32 minute read
Opinion
Alternative view
Pork industry deserves a better deal from regulators
Alan Emerson
Semi-retired Wairarapa farmer and businessman: dath.emerson@gmail.com
IRECENTLY wrote about the crisis in our pig industry, and the situation has moved from farcical to stupid as recently highlighted in Farmers Weekly.
To summarise, we have a draft welfare code for pigs that has significant issues. I remain totally unconvinced that the National Animal Welfare Advisory Committee (NAWAC) is a robust organisation that is capable of impartially considering issues without fear or favour.
NZ Pork told me that “NAWAC accepted very limited input from farmers and the industry’s technical advisors, including NZ Pork’s animal welfare scientist, when NAWAC itself has no experience at all of pig farming”.
It said the draft code lacks scientific credibility and justification and imposes unachievable minimum standards.
Let’s consider those points. For a start you have a committee, NAWAC, making recommendations in an area where it has little if any expertise. It had minimal input from NZ Pork’s animal welfare scientist. One would have to ask why.
We then have a draft code from an organisation that the industry believes “lacked scientific credibility and justification”, yet it is able to propose and perhaps confirm ridiculous limitations on a local industry.
One could humbly ask what New Zealand pig farmers have done to encourage a bureaucratic backlash that aims to make their farming practices uneconomic.
Who’s going to be next?
There are about 90 commercial pig farmers in NZ, with countless smaller operators. The commercial farmers operate under the rigours of the PigCare welfare assurance programme. We read that “NZ farmers are world leaders when it comes to pig welfare standards”.
Let’s consider the logic of all that.
NZ pig farmers are world leaders when it comes to animal welfare. That has a cost, which farmers are bearing. That means that locally produced pork is more expensive than imported pork that doesn’t meet those high welfare standards.
Despite that, a committee, NAWAC, has decided that welfare standards should increase further, putting the price of pork up an additional 18% at farm gate, making imported pork even more attractive.
Consultancy Sapere projected the costs on a 350-sow farm. Currently the annual earnings from that farm are estimated at $385,000, which the industry says is overstated given recent cost escalation. When or if the regulations come into force, that figure is more than halved, to $184,000. That puts the farm out of business. Is that what the government wants?
Imported pork isn’t raised under the welfare regime that is operating in NZ now. Under international trading rules, NZ cannot set welfare standards for imported pork. Despite that, we intend to raise the so-called welfare bar in NZ making local pork less economic.
For example, most of the countries we import pork from allow a month or more in mating or gestation stalls.
In the United States it is for the entire length of pregnancy.
Most of the countries allow sows to stay in farrowing crates for at least four weeks. In most countries except NZ, piglets are routinely castrated. In many countries pain relief is not required.
Because it is cheaper, 60% of the pig meat we consume is imported. With ham and bacon that figure is nearly 85%.
Now it seems the powers that be want to increase our imports of pork and pork products at the expense of local pork.
So we’re going to raise our animal welfare standards to allow more imported pork from countries whose welfare standards can’t be considered as a condition of import. That means, internationally, pigs are far worse off.
It gets more extreme.
If you go into a supermarket you have no idea if the pork or pork product is locally grown.
For example, we had some Beehive Ham that had “New Zealand’s most delicious” in large letters on the front label. Go to the back of the packet and in very small lettering you can read, “Made in NZ using pork raised in one or more of the countries below. Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Netherlands, Poland, UK, Spain, Sweden, USA.”
Having seen pigs raised in quite a few of those countries, I don’t want to consume any of it.
Going into the local supermarket, I couldn’t find a brand of bacon that used NZ pork. Despite what’s on the front of the packet, the minute lettering on the back says basically the same as Beehive. Farmland, Pam’s, Hellers and Grandpa’s all use imported pork.
The manufacturing companies have no idea of hygiene standards, animal welfare or whatever of the pork they import. Because it’s cheaper, they use it.
ON WELFARE: With so much of the pork in NZ being cheaper imported produce, consumers have no way of knowing if they are eating pigs raised abroad in less-than-ideal conditions, says Alan Emerson.
The bureaucrats are obviously not policing the labelling, meaning local farmers are even more disadvantaged.
NZ pig farmers and consumers deserve one hell of a lot more than they’re getting. If a faceless committee wants to produce ridiculous regulations then the government should insist all imported product meets those same standards.
