22 minute read
Opinion
From the Editor The price of entry to the game
Bryan Gibson Managing editor
AGRICULTURE Minister Damien O’Connor is doing the rounds in Europe, fi rstly in Davos, Switzerland, for the World Economic Forum, before heading to a major agriculture summit and bilateral trade talks. The annual WEF event brings together heads of state, 200 cabinet ministers and 1500 business leaders to form a global response to the big issues. O’Connor is highlighting trade stability, agricultural emissions mitigation and innovation in farming as his priorities this year. The forum meets at a time of turmoil, and the event’s tagline – Co-operation in a fragmented world – speaks to the devolution of geopolitical relationships recently. Nonetheless, if we’re to solve the big issues of climate change, food security and the cost of living – all while the fourth industrial revolution continues at pace – we’ll need all hands on deck. The pace of change we’re experiencing right now is relentless and it’s often diffi cult to stay positive as each new thing comes along. Maybe that’s the problem. What if we normalised change instead, ensuring our people, communities and economy were equipped with the knowledge and resilience to not only ride the waves of change, but use that momentum to our advantage? Luckily for us there are smart people looking to do just that. If you want reassurance that New Zealand agriculture is in good hands, the scholar reports at Rural Leaders are an excellent way to fi nd it. Each scholar looks at one of the big, or not so big, challenges in food production and, having picked the brains of global leaders, comes up with a home-grown solution. The Rural Leaders Agribusiness Summit is being held in March and promises to be equally inspiring. This year’s keynote speaker is United States-based global food executive Devry Boughner Vorwerk, who is the founder and CEO of DevryBV Sustainable Strategies. She’s had leadership roles at US red meat giant Cargill and at Grubhub, an American online and mobile prepared-food ordering and delivery platform. In New Zealand the concept of environmental, social and corporate governance, or ESG principles, is still in its infancy. But Boughner Vorwerk has fi rm views on what the future holds in this space. “ESG is a condition of competition,” she says. “Some businesses … are ‘ostriches’ with their heads buried in the sand and will only advance on ESG through crisis. [But] ESG policies have an impact on the ability to access capital, insurance, top talent and customers.” Factoring ESG into a business model may sound simply like more cost and bureaucracy at fi rst blush. But what it actually does is give assurance to the business, the regulator and the consumer that a product is fi t for the modern world. By recognising and accounting for the human and environmental impacts from the outset, a business becomes more agile and can roll with the waves of change more easily. As Boughner Vorwerk warns, it’s a condition of competition. This is a warning everyone in our farming sector needs to hear.
Letters of the week Frightening but oh so true
Bernard Lilburn
Feilding
FINALLY someone who has the intestinal fortitude to tell it like it is. I vote Cameron Bagrie for prime minister! What a great article, “No benefi ts in a divided New Zealand” (November 21). He isn’t part of the whoosy liberal ideological intellectual woke brigade that is sending our country down the proverbial outdoor dunny. His comments on the state of EnZed Inc are actually quite frightening. But oh so true. We contribute 0.09% of world methane emissions. But we feed more than 40 million people. The rest of the world contributes 99.91% of emissions. Go fi gure! He Waka Eke Noa and the Three Waters legislation are sending New Zealand down a very murky and dangerous path.
It is nothing to do with climate change. It is just to bleed farmers dry.
Are tourism and forestry, which are far greater emitters, in the gun sights like farmers? Hell no!
Air New Zealand is out on its own as the country’s greatest polluter. Google it.
And the peripheral damage of forestry is far worse than that of livestock farming.
Damage to roads and infrastructure, slash and pollution on beaches and the destruction of rural communities will never be recovered. The greatest methane emitter in NZ is fresh-cut tree stumps and rotting slash. Again, ask Dr Google.
And all the electric vehicles on our roads – they are coal-fi red cars, because 74% of the world’s electricity is still coal produced, and none are made here. EVs pay no fuel tax or road user charges.
The economy will tank, and who will you thank?
New Zealand – not the way I want it, and not the values I grew up with.
