Trade Negotiations Minister Jim Sutton distributed 2 kilograms of chocolate to diplomats at a function in Wellington today to demonstrate the barriers on many New Zealand agricultural exports.

The United States imposes a quota on New Zealand chocolate, only one kilogram of low-fat chocolate and one kilogram of "normal" chocolate is able to be exported to the United States each year.

Mr Sutton told the Diplomatic Club, a group of diplomats based in Wellington that access to markets was a key part of agricultural sector negotiations taking place in Geneva now.

He said that while complaints about the "big three" products barred access: dairy, rice, and sugar were well-known, there were many other products that faced similar problems. For New Zealand, these included chocolate in the United States, sliced deer velvet into South Korea, and pastries into Japan.

"Taken individually, the impact of these barriers may be small. But collectively, the thousands of such examples have a real impact on New Zealand and on other countries."

Mr Sutton said New Zealand was not being ideological about trade access, nor were we seeking to ruin the environment or hinder rural development.

"Non-trade objectives such as these are not in question. It is the instruments used to pursue them that need to be looked at."

Ends

Jim Sutton Speech Notes 29 November 2000

Agriculture and New Zealand's future trade prospects Diplomatic Club, Wellington

Good afternoon, ladies and gentlemen.

As I was thinking about what I would talk to you about today, I was reflecting on the images that foreigners - and you as foreign representatives - might have about New Zealand. I came up with things like:

- woollen jumpers - Anchor butter and cheddar cheese - kiwis and of course kiwifruit - white sheep and lambs running around paddocks - mountains, crystal clear mountain lakes and other beautiful scenery - the All Blacks - big, crisp apples - wine - and, after the Americas Cup, sailing.

The strong agricultural theme in these images should come as no surprise to me as Minister of Agriculture. There are, I think, three key contributing factors.

The first factor will come as no surprise, as anyone can see it from basic statistics about New Zealand. The importance of the agricultural sector to the New Zealand economy. Agriculture represents 16% of GNP. More than 120 thousand people in New Zealand are directly employed in the sector - and many thousands more jobs are generated by down-stream activities.

The second factor is pretty obvious too. New Zealand agricultural exports. More than half of New Zealand's goods exports are agricultural products. And they are exported in large quantities to all corners of the globe. There are millions of people whose image of New Zealand comes from eating our lamb, or our apples, or our butter.

The quality and reputation of this food contributes to New Zealand's image. A fruit trader in a market just around the corner from the New Zealand Embassy in Beijing knows this. He managed to get his hands on a pile of New Zealand kiwifruit stickers. And he put one on every piece of fruit in his stall - on the bananas, the apples, the oranges. That entrepreneur knows the value of the New Zealand brand.

The third factor is less tangible. It is this: agriculture is an integral part of New Zealand. Consciously and subconsciously, it is part of what makes New Zealanders New Zealanders. Take our TV ads. You will probably all have seen Toyota's "bugger" ads. An agricultural theme to sell cars. Because farming experiences are part of New Zealand. And where else in the world do advertisements for sheep vaccinations screen during prime time TV?

And then there is the sense of pride New Zealanders have in finding that the lamb being served in a Belgian restaurant is New Zealand. Or that the apples in the local market in Malaysia are from New Zealand. Or finding a bottle of New Zealand wine in a shop in a small country town in England. Or seeing our sturdy apple cartons being used to ferry supplies in Venice, or Nepal or Taipei.

These three factors - the importance of agriculture in our economy and to our livelihood, to agricultural exports and agriculture's part in our culture - are major reasons for the prominence of agricultural themes in foreigners' images of New Zealand.

But these factors are more than that. They are the drivers for New Zealand's agricultural policy and for our approach to international agricultural trade issues. For that reason, I urge you, as the representatives of your Governments here in New Zealand, to get out and around New Zealand and experience and learn about these factors for yourselves. Visit farms. Talk to farmers. Talk to agribusinesses. Talk to researchers. Look at what is happening in our agricultural sector.

Doing this will give you a real understanding of New Zealand and the perspectives we bring to bear internationally.