From the ridge We’re feeling a bit down on the farm, but we have choices
Steve Wyn-Harris
Central Hawke’s Bay sheep and beef farmer: swyn@xtra.co.nz
ISTARTED writing this column back in 1995 so it has spanned 27 years, which is a fair bit of my nearly 40-year farming career – and life, for that matter.
The 1990s were still tough farming years after the change and turmoil, not to mention low returns, of the late 1980s.
It wasn’t until the early 2000s that the pressure started coming off and instead of just fighting for financial survival here we started making progress with the improved returns.
I’m still given a hard time for being tight even if that is more historical than current, but I am a product of those first 15 years of my farming career, which began the day subsidies were removed.
I’ve owned only three vehicles in four decades. I thrashed a poor old second-hand Mitsubishi Lancer around the farm for the first 15 years, using it to drag a trailer around laying out fence posts with dogs in the boot and fencing gear on the back seat. It was orange with a black roof and known widely as the Pumpkin.
I was bloody annoyed when the garage wouldn’t give it a warrant of fitness due to chassis rust, as it was still going strong.
But this career is a choice, it’s not compulsory, and if it really is weighing heavily, the record land prices and flush balance sheets make the option of exiting worth considering.
The next one was a secondhand Mazda ute, which lasted a little longer than the Pumpkin, but it too finally had a reckoning with the wrecker.
And then my first and possibly last new vehicle when I succumbed to the allure of a Ford Ranger. It has just clocked up 200,000km and might outlive me if it plays its cards right.
Every dollar was a hostage and when I had a spare one, it was put either into improving the farming business or retiring a little bit of debt. No flash toys or extravagant holidays.
Retiring debt was an imperative with interest rates on the farm mortgage in the high teens. When I went through my overdraft limit I paid a penalty rate in the high twenties, making the current interest rates that we are all trying to get used to not look so bad in comparison.
But in that first decade or so it was exceedingly difficult to retire debt with such low returns, even with a tight hold on the cheque book.
There was much change, returns were poor, we felt governments were against us and that the city folk didn’t appreciate what we were dealing with, and didn’t they understand we were still an important part of the economy
Dairy is fundamental to NZ’s future
The braided trail
Keith Woodford
Principal consultant at AgriFood Systems: kbwoodford@gmail.com
THE KEY message of this article is that dairy is of fundamental importance to the future of Aotearoa New Zealand. However, the journey to get there is not straightforward and it will be controversial.
It is no accident that NZ’s most important export industry is dairy, comprising some 30% of the export value of goods that leave NZ’s shores.
Add in sheep, beef, timber, fish, kiwifruit and wine, and NZ’s primary industries contribute a little over 80% of the export earnings derived from merchandise goods.
The remaining exports are led by aluminium and some machinery. However, with these and other manufactured goods, the net contribution is typically much less than the export earnings, given the imports that are required to feed into the manufacture of these exports.
There are also non-merchandise invisible exports. These are largely tourism and international education of foreigners who come to NZ.
Alas, even in the good times these invisible inflows are more than balanced by the invisible outflows of foreign currency. These invisible outflows include Kiwis spending money on their own overseas tourism, plus interest paid to foreign lenders, plus profits to the overseas-owned businesses operating in NZ, with banks and insurance institutions being the standouts.
So, the bottom line when it comes to imports such as pharmaceuticals, computers, vehicles, machinery and fuel, plus surprisingly high quantities of imported food of types we do not grow, is that physical imports need to be balanced by physical exports.
The only alternative to this balance is to keep importing capital from overseas. NZ has become very good at this. But there has to be a day of reckoning.
Accordingly, the inevitable conclusion is that NZ’s future depends critically on its export industries.
It is no accident that NZ is so dependent on its primary industries for these exports. This follows naturally from being a small country isolated from much of the world. Very simply, NZ will never have the scale required to build a comparative advantage for large-scale manufacturing. Also, although some would like to pretend otherwise, NZ education levels provide minimal advantages and significant disadvantages when comparisons are made to that bigger world.
As for the specific primary industries, the development path that NZ has followed is also no accident. For example, the temperate maritime climate, the topography, and the low inherent fertility of nearly all NZ’s soils all lead inevitably to pastoralism rather than large-scale cropping. they lack understanding of the issues.
The major non-horticultural crops that NZ does export are small seeds, with this mainly linked to out-of-season production on behalf of overseas plant breeders. This trade is also at close to peak, given the need for isolation between cross-fertile cultivars.