Best letter WINS a quality hiking knife
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Meet the people behind the farm gate
In my view ... Seeing NZ through eyes of global customer
Silver Fern Farms’ 2022 Plate to Pasture Award winners, Alan and Cathy Donaldson of Taumarunui, write about their market tour to the United States, Korea and Japan.
WE BOUGHT our first farm in 1990 and while things have changed a lot since that time, we’ve taken a long-term view on farming.
First of all, family is fundamental to us. We have two of our children on the farm now, each managing a block of their own. Some time ago we were advised to write down a vision for the future of the farm. Ever since then, we’ve involved our children in major decisions and discussions about things like succession.
We’re guided by the end consumer as well. At the end of the day, without consumers, farming won’t survive. We need to change and adapt to satisfy consumer demand, and we’ve always been focused on understanding what consumers want.
When we found out we’d won Silver Fern Farms’ (SFF) Plate to Pasture Award last year, we were a bit stunned and humbled because we came up against some amazing farming operations. What we also hadn’t fully appreciated was that the award involved a tour of Silver Fern Farms international markets as well.
Like most farmers, most of what we know about the markets comes from reading rural newspapers or company updates, and so naturally we leapt at the chance to see what was happening in person.
Our first stop was New York City, and after meeting up with longtime SFF customers Marx Foods and receiving presentations from the local SFF sales team, we were straight into the supermarkets to see some of our branded product on shelves.
What’s immediately obvious is that we need to keep finding ways to stand out. Pretty quickly we realised that New Zealand red meat really is just a small drop in a global ocean, and in these huge butchery cabinets filled with meat from countries all around the world, we actually only get a small window.
If we don’t have a point of difference, we’ll always be beholden to the ebb and flow alongside everyone else, and after talking with customers, our grassfed promise is a bottom line for that.
As we toured the supermarkets, we often took the time just to watch customers as they went about their shop, and it was apparent that shoppers are making decisions very quickly about what to put in their basket. Being able to tell our story simply and clearly though our products is fundamental if we’re going to get any cut through.
The other thing that stood out was the hardline focus from the supermarkets on the consistency of the cuts on shelf, especially compared to what we get in NZ. For us, that really reinforced the importance of having actual staff in-market to have those interactions with the supermarkets and properly understand their nuances and requirements. It also gave some perspective and validated the need for in-spec livestock to meet these expectations.
From New York we headed down to Philadelphia, where, among other things, we visited the Port of Philadelphia.
Like many of us back here in God’s Own, we’ve been hearing about the difficulties in our supply chain, but hearing directly from the port managers really drove that home. The sheer scale and complexity of what happens on port was fascinating for mere mortals like us, and underscored all the things that can go wrong.
That said, all the logistic businesses did surprise us on how positively they looked at each problem. Every crisis creates an opportunity for new ways of thinking. It’s important we keep a finger on the pulse of what’s happening in our supply chain as it’s clear that when times are tight there are plenty of people who will take advantage of any available storage space. We need to be in the right global partnerships to ensure we make the most of that.
In South Korea and Japan, while we noted the different cultural nuances, some things were consistent with the US, like a small window for shelf space and a big focus on consistent product.
Again, we spent a lot of time watching customers, and while many tended to be shopping on price there were some customers who would spend more time picking up the more expensive product and reading through the packaging.
The visual experience in the Japanese supermarkets was a standout, with videos and posters being displayed and plenty of opportunity to showcase our provenance story directly with customers making their purchasing decisions in the supermarket.
It’s good to know we’re not alone in our global markets and comforting to know we have dedicated staff in our markets now helping to manage interactions with the customer and provide insights back to NZ. We’re also getting good support in the market from government agency NZ Trade & Enterprise, and it was noted we were one of the largest NZ delegations to visit South Korea in recent times.
Like many, we’ve always wondered if the amount of paperwork and regulation we have to do on farm nowadays is actually worth it, but coming away from the trip we realised that we’re going to have to keep validating to the markets why we stand out and deserve to be the product that’s picked up rather than passed by.
