New Zealand agriculture: one step forward, two steps back?
Released 30 Sep 2009
Speech by Philip York, Federated Farmers economics and commerce spokesperson, to the United Kingdom Livestock Board of National Farmers’ Union
I am honoured to have this opportunity to speak to the National Farmers' Union and address issues and opportunities common to British and New Zealand farmers. If anything, we have been a little guilty of viewing everything as a threat rather than seeing the opportunities some of the changes may bring.
I wish in this speech, to focus on climate change that has farmers around the world looking at the guinea pig that is New Zealand - the only country on earth to put farming into a legislated emissions trading framework.
In the short to medium term, British and European farmers have nothing to fear from emissions policies.
Yet they should be petrified in the longer term.
While agricultural subsidies and tariff barriers exist, you will be insulated from the full effect of any policy shift on emissions from animals or horticultural practice.
New Zealand provides the lesson and timeline.
One day it will dawn on governments that subsidies are unaffordable and that farmers make up a very small percentage of the population.
Let me give you a brief history lesson to illustrate what I mean. Back in 1988, not long after subsidies were removed and the kiwi agricultural system was in turmoil, former New Zealand Prime Minister, the late David Lange, said:
"Farming is a sunset industry and manufacturing and tourism will take its place."
In 1990, despite agriculture's rebound from subsidies being worked out of the agricultural system, Harvard Professor, Michael Porter, was brought in to analyse New Zealand's economy. This was to find that elusive ‘competitive advantage' that would transform the New Zealand economy from agrarian backwater into an economic superstar:
"New Zealand exports in a range of structurally unattractive and therefore, low profit industries."
On a personal level, Porter's observation about diversification reminds me of Karl Marx's Communist Manifesto. Both Lange and Porter believed agriculture to be some interim step on the long march to a progressive, dynamic ‘something else'.
Like communism, such notions are theoretical. Russia and China were feudal societies that skipped the vital capitalism stage, jumping straight into communism. Lenin simply reworked Marxism into ‘Leninism' to overcome an inconveniently major theoretical flaw.
Apply that to economic development and you find a host of experts determined to direct where investment and direction should head. In 2007, a leading New Zealand economic commentator compared New Zealand unfavourably to Ireland:
"New Zealand and Ireland have a great deal in common. They both have 4.2 million inhabitants, traditional agriculture bases and are two small island countries with large and dominant neighbours. These characteristics benefited New Zealand in the past but are now perceived as economic disadvantages, whereas the Irish economy has been transformed into the Celtic Tiger."
He wasn't alone, as politicians, experts and lecturers all looked at the tiger economies as some magic template to bring about ‘Porterism' and that dynamic ‘something else'.
What that ‘something else' was meant to be is where the theories all collapse. But here are some figures about New Zealand's economic backbone.
- In 1999, agricultural exports (excluding fisheries) generated $13.1 billion in export revenue (60 percent of all exports)
- In 2008, agricultural exports (excluding fisheries) generated $23.4 billion in revenue (61 percent of all exports)
One could only imagine the discomfiture of these experts when they read in The Guardian in February that:
"Seven billion euros were injected into two of Ireland's major banks yesterday as part of a desperate plan not only to rescue the country's financial institutions, but also to save the republic's entire economy."
Perhaps Mark Twain would have commented:
"The rumours of agriculture's death have been greatly exaggerated in New Zealand."
New Zealand is a trading nation. We export or we die. This explains our obsession with countering subsidies, tariffs and other barriers to trade.
In 1985, our farmers were lauded, largely outside of New Zealand, as being an example to the rest of the world. Within New Zealand, farmers were tarred as ‘bleaters' and the fact we had coped with the most rapid re-adjustment in agri-economic history barely featured.
New Zealand in the 1980s became the first country to drop subsidies and the world's media told us our example would shine, beacon-like, for the rest of the world to follow. The New Zealand media was far less forthcoming then and now.
Yet here we are, 24 years later and kiwi farmers are still waiting for the agricultural equivalent of the Berlin wall to fall.
If anything, the subsidy wall is being thickened, not thinned.
Just several weeks ago the Financial Times reported that on average, a G20 member of the leading economies has broken the no-protectionism pledge once every three days.
Both the World Trade Organisation and Global Trade Alert said the G20 governments continue to implement restrictions on trade despite promising the opposite last November at the start of the global economic meltdown.
