What Does A New UK Government Mean For NZ?

Britain’s coalition between David Cameron’s Tories and Nick Clegg’s Liberal Democrats is not a comfortable fit. They are old enemies on various policy issues. But they appear to be making it work. The coalition’s first Budget on June 20 will tell us a lot more about how this alliance will rule Britain.

After more than a decade of New Labour, and a few years of the dour Gordon Brown in office, Britain was ready for a change. This change however will also affect NZ Inc.

The Main Report’s Profitable Agri-Business www.nzagri-business.co.nz has turned its analytical powers to the ramifications of the Tory Liberal coalition for NZ’s main export earner.

“Economic Debate – Will The UK Election Result Affect NZ Farmers?

NZ primary exporters are among those checking out the policy implications after Britain’s formation of a coalition Govt. But (other than sheep-meats) the UK is not as vital to the economic health of our farmers as in the past.

It once was the main destination for the bulk of NZ’s export trade but since Britain joined the EEC in 1973 our markets have been hugely diversified.

The UK now ranks fifth among our trading partners, behind Australia, China, USA and Japan. The big earners in the UK trade are meat (46%) and beverages (16%). Dairy accounts for around 5%. Exporters will hope the Cameron Govt does what needs doing to strengthen the UK economy and its currency. £100 of lamb cuts in the UK in February last year translated at the prevailing exchange rate then to NZ $287.

The weakened pound a year later reduced the return to NZ $214, a decline of $73 or 25% from the exchange rate alone. Sterling weakened further after new stats showed the UK goods trade deficit widened more than expected in March.

Moreover, Bank of England Governor Mervyn King warned weaker euro zone export markets have increased growth risks for the UK economy. This (and further weakening of the euro) lifted the NZ$ to a post-float high against sterling late last week.

Good news for NZ sheep farmers owed nothing to the election. UK lamb slaughter figures plunged 18% in the March quarter of 2010 compared with 2009, giving NZ producers an increased share of the UK market.

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Figures from the latest Agriculture and Horticulture Development Board Market Survey show chilled and frozen lamb and mutton volumes imported into the UK from NZ rose to 28,000t in the first quarter.

But the coalition agreement includes a pledge to fulfil joint ambitions to create a low-carbon economy and Farmers Weekly Interactive reports UK farmers could to be given a key role as energy producers under plans which include “measures to promote a huge increase in energy from waste through anaerobic digestion.” Further measures to promote renewable energy include the full establishment of Feed-in Tariff (FiT) systems for electricity. Farmer interest in small-scale renewable energy projects has surged since the launch of a FiT scheme on 1 April. The more they can be persuaded to produce energy on their farms, the better it will be for our food exports.”

Anything which effects NZ farm exports is of concern to all NZ businesses. The new UK Govt could do immeasurable harm to NZ exports as it attempts to get its massive deficit under control. It highlights the fact NZ Inc is still far too heavily reliant on the “soft commodity” sector. NZ must lift its game in other areas if it is not to fall victim to the political winds which blow through export markets far away.

The Govt’s commitment to science and research in this budget should help get the country moving towards higher value economic output, and make sure we have a broad enough economy to be able to trade our way out of any future global troubles.

Max Bowden
Publisher/Editor In Chief
The Main Report Group
http://www.themainreport.co.nz

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