We also took a lot of confidence in the grass-fed claim. The strong indication we got from the tour is that grass-fed is essential for us to remain at the table, with future opportunities around Net Carbon Zero and NZFAP Plus adding further potential, and that’s going to be great for the long-term outlook for our sector.
We’ve always believed that if the meat companies aren’t doing well, the farmer isn’t doing well. It’s clear that it takes time to build relationships in the market and as farmers we’ve got to place more trust in what the meat companies are doing and build more loyalty to enable them to maintain those relationships going forward. We’re grateful to have had the opportunity to see this for ourselves.
REGULATION: Alan and Cathy Donaldson, on farm with son Tom, say they’ve always questioned the amount of paperwork and regulation on farm, ‘but coming away from the trip we realised that we’re going to have to keep validating to the markets why we stand out’.
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Look to cruise ships and coal before cows
Alternative view
Alan Emerson
Semi-retired Wairarapa farmer and businessman: dath.emerson@gmail.com
IAM GETTING heartily sick of the ignorant calling for agricultural GHG emissions to be taxed. I totally disagree with the concept.
Further, the hypocrisy of the discussion is appalling.
Farm animals burp and fart on the way to producing food. There’s a world food shortage that’s about to become worse. Do we want to make that worse by punitive taxes on food production in New Zealand?
In addition NZ is the world’s most efficient when it comes to GHG production per kilogram of meat and milk.
Do we want to curb farming here, thereby encouraging some less-efficient producer to increase production, thus damaging the climate to a larger degree?
If a methane tax reduces sheep and beef farms by 20% the effect will be massive as odds-on those farms that go out of business will be on the less-productive hill country. That country breeds animals for fattening so without those farms the entire system is screwed.
Then there’s the hypocrisy of the debate.
Politicians and the media are happy to berate the agriculture industry but completely ignore, for example, the Tiwai Point smelter that uses 13% of our hydroelectricity, has a considerable GHG footprint and pollutes.
Global aluminium production produces 0.8% of total GHGs – and that is considerably more than NZ does.
The smelter also has two major effects. First, it increases the price of electricity to all New Zealanders, which is important with our current cost of living crisis. Second, it makes us import coal to generate the power used by the smelter.
We use 2.5 million tonnes of coal a year, of which 1.8 million is imported. As the burning of 1t of coal generates almost 3t of GHGs, that increases our emissions just from burning coal to 7.5 million tonnes. That’s equal to the emissions from 341,000 beef cattle.
It gets worse, with Tourism Minister Stuart Nash boasting we are going to have 500,000 tourists over just two months.
Flying, which is exempt from any form of carbon tax, is equal to 2% of all global GHG emissions. International tourism accounts for about 8% of global emissions – many times the .085% of NZ agriculture – but we’re encouraging tourism while trying to tax food production.
What annoys me is that we don’t have politicians wanting to ban, limit or even tax flying. They’d sooner tax food production, which is farcical. That’s especially true when considering that eating meat two to three times a week has less of an impact on the environment than a person flying from Christchurch to Auckland.
The final act in our current stupidity is our welcoming of cruise ships to NZ. We’re told that there will be 50 coming to Auckland over the summer break. Cruise ships are the arch polluters and we’re welcoming them – not to mention the caustic cauldron of covid that they brew plus the huge biosecurity threat they pose.
We’re told cruise ships have a carbon footprint equal to 15,000 cars. That means 50 will have the same effect as 750,000 cars. As our car ownership is 767 light vehicles per 1000 people, our cruise ship pollution is a little more than that caused by cars over a population base roughly equal to that of the South Island.
The numbers are increasing: back in 2010 we had 100,000 tourists visit on cruise ships. In the 2018/19 year that number was 347,000, so the pollution is increasing, not that any politician, bureaucrat or environmental group seems remotely interested.
Further, according to Friends of the Earth, cruise ships harm everything they come into contact with. We’re told that includes “air and water quality, fragile habitats, coastal communities and wildlife”.
If agriculture did that we’d be pilloried, yet cruise ships are given a get-out-of-jail-free card and welcomed to our shores.
In addition, as many are flagged in Iberia or Panama, they can basically do what they like.