I don't have to remind you that in 1930, the United States enacted the Smoot Hawley Tariff Act, which turned a crash in equities into a global depression. This Act was emulated from London to Wellington like a train wreck in slow motion.
Yet the 1930s haunts us even today as ‘food security' is a primary reason given in the defence of subsidies.
Agriculture should not be an extension of the Department for Work and Pensions, or our version called Work & Income New Zealand.
Farmers should farm because it is a profitable business. Farming as a business incentivises excellence, innovation and hard work. We know from bitter experience that subsidies drive bad practices and those images of angry Belgium farmers illustrate the perverseness of farmers farming for subsidy, rather than output.
So I have good news for you in the short term that heralds less good news for the competitiveness of New Zealand agriculture.
Given you have subsidies and tariffs, your agricultural system will be protected from climate change policies until an economic tipping point is reached. There is no way the European Union will subsidise agricultural production on one hand, just to put its farmers to the climate change sword on the other.
Even if there was a move to enrol European farmers in the short term at least, it will emerge as another element for subsidy.
Yet there will be a day of reckoning as urban Europeans become disenchanted with the real cost of the CAP and a perceived environmental cost that subsidies bring.
New Zealand, again, provides the lesson and a warning.
You would think that the New Zealand Government would be alert to agriculture's importance to the economy, given it generates 64 percent of all exports.
You would think the New Zealand Government would trumpet our agricultural efficiency and capacity to feed one percent of the entire world or four percent of the developed world off just 0.1 percent of emissions; that's an efficiency ratio of 10:1 and 40:1 respectively.
You would think the New Zealand Government would be alert to the unwillingness of other countries to respond to agricultural emissions as justification to back pedal.
You would basically think the New Zealand Government would act in the best interests of kiwi farmers in order to serve the wider economy.
Yet successive governments have turned their back on New Zealand agriculture, as that potted history before illustrates. Their eyes turned, magpie-like, to new shiny exciting industries. That elusive ‘something else'.
A story from post-revolutionary Russia helps explain the frustration of New Zealand farmers over the lack of movement on subsidies and why we feel deeply concerned that we will be left in the vanguard of change, yet again:
On the gates of Moscow, stood a man resplendent in uniform.
Day-in, day-out. In snow, sun and rain. This uniformed man stood to attention, his gaze fixed firmly to the west.
After many years, a regular passer-by finally stopped and asked the man, what exactly his job was.
‘I am the look-out for the world communist revolution', he boasted proudly.
‘Oh', replied the passer-by, ‘it's a job for life then!'
We see a farm lobby on the continent pulling at the heart strings of food security that has an echo in both Japan and the United States. There is just no way agriculture in the UK or Europe will be enrolled in an emissions trading scheme while you have these subsidies and trade barriers.
While you may interpret this as a reason to hold onto subsidies and protectionism, don't for one minute.
Countries are slowly waking up to the realism that CAP, DEIP, MILC and hundreds of other acronyms are simply unaffordable. Collectively, these cost countries some GBP120 billion each and every year.
Strategically, that day of reckoning is coming and unless you have your commercial ducks lined up, it will hit you like a tsunami.
The fact New Zealand is more urbanised than either Japan or the United States surprises many but the reality of it is this; farmers are just a small minority in any developed country and eventually cost and urban concerns will rip the carpet out from under your feet.
Those agricultural systems that have adapted, evolved and are prepared for that sudden shift will prosper. Those who haven't will implode.
This brings us back to climate change policy - something that will define New Zealand agriculture over the next decade and well beyond that.
Irrespective of whether you think the science is real or hokum, it is real in the minds of politicians, policymakers and large sections of the media. If you are a sceptic, you need to park it.
Every revolution eventually invites a counter revolution as the next generation of scientists question the orthodoxies of the last. That day is not today but probably two decades away.
The political reality overcomes any umbrage we may feel over the focus on New Zealand agriculture's ‘massive' 0.1 percent global emissions footprint.
It's your future too, for while subsidies will insulate you for the moment, the EU and UK national Government and those from India to Canada, are measuring agricultural emissions right now.
You don't measure what you intend to target, eventually.
Do we feel New Zealand has got the policy response right? No we don't.
Right now the technological cupboard is bare. Yes, there is better feed and pasture types in development. Yes, there are nitrogen inhibitors but these are a long way from commercial release.
The New Zealand Prime Minister's science advisor, Sir Peter Gluckman, conceded that any advance is still 10 to 15 years away.
Yet enrolment is on 1 January 2015 and not 2019 or 2024.