The long-term perspective of Treasury economists, echoed by the Climate Change Commission, is that resources allocated to dairy and pastoralism can over time be re-allocated to other industries. However, the key resources that underpin dairying are sunlight and the rain that falls on the NZ countryside. How will those resources be allocated given the fundamental unsuitability of most of this land to non-pastoral activities?
I have yet to hear an answer to that question. I suspect this reflects the lack of biological understanding held by quantitative desk economists.
The other argument I hear from people who consider themselves economically literate is that not only dairy but also the overall agriculture sector is unimportant
because it comprises such a small part of GDP. As I have pointed out many times, the GDP of agriculture captures only a small proportion of the on-farm valueadd and none of the off-farm added value. Also, much of the on-farm contribution, including shearers and all other contractors, is allocated to the service sector. It is a crazy anomaly bound up in distant history when farmers did everything on-farm themselves.
I read regularly that dairy consumption globally is supposedly in decline. But this is false news. Fresh milk consumption is in global decline, but overall dairy consumption, led by cheese, continues to increase.
I also read that NZ’s dairy will in future supposedly face trade barriers. However, I only hear that from people who are well-versed in political lobbying but are not out there in the Asian markets that NZ exports to.
The overall trend in dairy and other food prices, albeit with inevitable volatility, has been upwards for the past two decades, with populations increasing and producers struggling to meet the increasing demand.
There is no evidence that this will change. Growing more food is now a huge global challenge, largely disguised until recently by massive historical productivity gains in both plant and animal agriculture, combined with huge fossil fuel inputs.
So, given the fundamental importance of dairy, there is a need to face up to the environmental and other challenges that dairy faces. If NZ walks away from its pastoral industries, it is inevitable the whole economy will decline as imports have to be reined in.
A starting point is to address vociferous calls that dairy somehow threatens planetary survival.
There is no point in denying that methane and nitrous oxide, both fundamental byproducts from dairy farming, are greenhouse gases. These emissions have been with us since ruminant animals first evolved millions of years ago.
The issue is complex because methane is a short-lived but powerful greenhouse gas, whereas carbon dioxide has less power but over a much longer atmospheric life.
The focus on methane is driven by short-term temperature targets rather than long-term planetary sustainability. Holding informed debates on that issue is challenging.
I am reasonably relaxed about the current legislated 2030 methane target of 10% reduction from 2017 levels. This is a combined target for all biogenic methane and some, perhaps most, will come from the current transformation of sheep and beef land being converted to forestry. However, the 2050 target of between 24% and 47% methane reduction across all ruminant species is of a very different order. Quite simply, there are no technologies currently available to achieve this without a huge reduction in all of dairy, sheep and beef.
The second challenge facing dairy is the impact of dairy on water quality. Once again, there is no doubt that dairy can have a big impact on water quality, but sorting out truth from fiction is challenging. A key fact is that most of the nitrogen-leaching comes from urine deposited on paddocks in the second half of autumn and in winter.
I am closely associated with the development of compostingshelter farming systems where cows and in some cases beef animals are off-pasture during the winter, and are also bedded in these shelters at night time in autumn. This greatly reduces the leaching.
One of the current ironies is that development of these farming systems, which can also be super friendly for animals, is being led by innovative farmers who are learning through trial and error. It is time for the formal research and development system to catch up.
There are also health challenges with some dairy products. I have for the past 15 years been closely associated with researching and communicating the health issues associated with A1 beta casein and the need to convert to A2. Right now, the A2 issue seems to have “gone quiet” in NZ, but elsewhere things are steadily moving ahead. Given the lack of commitment in NZ within the mainstream dairy industry, most of my own A2 work is now focused offshore.
Each of these challenges to the dairy industry deserves multiple articles of its own. All of them are big issues, with progress inhibited by a mix of misinformation and defensive lethargy.
There are tough times ahead for most New Zealanders, and it is not just dairy farmers. There is an old saying that one reaps what one sows.
COW COUNTRY: It’s no accident that pastoralism and not cropping is so crucial to NZ, given its climate, topography and the low inherent fertility of the soil.
A quick look at export statistics confirms that exports of staple crops such as wheat, barley, oats and maize are insignificant. Major crops such as rice and soy are not grown at all in NZ. This is not going to change.
