, including New Zealand farmers.

It’s estimated that the average dairy farmer is already incurring increased costs of nearly $4,000 annually (including both on-farm costs from the increased cost of diesel and electricity and the increased costs incurred by Fonterra), and that that will rise to over $10,000 annually by 2015. So ACT favours the abolition of the ETS system, or at very least its suspension until comparable schemes are in place in all our major trading partners.

But Mr President, ACT’s ability to achieve those goals – bringing government spending under control in order to take the pressure off the exchange rate, a fundamental reform of the RMA and all its off-shoots, and the abandonment of the ETS – depends entirely on one thing and one thing only: how many party votes we get in the election. By all means vote for Bill English in Clutha-Southland, or Shane Ardern in Taranaki-King Country – but please give your party vote to ACT!

ENDS

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