Sunday 7th August, 2011

Points of interest from interview with David Carter.
Government likely to back select committee milk price inquiry this week: Minister says he “sees some value”

Carter queries the supermarkets – predicts inquiry “will find the answers” for high milk prices at the retail end of the supply chain

Minster urges New Zealanders not to just buy milk at supermarkets – “I think New Zealanders need to take the opportunity of finding out where they can buy it cheaply.”

Only two ways to change the price of milk – Farmer losses or government subsidies; rules out government subsidies

Having a monopoly like Fonterra ‘maybe’ leading to higher-than-necessary milk retail prices for consumers, that’s what the govt is now looking into

“I think many New Zealanders have a fairly racist attitude to foreign investment, particularly when it comes from Asia.”

Chinese investors in New Zealand farms will “have to pay an extraordinarily high price”

Rest of world ‘is not playing its part’ joining emissions trading schemes

Minister raises more doubt over agriculture’s inclusion in ETS in 2015, saying “the time to make the farmers pay” is only when scientific “solutions are available”

Public subsidising farming ‘fair enough’ because we rely on agriculture for “our economic survival”

‘We achieve nothing’ if agricultural production simply moves offshore to other countries that don’t have a similar ETS scheme

The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can be watched on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news

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DAVID CARTER interviewed by GUYON ESPINER

GUYON Thanks, Minister, for joining us. Do you back a select committee inquiry by the Parliament to look into this issue?

DAVID CARTER – Agriculture Minister
I think that’s a discussion we’ll have in caucus on Tuesday.

GUYON Well, do you back it?

MR CARTER I personally think there would be some value in it. When you look at the Commerce Commission, their inquiry – they were very limited as to whether there’s enough competition. They concluded there was competition at the retail end. I think a select committee inquiry could actually delve in and, at the end of the day, if they actually demonstrated to New Zealand there’s a wide variety of pricing at the retail sector for people to buy milk, that would be quite useful.

GUYON So is that the end you think they should look in – the retail end?

MR CARTER I think that’s where they’ll find the answers. If they want to have a look at it, they’ve probably got to look across the whole aspect. The farm gate price is where is starts – that’s where Fonterra sets a price that affects how much they pay farmers, but equally therefore affects the price by which they supply milk to other potential dairy processes, so that’s an important aspect.

GUYON But is the problem at the retail end? I mean, when Andrew Ferrier tried to take us through it, and it is complex, we seemed to be left with about a dollar from a $2.20 litre of milk which looked like, I guess, distribution, perhaps, but perhaps retailers is where it actually is the problem.

MR CARTER I think there's a lot more variety at the retail end than people realise, and I think that would be an important point for the select committee to try and show to New Zealanders.

GUYON Two big supermarket chains, though.

MR CARTER That’s right.

GUYON Is that enough competition?

MR CARTER Well, that’s another question, but there are lots of other places where people can buy milk – at the corner dairy, at the service station. I think New Zealanders have to have a look at that. Personally, I seldom buy milk at a supermarket, because I find I can buy it cheaper elsewhere. We’ve got a large family. We’re big consumers of milk. I think New Zealanders need to take the opportunity of finding out where they can buy it cheaply.

GUYON So that would be your advice – don’t buy milk at the supermarket?

MR CARTER Well, if people want to buy the expensive brands, they can pay $4.80 up to $5.40. They can buy a cheaper brand at that supermarket for $3.30. They can go round the corner to a dairy, quite often, depending on where they live, and perhaps buy that for $2.90. What I’m saying is there's a big variation on the retail price of milk.

GUYON So you’ll walk into that caucus meeting on Tuesday advocating for a select committee inquiry on this?

MR CARTER I personally think there’s some value in having that. I think New Zealanders are now concerned about the price of milk. There's a lot of suggestion it’s risen very rapidly. Actually, it’s gone up about 9% while I’ve been the minister over the last three years. It went up 23% in the two years prior to that. So over a period of time, it’s gone up a lot. If New Zealanders are worried about it, they need to be assured they’re getting a fair deal.

GUYON Is this just gonna be a talkfest, though? You’re not going to intervene, are you, in the price of milk?