As for horticulture, kiwifruit is clearly the standout but there are other successes such as apples and some sub-tropical fruit. But if anyone thinks that horticulture can save NZ’s export economy,
There is a need to face up to the challenges dairy faces. If NZ walks away from its pastoral industries, it is inevitable the whole economy will decline.
and bringing in much-needed returns from our exports?
Exactly what we are saying now, except that returns are at or near record highs.
Let’s not forget how fortunate we are to have these great prices and the longest run of decent prices in my time. A lot of rural debt has been paid off recently because of this.
And despite the recent quick rise in interest rates, having come off historic lows they have simply returned to long-term average rates.
I see Federated Farmers’ latest confidence survey inevitably had farmers’ confidence plummeting. It’s more a political poll than anything. Ask anyone in a wet sunless winter how they are feeling about the outlook and its hardly going to be an optimistic view of the future.
Someone should be telling those fellows at the sale yards about how bad our confidence in the future is because they have obviously missed the memo as they are paying record prices for both sheep and beef.
However, it is tough now, no doubt about it.
A lot of legislative change is about, and even if there is a change of government next year most of these changes will remain in place so don’t think that will go away.
The climate change and these extreme weather events are making farming and life bloody difficult and that isn’t going to disappear either.
And large increases in costs are eroding the high prices for our products, so we need to be smarter about how and where we spend our money – as we were in the past.
But this career is a choice, it’s not compulsory, and if it really is weighing heavily, the record land prices and flush balance sheets we have the privilege of owning make the option of exiting worth considering.
I’m contemplating the beginning of the end of my own farming career because I’m feeling these pressures as well. Nothing is forever.
There is a generation of millennials who are more up to the farming challenges and opportunities ahead than we baby boomers who did well back in the day but might have finally hit peak challenge.
Guest column
Major wins so far in emissions negotiation
Andrew Morrison
Beef + Lamb NZ chair
Letters of the week Continued from 32 Production
The reason I am, in the words of Luddington, “braying like a forestry worth demented donkey” over emissions tax is because it will deliver worse another look outcomes for the environment and our country. It is causing the exit of more farmers from the industry and Denis Hocking Bulls accelerating even more food- A VERY good article on carbon producing land into pines. The forestry by Keith Woodford, “The emissions tax policy penalises the carbon farming rocket has taken best environmental farmers and off” (August 22). However, there will deliver a raft of disastrous is one issue that I feel Keith consequences. neglects in his articles, and that is
Luddington appears quite happy production forestry. with the regulations on his flat In my situation with roughly Canterbury plains farm devoid of 45% of my “poorer” land in all original vegetation surrounded production forestry, the forestry by neatly trimmed conifer hedges. operation, without any carbon But for a steep hill-country farmer returns, matches the gross returns who faces an unaffordable bill to from sheep and beef farming fence 10km-20km of waterways and comfortably exceeds it for and with over half their farm profitability. designated a Significant Natural I do always manage for pruned Area, life is not so peachy. regimes and have a major advantage in generally easy access, but forestry has long beaten livestock for returns. Did a major harvest in June, when the export log market was at its nadir, and returns, buoyed by pruned logs, were down by only about 10%. There are no carbon returns in my operation because it is mostly
Nor is it for the West Coast pre-1990 forest and I didn’t landowners who lost all their register my more limited plantings land to wetland designations and from the 1990s. I do have NZUs have been told their properties allocated for the pre-1990 are now virtually worthless. plantings but they are still sitting There are hundreds of examples in the Registry. throughout NZ where people are I believe production forestry unfairly impacted by unworkable warrants much more attention regulations. than it gets, smothered as it is by
Unfortunately for Luddington arguments over carbon. and Prickett, they will have to Consider the following: put up with more of my “braying” * Forestry has been a much because I will not rest until more productive export earner we have workable regulations than sheep and beef for decades, that respect people and their earning around twice the export property; instil nature on farms dollars per hectare per year. as an asset; reward rather than * Production forestry is punish environmental effort; and recognised as a more effective way deliver the desired environmental of offsetting carbon emissions outcomes. than permanent carbon sinks.
* Wood is an extremely valuable, renewable, carbon sequestering resource for uses ranging from long-term construction to zerocarbon fuel.