So what is New Zealand proposing with its revised scheme, designed to amend legislation already on the books? I should add that the amending bill was only introduced last Thursday, so this is very much a moving feast.
The revised emissions trading scheme moves towards the production or intensity-based approach Australia is looking to adopt. Allocations are relative to production rather than just based on 2005 levels using an industry average approach:
- All on-farm emissions will be enrolled into the New Zealand emissions trading scheme on 1 January, 2015.
- This is in line with Australia's proposed scheme, but the first attempt at legislation failed in the Australian senate last month. A second attempt is due around Christmas but Australian farmers are lobbying particularly hard. It's a case of ‘watch this space' but it would throw our scheme into turmoil if Australia watered down or removed agriculture.
- In the intervening period, all fuels, industrial gases and energy will enter the scheme next year on 1 July. This will increase the cost of major farm inputs such as fertiliser, electricity and diesel that will have a knock-on effect on New Zealand's price-competitiveness. What this effect will be exactly is unknown, as there is no benchmark by which to measure it.
- When farm emissions enter in 2015, ‘free allocation units' will abate by 1.3 percent per annum on a linear basis. This is a vast improvement over the 8 percent abatement the previous Labour-led Government had in its scheme.
There's another dimension and that is the GBP£18 billion in debt tied up in New Zealand agriculture - 16 percent of all private debt in New Zealand. This money has been lent on the basis of maximum agricultural productivity.
You can't stop a super tanker ‘on a dime' so you cannot suddenly turn around millions of years of ruminant evolution in just six years.
Given markets don't like surprises, an elongated approach enabling markets and science to work in parallel would be better over several decades. This enables one generation to exit, another to enter and the economics to settle around what becomes a new reality.
In the end, as I said earlier, the emissions trading scheme is driven by politics and not markets.
With the technological cupboard bare, the only way for New Zealand agriculture to meet its targets is to reduce production. That means less export revenue for New Zealand and a market opportunity for other producers.
Many of these producers are far less efficient than New Zealand. It's ironic that the Danish Government, in whose capital the Copenhagen Treaty is to be signed, used that same logic in rejecting a methane tax in March.
Why is it that the Danes, arguably the greenest country in Europe, get it, but studious little New Zealand doesn't?
The Danish decision calls into question the myopic obsession New Zealand has with its 0.1 percent of global emissions attributed to farmers. New Zealand seems driven by what we think others think of us, not what they actually do. Where's the global outlook? After all, New Zealand doesn't produce cars, aircraft in any numbers or LCD televisions because we would be no good at it. That same logic needs to apply to food.
Global agriculture accounts for 12 percent of emissions but would be less - far less - if it wasn't for subsidies and the protection of inefficient farmers.
From our perspective, all agricultural systems need to either be in a global emissions framework or all out. There's no room for a middle ground, as that just penalises those countries which focus on the production of food to reward those who don't. It becomes an efficiency trading scheme, not an emissions trading scheme.
This dimension seems to have escaped the politicians and policy makers, but if you wish to really dent global emissions, you must address that issue of subsidies and protectionism which, helicopter-like, retards agricultural efficiency and the reduction of emissions.
Look at it like this, between 1990 and 2007, New Zealand emissions grew by 24 percent.
In this time, agricultural emissions grew by 12 percent, but there was a 74 percent increase in transport and a whopping 120 percent growth in electricity related emissions.
Yet in the same period, agricultural productivity soared, accounting for almost two-thirds of all exports driving the entire economy,
If you put this all into perspective, is the 12 percent growth in emissions that terrible? I mean, it did grow, yes, but at a rate half that of New Zealand's entire emissions growth. Far from applause, we just get the ‘half of New Zealand emissions argument' rammed down our collective throat.
One can easily argue that kiwi farmers are already doing their bit for the world by being such efficient producers. One can further argue we are doing our bit for New Zealand by having an emissions growth which is only half that of the rest of the economy.
But does New Zealand need an emissions trading scheme to meet international commitments?
No it doesn't.
Instead, for instance, the Government could easily buy emissions units in the market place to corporatise the entire issue. That's the ‘NZ Inc' approach, for as Tom Wolfe wrote in The Right Stuff - ‘no bucks, no Buck Rogers' should in a New Zealand context be represented as ‘no export bucks, no brain surgeons'.
Yet the reality is that New Zealand has adopted an emissions scheme and it is only a matter of time before that occurs in Europe as well since the data is already being collected. That said, until the EU deals with subsidies, tariffs and protectionism, you will not face a New Zealand-style emissions trading scheme.