MR CARTER There's only two ways to intervene in the price of milk. Either it becomes a subsidy from the government, or we expect the Fonterra shareholders to give up some of their income to provide a cheaper price to New Zealand. So I think...

GUYON Let’s take those two through before you move on. You’re not going to subsidise, are you?

MR CARTER I don’t believe we should. If we started doing it with milk, where would it finish?

GUYON OK, well, what about the second answer then? I mean...

MR CARTER Well, look, Fonterra’s actually put a freeze on more recently. That was a marketing ploy by Fonterra. They made the decision. That effectively means, if the price of milk had continued to rise internationally, Fonterra’s shareholders would have been taking slightly less. That’s their positioning. But ultimately we’ve got to keep in mind that this country survives by exporting food, and if the international price is high, it does affect the price at which New Zealand consumers then buy sheep, meats or bread or lamb or milk or anything else, but ultimately if the export price is high, that feeds back into a strong New Zealand economy. It is ultimately good for all New Zealanders.

GUYON Well, what's the good bit if I can’t afford to buy milk and cheese?

MR CARTER If you can’t afford milk or cheese, that becomes a matter of income levels in this country and it becomes a matter of whether our social welfare system’s good enough. Now, I believe...

GUYON Well, do you accept there are people who are working jobs who are struggling with this?

MR CARTER I believe that there are people struggling, and that’s why we’ve got to focus this economy on getting it to perform better to deliver higher wages to all New Zealanders, and that’s been very much the focus of the government over the last three years.

GUYON Yeah, these are long-term structural things. They’re important things, but they’re long-term structural things. It doesn’t help when you go... It doesn’t help you when you’re walking down to the supermarket or dairy to buy your milk or cheese, does it?

MR CARTER You’re not going to fix the New Zealand economy and get it to perform overnight in a far better fashion. We had a decade of neglect in this country where we forgot the tradable sector of the economy. That’s the way we earn our way in the world. It’s not by growing government. It’s not by increasing government expenditure by 50%. We’ve managed to corral that. We’ve got government expenditure under control. What we’ve now done is shifted the focus to getting our exporters to perform better internationally.

GUYON So really it’s just the price we pay for globalisation, isn’t it? Because we’re a country that produces, what, 16 billion litres of milk? Probably the most efficient in the world, yet there’s no direct payoff. When you go down to the dairy, it’s more expensive comparatively than it is in Britain.

MR CARTER We are an export country based on food. There is no way this National government has ever believed that agriculture is a sunset industry. It is the very foundation of this economy, and we are going to therefore be hopeful of higher international pricing, cos that ultimately leads to a wealthy New Zealand, which is what I aspire to.

GUYON I wonder how much of this is about the structure of Fonterra. It was set up in 2001 to be a gorilla exporter, really, wasn’t it? A mammoth, giant exporter, and it’s doing that, but at the price of consumer affordability at home, perhaps.

MR CARTER Well, maybe, and that’s the part that, as Minister of Agriculture, I have a responsibility for. I’m effectively in control of the Dairy Industry Restructuring Act and the regulations, so I need to do the work to make sure that base farm gate price is correct.

GUYON You see, you said a very interesting word there: “maybe”.

MR CARTER Well, that’s what we’re checking for now. As Fonterra developed its new capital structure trading amongst farmers, I became aware there was a question mark whether Fonterra was correctly pricing milk at the farm gate. It’s critical that we get that right, and therefore there's a lot of work going on now with Treasury, Ministry of Economic Development and my own ministry – Ministry of Agriculture – making sure that that’s right. But when we assure ourselves that it’s right, that is a very, very small part of what the consumer ultimately pays for the retailer price of milk, be it in the supermarket or the corner dairy.

GUYON The Chinese... We’ll shift topic here. The Chinese this week said that they wanted to buy farms in New Zealand. Does that worry you?

MR CARTER No. No, it doesn’t. This country was founded on foreign investment. New Zealand has been such a poor saver over decades, this country needs foreign investment. We can either get it in the form of direct investment into our businesses, into our farms, or we can get it in the form of borrowing from foreign banks. Either way, this country, if it’s going to grow, needs investment.