We have major advantages over pretty well all other temperate countries in producing wood, and especially the top-shelf, pruned clearwood. Unfortunately there are signs that we are throwing away our clearwood advantage. Already our best pine clearwood, treated with new, environmentally friendly processes such as acetylation, is regarded in Europe as a very satisfactory substitute for tropical hardwoods. We have the Norwegians walking past all their forests and coming to us to buy clearwood for their top-shelf “kebany” wood.
So my plea is to have the arguments around production forestry included in the debate. Forestry should be seen as much more than just carbon sinks.
There are hundreds of examples throughout NZ where people are unfairly impacted by unworkable regulations.
Best letter each week WINS a quality Victorinox Hiker Knife of theWeekLetter
Farmers Weekly is published by GlobalHQ, PO Box 529, Feilding 4740. New Zealand Phone: 0800 85 25 80 Website: www.farmersweekly.co.nz Best letter each week wins EDITOR Bryan Gibson 06 323 1519 a quality Victorinox a quality Victorinoxbryan.gibson@globalhq.co.nz EDITORIAL Hiker knife Carmelita Mentor-Fredericks editorial@globalhq.co.nz Neal Wallace neal.wallace@globalhq.co.nz 03 474 9240 So go on!Colin Williscroft 027 298 6127 colin.williscroft@globalhq.co.nz Annette Scott annette.scott@globalhq.co.nz 021 908 400 Stick the Hugh Stringleman 09 432 8594 hugh.stringleman@globalhq.co.nz Gerald Piddock 027 486 8346 knife in gerald.piddock@globalhq.co.nz Richard Rennie 07 552 6176 richard.rennie@globalhq.co.nz Nigel Stirling nigel.g.stirling@gmail.com 021 136 5570 Send your letter to the Editor at Farmers Weekly WRITE TO The Editor, Farmers Weekly PUBLISHER Dean Williamson 027 323 9407 dean.williamson@globalhq.co.nz P.0. Box 529, Feilding or email us at P.O. Box 529, Feilding EMAIL farmers.weekly@globalhq.co.nz • FAX 06 323 7101
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THERE has been debate in the past few weeks about the recommended emissions pricing option Some partners argued for an outputs-based approach, which in our view favoured intensive farmers, but this would have therefore a warming approach at the farm level may not be the best approach. Like many farmers, we are sent to the government.
It’s right that farmers are asking questions, and debate is healthy. As an organisation accountable to all levy-payers, our job is to answer those questions and we always encourage farmers to speak up.
This significant policy reform has long-term implications for our sector and it’s important we get it right. It’s also a very difficult time as many farmers are feeling overwhelmed by the volume of flawed policies coming at them.
Of course, we would prefer there was no pricing of agricultural emissions. However, the government is forcing emissions pricing on us so we’ve been focused on trying to get the best outcome for farmers.
While there are still important things to fix, like the methane targets, BLNZ and sector partners have had two major policy wins along the way.
Back in 2019, almost 20,000 submissions supported all of the greenhouse gases going to net zero and the government had legislation written to bring agriculture into the Emissions Trading Scheme in 2020.
We secured separate targets for methane and convinced the government not to bring the sector into the ETS. The government said we must come up with an alternative pricing framework from 2025. If not, the government would put us into the ETS.