Internationally it’s just as bad, with the United Nations flying youth to an international conference in Geneva and we had the massive environmental impact of the recent COP conference in Egypt, which no-one seemed concerned about.
Finally, we’re told King Charles wants a big, traditional coronation.
In my opinion there’s absolutely no point in him speaking up about the threat of climate change and then having a celebration with a cast of thousands, many flying in business class or on private jets, all with a massive carbon footprint.
I also have difficulty accepting the guilt dumped on food-producing farmers by organisations like the Greens and Greenpeace when they’re quite happy to ignore the real problems.
So effectively what we’re saying in NZ is that we want to reduce food production during a food crisis while supporting the shareholders of wealthy Australian multinationals, wealthy tourists and outdated pomp and ceremony.
That’s not a good look internationally.
GOLD RUSH: How can King Charles speak out about climate change and then plan a coronation with a cast of thousands and a massive carbon footprint, asks Alan Emerson.
Logging debris only adds to pile of woe
From the ridge
LAST week I ruminated on the effect that the Tongan volcanic eruption may have had on our weather and climate, and the record rainfall many of us have experienced.
Of course, there are many other influences. The unprecedented run of three years of La Niñas in a row certainly has had an effect.
After that huge El Niño in 1982/83 that blew the water out of the dams for eight months and a nasty drought, we concluded that El Niño bad, La Niña good.
That hasn’t turned out to be the case. Seems every third or so El Niño can be a very wet one and La Niñas can certainly bring droughts as in the two-in-a-row a couple of years ago.
This ongoing La Niña was expected to be waning by now but has made a comeback and is continuing to cause flooding events for Queensland and eastern New South Wales. And possibly here as well.
And then there are other weather events that can bring turmoil and devastation. Such as cyclones.
The first cyclone of the season to make an unwelcome visit to our shores was Cyclone Hale a couple of weeks ago.
By the time it reached us, it was labelled an ex-tropical cyclone, but it has caused a great deal of damage and suffering to many people.
A substantial amount of rainfall within a day or so has caused widespread flooding, particularly in Gisborne, Coromandel, some areas here in Hawkes Bay, Taraua and Wairarapa.
But what has once again been highlighted is the destruction that has been wrought by the enormous amount of forestry slash that has been washed down the upper reaches of creeks and rivers onto other people’s properties, taking out fences, bridges, roading and homes.
For some, this is not the first time, and it is soul destroying after having cleaned up and rebuilt from previous events.
Pictures of the coastline once again littered with forestry slash and trees from other sources show that this can’t be allowed to continue happening.
Areas such as Hawkes Bay, Tararua and Wairarapa are looking at their own future problems given the copious amounts of coastal plantings for production forestry and carbon.
At the time of writing there is another event developing; on top of Hale’s destruction it will cause ongoing difficulties. And of course, there will be more cyclones and weather events in the future.
This problem of slash entering waterways and destroying other people’s properties needs to be addressed now.
If those images of logs on Tairāwhiti beaches were instead in
OCR rise means costlier debt for a while
Straight talking
Cameron Bagrie
Managing director of Bagrie Economics and a shareholder and director of Chaperon
WHERE is the neutral Official Cash Rate?
The neutral OCR is where the Reserve Bank has the foot on neither the accelerator nor the brake.
It is an important number. It is where the OCR should sit on average to achieve stable inflation and helps define an average level for borrowing rates.
It also helps define the stance of monetary policy and the degree to which they are tapping the brake or have the foot on the accelerator.
It is also unobservable. We do not know what the number is.
There is some evidence it is now rising. If this is the case, borrowing rates will sit higher across the economic cycle in a sustained fashion, not just temporarily higher because the Reserve Bank is fighting inflation.
According to the Reserve Bank, the neutral OCR has trended down over several decades.
Back in 2000, the neutral OCR was estimated to be around 5%. By 2019 it had fallen to 2%. Other countries saw similar shifts. Interest rates did not need to be as high to achieve inflation objectives.
A fall in the neutral OCR helped shift longer term interest rates (think of a 10-year bond yield) and borrowing interest rates lower and lower over time. Falling bond yields saw investors chasing yield, which drove up asset prices.