GUYON So you’re quite happy for the Chinese to buy New Zealand farms?

MR CARTER I think you’ll see the Chinese looking at New Zealand farms. If they look at the price of farms they can buy in South America, for example, or Russia or New Zealand, I think they’ll quickly realise it’s very expensive to buy New Zealand farms.

GUYON They’ve got plenty of money.

MR CARTER They have got plenty of money, but they haven’t been allowed to buy us to date. If you look at the statistics...

GUYON Well, they came out and told us – I saw him in person and he was on the cameras from the Chinese embassy – saying he wanted to buy farms.

MR CARTER Saying they wish to, but at this stage, Bill English was equally on the TV, and you will have seen it, saying he’s not aware of a single farm in New Zealand owned by the Chinese.

GUYON Well, I think that might be about to change.

MR CARTER Well, they’re then going to have to pay an extraordinarily high price compared to what they can invest in the rest of the world.

GUYON But you won’t stop them?

MR CARTER There's a very, very strict regime here in New Zealand which I fully support called the Overseas Investment Office, so any application, be it from an Englishman, from an American or from a Chinese, has to go through this very strict test. In essence, what that test says is that that particular investment must been good for the overall benefit of New Zealand.

GUYON We seem, as you say... I mean, it’s quite interesting that the Chinese don’t own one farm in New Zealand, but the Dutch and possibly English and other investors do. I mean, isn’t there a bit of a panic about this which is frankly racist?

MR CARTER I think many New Zealanders have a fairly racist attitude to foreign investment, particularly when it comes from Asia. I personally don’t.

GUYON Can I finish talking to you about the emissions trading scheme? Andrew Ferrier saying there that he saw clearly no appetite for agriculture to come into the scheme. Under current settings, you would bring agriculture in in 2015, right?

MR CARTER Yes, but with a legislative review in 2014 making sure that two things are happening: one, that the rest of the world is playing its part; and secondly that we are finding technologies by which farmers can mitigate their own agricultural emissions.

GUYON OK. At the moment, is the rest of the world playing its part, in your view?

MR CARTER I don’t think so, but we’re watching very, very carefully, and this is...

GUYON Well, Australia’s just brought agriculture into their scheme.

MR CARTER They’ve still got to pass some legislation, so, knowing the Australian political scene, we should wait and see whether that happens. But we’re in a very comfortable position here. We’ve signalled that we’re doing it in 2015. We’ve signalled we’ll do a review prior to that to make sure that there are feasible technologies available for farmers to manage to bring agricultural gases into an emissions trading scheme, and you’ve got the Labour Party campaigning on bringing it in in 2013, with or without solutions.

GUYON Well, isn’t that fair enough? Why should the rest of us subsidise the farmers? Cos someone has to pay, and at the moment we’re subsidising the farmers. Why is that fair?

MR CARTER Because New Zealand relies on agriculture for our very survival, so what we need to do is work hard, both here in New Zealand with science and internationally to find solutions.

GUYON Aren’t you asking a lot, though, Minister? Because you’re saying that farming and farmers are such a big part of the economy, therefore we have to accept that we pay higher prices for milk and cheese at home – oh, and also we have to subsidise them when it comes to the emissions trading scheme. I mean, isn’t there a point where other New Zealanders are going to say, “Well, come on, you should pay your fair share”?

MR CARTER Yes, they should, and that’s when there are solutions available. So at the moment, as Andrew Ferrier just mentioned, Fonterra, through its processing, is under the emissions trading scheme. Every farmer purchasing energy, purchasing fuel is in an emissions trading scheme. What you’re talking about is making the farmer pay for methane and nitrous oxide emissions. Now, let science find some solutions, and when those solutions are available so that we can still carry on producing agricultural products to export to the world, then is the time to make the farmers pay. We achieve nothing if New Zealand, as one of the most efficient agricultural producers in the world, simply sees production move from New Zealand to other countries who don’t care as much about climate change as New Zealand does.

GUYON Good place to leave it. Minister, thanks for your time. Appreciate it.

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