It is important we stay out of the ETS because under this system the methane price will be linked to the carbon price and we’ll have lost the split gas approach – effectively facing a net zero target for methane. We would also not have the sequestration outcomes that we’ve proposed in He Waka Eke Noa (HWEN), nor the potential incentive payments to support uptake of new technologies. ISSN 2463-6002 (Print) ISSN 2463-6010 (Online) While not perfect, we believe the HWEN recommendation is Debbie Brown 06 323 0765 Noticeboard/Word Only/Primary Pathways classifi eds@globalhq.co.nz the best one. It carefully balances Grant Marshall 027 887 5568 levy settings to ensure farmers Real Estate Partnership Manager remain productive, profitable and realestate@globalhq.co.nz competitive. Andrea Mansfi eld 027 446 6002 We share the concerns of farmers who have limited reduction and Salesforce director andrea.mansfi eld@globalhq.co.nz offsetting opportunities. As a PRODUCTION result, there is specific provision in the proposal where levy relief can be applied on a case-by-case basis. We also argued for a maximum starting price for methane of 11c Lana Kieselbach 027 739 4295 production@globalhq.co.nz Advertising material adcopy@globalhq.co.nz SUBSCRIPTIONS 0800 85 25 80 subs@globalhq.co.nz LK0107425© per kilo, and to have the price held for three years. Printed by Ovato NZ Ltd Delivered by Reach Media Ltd
We did explore the scope for a land-based approach that favoured extensive farmers during the process, but that would have put a higher price on intensive farmers and did not get consensus. created problems for extensive farmers. Some farmers have asked why BLNZ supports HWEN when our own modelling shows the significant impact on sheep and beef farmers. Sheep and beef farmers are more impacted by a price on agricultural emissions because of our profitability per unit of methane emitted. That’s why we published modelling when the HWEN proposal was released to demonstrate the impact and reinforce the need to take a cautious approach to pricing. We’re also fighting for sequestration as a critical part of HWEN. While we didn’t get everything we wanted, HWEN recognises a wider range of vegetation than the ETS. It also recognises native vegetation that is ineligible under the ETS. Our long-term goal is to get the ETS improved to include this vegetation, but the reality is this will take years. If farmers are to face a price for their emissions, it’s a bottom line they have to be able to get proper recognition for their sequestration from that day. Price sensitivity is a key reason we need to review methane targets and ensure they reflect the latest science. The higher the reduction targets, the higher the prices on emissions will potentially need to be. BLNZ doesn’t agree with the reduction targets in the Zero Carbon Bill. Getting this addressed is a separate process to HWEN but is a top priority. BLNZ is also urging the government to report on warming as well as emissions. We need to take a warming approach in the national methane targets. Key aspects of the HWEN proposal reflect this science (such as having a unique methane price, measuring by weight, and not converting it into a carbon equivalent). But we must also be mindful of unintended consequences, such as applying a warming approach at farm level. Applying a warming approach at the farm level is complicated. It requires 20 years of data and fluctuates significantly. If there were a drought one year and you restocked the next, you could face a high bill for the rebuild of stock numbers as emissions would increase. The sheep and beef sector has made significant gains in reducing emissionss. A large part of this was due to a reduction in livestock numbers and dairy conversions. Our analysis, however, indicates the remaining sheep and beef farms have been getting bigger and concerned and frustrated at the policies coming at us and we will remain in the fight. However, it’s now more important than ever that we remain united. Informing our approach along the way in developing the proposal has been a split gas approach that takes account of equity, environmental sustainability and on-farm viability.
WEIGHING OPTIONS: Andrew Morrison says Beef + Lamb NZ has been focused on getting the best outcome for farmers.
Straight talking NZ’s current account is due for some attention
Cameron Bagrie
Managing director of Bagrie Economics and a shareholder and director of Chaperon BAD NEWS: When the current account deficit rises above 5% it starts outpacing the economy. At the moment it stands at 6.5% of GDP.
EARN more or spend less? We could be in for another wakeup call, with trends around the current account becoming more and more concerning.
The current account is the combination of trade in goods, services (think tourism) and return we get on offshore investments relative to what offshore investors receive on New Zealand assets. It includes borrowing on offshore debt and bank profits.
Farming is the backbone of trade in goods. We sell food and import manufacturing goods, including lots of consumable items but capital and intermediate goods too.
The current account deficit – our national chequebook with the rest of the world – is currently $23.3 billion, or 6.5% of gross domestic product (GDP). It includes a goods deficit of $7.4b, a services deficit of $6.4b and $9.4b deficit on investment income.
The latest trade figures show a $10.5b trade deficit, bad news for the next lot of current account figures. Exports are up 11.9% on the year prior, but imports rose 28.7%.
Soaring bank profits – as they are foreign owned – increase the current account deficit.
The current account deficit is on track to hit 8% GDP according to the Reserve Bank’s latest forecasts. More troubling is that it is projected to remain above 7% of GDP right out until 2025.
Net foreign liabilities (think net overseas debt and how we fund the current account deficit) is projected to rise around $100b over four years. That is a lot of borrowing or asset sales.
There is nothing wrong with borrowing if you are investing and getting an appropriate return. If you do not, then that borrowing becomes a tax on the future production of the economy.
We have been here before. New Zealand recorded a $14.7b current account deficit in 2008. Net external debt rose above 80% of GDP. It is now 49%, not good but less bad, driven lower largely by GDP growth as opposed to paying off debt.
When the current account deficit rises above 5%, it starts outpacing the economy and hence your debt burden increases relative to the size of the economy.
When that looks a trend as opposed to a blip, warning bells should start to ring.
