Saturday, March 30, 2024

Miserly forecasts no way forward for NZ

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Federated Farmers of NZ president Andrew Hoggard, takes a look at the government’s vision for primary industries and growth over the next 10 years.
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When I first read the government’s Fit for a Better World vision for the primary industries and its goal of an additional $44 billion for primary industries’ export revenue by 2030, I took this to mean a near doubling of 2019’s exports of $46bn.

I was way too optimistic.  

Subsequently, it was clarified that what was meant is a cumulative $44bn in additional export revenue over the whole 10-year period from the Ministry for Primary Industry’s baseline projection. Confused?  I will try to explain it.

MPI’s baseline projection assumes primary industry export revenue will grow from $46bn in 2019 to $57bn in 2030.  This is a projected 1.9% average annual compound growth rate, barely keeping up with the likely average rate of inflation. 

MPI’s baseline assumes the covid-19 global recession will mean zero growth in exports in 2020 and 2021 before growth resumes in 2022, followed by steady but relatively slow annual growth from 2023 to 2030.

Despite the Global Financial Crisis and its aftermath, and despite commodity price fluctuations and a generally strong exchange rate, New Zealand’s primary industries have enjoyed much faster growth rates in recent years. 

From 2009 to 2019 average annual export growth was 4.8%, with three of those years exceeding 10% growth.  MPI estimates that around half the decade’s growth in export revenue was due to volume growth for dairy, logs and beef, which it considers difficult to sustain in the coming decade.  

However, MPI does see potential for smaller but faster growing categories such as horticulture, infant formula and processed foods to keep growing strongly.

The Fit for a Better World ‘roadmap’ assumes that its interventions – which Federated Farmers mostly supports – would increase annual average growth from 1.9% to 3.4% compounded annually.  It projects that in 2030, primary industry exports will reach $67bn rather than the baseline $57bn, a $10bn difference for that year. 

So, what about the $44bn? This was calculated by taking the differences after subtracting each year’s baseline projected export revenue from each year’s roadmap projected export revenue and then adding them together. 

I will let the reader be the judge as to why this curious approach was taken to presenting the numbers.

So, what does all this mean for primary industry categories?  The table below lays this out. 

Fit for a Better World envisages only slightly higher than already sluggish baseline growth rates for dairy and meat and wool, and larger increases in growth rates over baseline for seafood, horticulture and forestry. These appear to be the favoured sectors and presumably those that will get the lion’s share of attention and funding from its Fit for a Better World initiatives.

While it is good to see strong growth for these sectors, NZ has lost billions in export revenue from international tourism and education which have dried up since covid-19 shut our borders. Even once our borders reopen it will take years for that lost revenue to recover. 

In the meantime, NZ cannot afford to consign its two biggest goods export sectors – dairy and meat and wool – to a future of miserly growth of the nature projected by MPI and barely improved in Fit for a Better World.

It is certainly hard to reconcile any significant aspirations for export growth with the headwinds of government policy, especially on climate change and freshwater, which are intended to limit, if not reduce production for much of the pastoral farming sector and to increase the costs of that production with no guarantee there will suddenly be a price bonanza to get increased export revenue.

If emissions prices are allowed to increase to $50 per tonne and beyond, as is likely under current climate change policy settings, it will be tough on all pastoral farming and could wipe out a lot of sheep and beef farms.

They will reduce agricultural production and export revenue. Farms will be replaced with plantation forests which might one day sometime in the future result in wood being harvested and forest products exported, but not at best for many years.

And that is before factoring in whether agricultural emissions will be priced at the farmgate, as signalled in the report. What will that do for thriving rural communities?

If any sustained acceleration in agricultural exports is to be achieved, we need to ensure as many of the winds as possible are tailwinds and that we minimise the headwinds.

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