Why?
A lot of global research notes that estimates of global neutral interest rates have been declining since the 1980s.
The Reserve Bank pointed to a range of factors in its November Monetary Policy Statement, including “demographic change, lower productivity growth, and changes in consumers’, businesses’, and governments’ attitudes towards savings and investment”.
We had a global surplus of capital and abundant saving. Think of it as a global savings glut.
Declining inflation expectations over a long period also played a role. The neutral OCR did not need to be as high.
Many investors are waiting for interest rate hikes to be followed by cuts as central banks return interest rates to a more neutral setting in years to come.
Some argue that secular stagnation or a sustained period of persistently slower growth is here. That argues for continued low neutral interest rates and actual interest rates returning lower after the battle against inflation.
Some say the neutral interest rates will rise if productivity growth increases. They point to the need for investment and note that the full benefits of technologies such as artificial intelligence hasn’t yet appeared.
With inflation elevated and well above 2%, it seems inconceivable the neutral OCR in New Zealand or other countries could be 2% percent. The real or inflationadjusted OCR would be hugely negative!
Covid-19 and the war in Ukraine are large structural shifts that could shift the global economy in many ways. The era of globalisation is being replaced by nationalism. Climate change adds to costs and inflation. Will governments rein in spending?
The era of low and declining inflation is being replaced by a huge battle to contain it.
The Reserve Bank is flagging shifts.
The neutral OCR can be expressed in nominal or real (inflation adjusted) terms and expressed in the long run or short run.
They give different answers. Long-run estimates using the inflation target of 2% say not much has changed; the neutral OCR is still 2%. Conversely, short-run measures using nearterm inflation expectations suggest the neutral OCR is a lot higher than 2%.
A combination of the two (the Reserve Bank call this a forecast horizon neutral OCR) has risen from 2.1% to 2.9% with a confidence bound around those numbers. That is a big shift.
The bottom line is that actual borrowing rates fell over time in part because neutral interest rates declined. They declined to levels that implied the real or inflation-adjusted level was basically zero (2% OCR less 2% inflation).
Among all the economic wizardry to justify lower rates than we have seen for the past two decades, maybe we just got lucky on the inflation front and that defined where the likes of the neutral OCR ended up. Our luck on the inflation front has now run out.
Our luck on the inflation front has now run out. We face a battle to contain it, and I expect to see estimates of neutral interest rates rise. That will define the degree to which interest rate hikes can be followed by cuts.
HARBINGER: Do not just watch the actual OCR, think about it where it might need to sit on average to contain inflation, writes Cameron Bagrie. Factors that define average borrowing costs such as neutral interest rates are rising and suggest borrowing rates will sit higher in a sustained fashion, not just temporarily higher because the Reserve Bank is fighting inflation.
Continued from previous page
Auckland or Wellington harbours, one might expect a prompter response from the legislators and regulators.
Our farming business is only a small one, but we carry $2 million of public liability in case a fire I light ends up burning down a neighbour’s forest or I might cause some other negative impact to someone else.
Surely the forestry companies or whoever has been involved in these harvests that have contributed the slash must have their own public liability which can be called upon to remedy this damage and make sure it doesn’t happen again?
I see Forestry Minister Stuart Nash says an inquiry isn’t needed, rather forestry companies must sit down with key stakeholders and accept that there is an issue and that they need to work together to produce solutions.
He is taking some flak for this approach, but he may be right as these commissions of inquiry can take forever and may just end up kicking the can down the road. It is clear what is happening and why, so if everyone agrees on this then it would be better to quickly move to how to prevent this happening in the future. And how to help those affected.
This of course is of little help to those farmers and householders who are battling with the impacts of this recent event, but it needs to start now.
Forestry will always have a place in this part of the world but the scale that is developing due to the carbon influence is reducing biodiversity, increasing the risk of landslides and debris and of course the big worry, widespread fires.
Those of you affected by this recent event are in our thoughts and hopefully the assistance offered helps to some extent to get things back to some sort of order.