The hope is that a recovery in the tourism sector will help turn the services balance around from deficit to surplus as tourists return
The reality is that New Zealanders look, equally, if not more, inclined to travel with borders open so it may remain in deficit.
A slowing domestic economy and switch away from consuming goods to spending on services should help contain import growth, though rising inflation is pushing imports’ dollar values the other way.
Export performance faces challenges given environmental constraints. Replacing livestock land with trees has boosted land values but will detract from production over time. Staffing is a huge problem for the primary sector, which restrains current production, and investment in future production. Net migration is now an outflow and New Zealand’s population aged below 65 has shrunk in the past year.
The government’s fit for a better world export strategy projects mediocre export performance. We need a lot more than mediocre and strategy to deliver it.
For decades New Zealand has benefitted from rising food prices (what we export) relative to manufacturing import prices. It has been reflected in a rising terms of trade.
If that trend turns and manufacturing prices suddenly outperform food prices, we will need to be more reliant on volume-based growth. Where will that volume come from?
A persistent current account problem will weigh on the NZD. The scrum will need to turn more in the export community’s favour.
We are already seeing signs of this. There are some temporary and cyclical factors why the NZD is lower, but deteriorating fundamentals such as a high current account deficit will weigh over time.
The bottom line is that NZ’s fundamentals are deteriorating, signs of an unsustainable growth trajectory. The current account deficit will eventually get more attention.
I planted my hills in pines 30 years ago. This is what happened ...
Guest column
John Martin
Manakau farmer
ARECENT report by Dr Peter Bellingham of Manaaki Whenua Landcare Research refers to the ability of pine trees to invade and spread. This is particularly relevant with the current fascination surrounding the Emissions Trading Scheme and got me thinking about my experiences over the past 70plus years.
Our farm has always had a few small (up to 1.5ha) areas of pines because either the land was too steep for cattle and/or it was an excellent way to control the gorse, that method of control preceding the advent of the 2 4 5 T herbicide (which was all Father had at the time of original pine planting).
Thirty years ago I planted about 12ha in radiata because it was deemed that such action would generate more income than was being achieved from the sheep; the demands of labour required at particular times clashed with the weather and the need to concentrate on the dairying aspect of the farm; and forestry was being promoted as financially worthwhile.
Not all the hills were planted in pines – we needed sufficient area left for the dairy support cattle. The trees were well pruned and (basically) adequately thinned. At the time there were a lot of stupid ideas being promoted: planting 6m apart so they don’t need to be thinned; no need for pruning; leaving “coat hangers” around the bottom of the trunk as protection against deer; leaving the outside row unpruned for wind protection of the inner trees. But I stuck with basic action: planted 2m square, pruned all the trees that were going to be harvested to a “ridiculous 8m”, and thinned.
The harvesting was done 12 months ago. I was stunned at the degree of devastation to existing infrastructure (fences and races). The cost of resurrection is significant. Admittedly the fences may have been “showing signs of age”, but they were still there and were still effective and would have continued to be effective for many more years.
Because of the level of infrastructure damage, and because of the influx of blackberry and a small scrubby native in the non-pine area of what was originally sheep and cattle area following the departure of most of the sheep, we are considering putting some of the harvested area back into grass and increasing the sheep numbers again.
Somebody said, “You will need a resource consent.”
Resource consent? This raises two questions: is the comment accurate or is it not? If it is not accurate, no problem, but if it is accurate the mind boggles. I know that bureaucracy is becoming pervasive but surely not to that extent! Even without the mind boggling, it concerns me that Prime Minister Jacinda Ardern and Climate Change Minister James Shaw seem so willing to damage New Zealand’s productive capacity because they are besotted with their current thinking.
Overseas persons have been able to buy up productive land, plant in pines, claim carbon credits, destroy the life of small communities, not harvest the trees and “walk away” having made another raft of money, of which they have plenty anyway, and leave NZ any problems while China is spewing out global-warming gases like there’s no tomorrow. Is this sensible, or fair?
In order to recover the land as we increase the sheep numbers I have been spraying the blackberry and scrub – despite what the Greens may fantasise about, chemical spraying is the only practical way – and can’t help but notice the number of self-sown pine trees that are appearing.
I thought about the Landcare Research article. If NZ continues down the current pine-planting track, are we creating an unforeseen problem? Time for a rethink?