You will understand that New Zealand politicians and trade negotiators, in seeking a better deal for agricultural trade, are not pursuing some kind of unrealistic policy, driven by ideology. Rather, we are pursuing the real needs of the New Zealand agricultural sector - and the New Zealand economy as a whole.

When you hear me tell New Zealand farmers that one of my top priorities is to deliver them meaningful liberalisation in the WTO agriculture negotiations, you will understand why. Those negotiations offer real opportunities for New Zealand and world agriculture.

The complete elimination of export subsidies is a prime example. This is a goal that is shared by a majority of WTO Members. And for good reason. Put simply: export subsidies depress world prices and reduce farmers' incomes.

Take the current world price for skim milk powder - it's around US$2,200 a tonne. A year or so ago it was only US$1,200 a tonne. The existing constraints on dairy export subsidies are a major contributing factor to the current improved prices. New Zealand exports 170,000 tonnes of skim milk powder a year. So the higher skim milk powder prices, which are largely the result of decreased export subsidy usage, are putting an extra US$170 million in the pockets of New Zealand farmers.

For whole milk powder, the same calculation shows that an extra US$280 million can be returned to New Zealand dairy farmers.

Imagine how much higher farmers' incomes would be worldwide if all export subsidies on all products were actually eliminated! No wonder so many WTO Members seek this outcome.

Access to markets is a key issue in the negotiations. Currently tariff quotas and high tariffs are denying effective access to too many markets. You are probably familiar with the "big three" complaints in this area - dairy, rice and sugar. But the same sorts of barriers exist for most food products.

Take chocolate. New Zealand is only allowed to export 2 kilogrammes of chocolate to the US. No that is not a typing mistake. Two kilogrammes. After that 2 kilogrammes restrictive tariffs kick in. New Zealand's export profile suggests there is potential to produce more chocolate for export to the US. But market access restrictions there mean that we never have the opportunity to explore this potential.

Deer velvet exports to Korea is another example of constraint. New Zealand suppliers are having great difficulty convincing Korean authorities to allow sliced deer velvets imports.

And a third example - pastries. New Zealand manufacturers have identified good opportunities for the export of pastries to Japan. But the tariffs in place there make it difficult to remain competitive in that market.

I have used these examples to illustrate how barriers in our export markets are hurting small New Zealand exporters. Taken individually, their impact may be small. But collectively the thousands of such examples have a real impact on New Zealand - and on other countries. New Zealand is a small country with lots of small and medium sized enterprises. These enterprises need access to foreign markets. I am sure as you travel around the country talking to people you will come across many more examples of problems. New Zealand will be pursuing their interests in the negotiations, as well as those of our major agricultural exports.

Trade-distorting subsidies are another area for the negotiations. The distortions created by these subsidies stimulate overproduction, and depress prices. It's rather depressing to read the latest annual OECD study on agricultural policies which concludes that support to agriculture in the developed world has now returned to the levels of a decade ago. A total of US$361 billion was paid in support to OECD farmers - enough to pay for each of the OECD's 41 million dairy cows to fly first class around the world one and a half times! Yes, First Class! The mind boggles.

Despite the Uruguay Round, the OECD's airborne cows have not been grounded, nor need they curtail their travel plans. This time round we would like to kick them off the planes altogether. Even some downgrading of those fares - perhaps to 'cattle-class' ? would help.

A further word on subsidies. When 50% of a farmer's income comes from Government subsidies, 50% of his or her effort is likely to go into "earning" those subsidies. The effort goes into filling in forms, meeting government-imposed bureaucratic criteria, keeping on top of the rules. That leaves only 50% of the effort for farming. In New Zealand when government subsidisation was removed, we found that farmers reverted to putting 100% effort into their farming activities. 100% devoted to what farmers do best - farming. The percentage contribution of agriculture to our GNP increased significantly, even as the cost to the taxpayer declined.

No wonder New Zealand is an efficient agricultural producer. No wonder innovation thrives in the sector. Farmers are milking cows, instead of milking subsidies.