From our perspective, the only upside to all of this is the United States and India's backing of the New Zealand-led Global Alliance on agricultural greenhouse research. News of which came out of the United Nations leaders conference last week.
Federated Farmers has been pushing the current National Government and before that, Labour, for a major investment in research, science and technology.
The Federation would like to see all OECD countries commit 0.05 percent of GDP to low carbon research. This would raise some $88 million annually within New Zealand and $34 billion globally.
In the Global Alliance, it seems we have the backing of some large and powerful economies. In the New Zealand context, ruminant physiology is also something we know more than a thing or two about.
This opens up the prospect of excellent international collaborative research centres with the funding to undertake meaningful research. The ruminant centre, without a doubt, should be based in New Zealand, given the vast range of typography and temperature that acts as a microcosm for other agricultural systems.
The Global Alliance opens the door to an agricultural holy trinity - more production, with fewer inputs, generating less emissions.
That though, is for the future. In the here and now, it is madness to put New Zealand's farmers through the environmental hoops, when no means exists to reduce emissions aside from cutting production.
A Wall Street Journal editorial just this month put it best:
‘To the annals of global warming lunacy, add this gem from New Zealand: According to a parliamentary committee, kiwis should accept lower standards of living to protect the national image abroad.'
I just wish to finish by touching on another area of shared interest, namely animal identification and tracing via electronic identification or EID.
I note, with more than a degree of interest, the NFU's stance on EID given it closely accords with New Zealand. Except of course, EID in the UK relates to the inclusion of sheep but not goats, whereas the proposed National Animal Identification & Tracing scheme, or NAIT, in New Zealand, relates to deer and cattle, but not sheep, goats or pigs.
That said, the non-inclusion of sheep is thought to be a smoke and mirrors game, given it totally emasculates the biosecurity argument.
The fundamental issue for New Zealand farmers is this, if it doesn't add to food assurance over and above our current world-class New Zealand Food Safety Authority and doesn't generate more income for farmers and this country, then what really is the point of EID?
The current system has proved the ability to trace back to individual farms. No one has told me convincingly how you can trace all the animals in hamburger mince or a sausage!
The Australian Beef Association claims that between 20-30 percent of the data on the Australian National Livestock Identification System is wrong. That does not fill my Federation with joy and happiness.
The issue with EID, here and in New Zealand, is that it is being imposed rather than emerging from the market as sound business practice. The supermarkets and the food manufacturers crave supply chain assurance so long as they don't have to pay for it.
Seemingly, Government is on their side. Probably because it comes back to a future emissions scheme. You need to know where animals are and their profile before they can be taxed.
Yet, the really stupid thing with this debate is that the focus ought to be on productivity.
The Achilles heel of EID is its inability to show bottom line delivery on farm and that's common to the UK and in New Zealand.
EID risks a Maginot Line mentality.
It is not a magic solution. It will have errors and the fear is that so much faith will be placed in it, that vigilance will come a distant second. In other words, EID will provide a false sense of security.
Yet EID is part of a wider trend towards a veritable feast of consumer markers such as ‘food miles', ‘carbon' and ‘water'. I feel for the manufacturer who will find their products covered with a variety of consumer related markers that overloads, confuses and may actually contradict.
Yet they are here and a time will come when they will be bundled into one overarching framework. Maybe that's a role for our agricultural organisations to take charge rather than continually respond. Should we not be out there with our overarching framework covering sound farm management?
It's foolhardy to ignore the call from consumers for more information about how we grow their food and fibre. The internet age becomes a powerful tool to demystify farming and you will be amazed that, despite the bad press, the sniping and political criticism, most people trust farmers. We are consistently rated as one of the most trust-worthy occupations. Importantly, most people, at least in New Zealand, share our point of view. A poll of 1004 New Zealanders found only 29 percent backed the inclusion of agriculture in an emissions trading scheme if other countries don't follow suit.
The NFU and Federated Farmers should be aligned to talk up the great systems we have in our countries and improve those systems, rather than just throw the proverbial baby out with the bathwater. It's time to front-foot the big issues we have and bring in the wider public.
Everyone has a stake in what we do because when you strip everything away, everybody is a farmer.
For further comment please contact:
Federated Farmers economics and commerce spokesperson, Philip York, 027 290 5418
Federated Farmers President, Don Nicolson, 027 226 6331