Agriculture is a business. It is a key driver of innovation and the knowledge economy. It is no accident that refrigerated shipping was developed for New Zealand exports. Or that a New Zealand scientist perfected techniques for extracting and storing bull semen. Or that processes for chilling meat originated here. Or that New Zealand developed gold kiwifruit and many of the world's popular apple varieties.

This innovation in agriculture is never-ending and keeps New Zealand at the cutting edge: the recent examples are endless. The development of spreadable butter, and the development of infant milk formula from goats milk - particularly beneficial for lactose intolerant children.

So, to summarise, New Zealand's key objectives for the agriculture negotiations can be easily described: eliminate export subsidies; substantial increases in meaningful market access; major reductions in domestic subsidies.

I should stress that, in pursuing our objectives in the negotiations, New Zealand is not seeking to ruin family farms in Europe, the United States or anywhere else. In New Zealand too, farming is a family business. New Zealand is not seeking to ruin the environment or to ignore the needs of the environment. We too value the environment. We want our farming practices to be environmentally friendly. We are not seeking to hinder rural development. We too are concerned with rural development. Indeed one of my titles is Minister for Rural Affairs - a new portfolio.

Non-trade objectives such as these are not in question. It is the instruments used to pursue them that we need to look at. "First-best" approaches are most appropriate: programmes which are transparent and targeted to the specific policy objectives, programmes which are decoupled from production and do not distort trade. There is ample scope within the provisions of the Agreement on Agriculture - specifically the so-called greenbox - to develop policies which address these objectives.

Distorted trade prevents developing countries from meeting their economic needs. It prevents them from meeting the development needs of their people. It prevents them from feeding their children.

I have spoken of the way protection hurts New Zealand. It hurts developing countries even more. It is oft said that if you give a person a fish, you feed him for a day. But if you teach him to fish, you feed him for a lifetime. The same applies to agricultural trade. Countries' dependence on aid donations for food can only be a stop-gap measure. Economic development comes through access to markets for their products. Developing countries need opportunities.

Research by the International Bank for Reconstruction and Development has shown that agricultural liberalisation by industrial countries could yield annual global benefits worth nearly US$43 billion - enough to wipe out developing country debt!

It is for that reason too that New Zealand is determined to see that developing countries get a good deal out of the agriculture negotiations. As the Cairns Group negotiating proposals, tabled in Geneva, show, special and differential treatment for developing countries is an integral part of the negotiations. Concrete measures, which assist in their development needs, will need to be implemented.

And while I am mentioning developing countries, I must also make reference to New Zealand initiative, announced by the Prime Minister at APEC, to remove all tariffs on all products from least developed countries. This move is New Zealand's small contribution towards building support from least developed countries for a new WTO Round. The Prime Minister has called on others to do the same. I would urge you to convey that message back to your capitals.

So how are the agriculture negotiations coming along? I give the negotiators a B for their work so far. They have been quick to take up the challenge of tabling negotiating proposals. This has helped to develop a useful degree of momentum through the early part of the negotiations. But there has been little substantive engagement on key issues. The pace needs to be picked up and picked up quickly - or the negotiators will be getting an F from me this time next year.

I gave some images of New Zealand at the outset. Those images, I think, are accurate. But how do they stack up in the new global economy? In a world economy in which distances are covered quickly, communication is instant, information essential. A world with 'buzz words' such as the knowledge economy and electronic commerce. A world with new challenges, such as those created by biotechnology.

I think New Zealand agriculture will meet those challenges well. It is a dynamic and exciting industry. It will continue to underpin New Zealand's future export earnings and already leads our knowledge economy. Farmers and orchardists have long paid for research and development in their sectors. And are quick to take up new advances in technology.

There is little that happens in the international market place that does not impact on us. This is why New Zealand is a firm believer in the WTO and in the progressive trade liberalisation that makes it work. This is why New Zealand believes that a broader-based WTO Round needs to take place - and that this should be agreed next year.

As well as multilateral negotiations though, New Zealand is participating in "closer economic partnerships" - CEPs - the term we in here in New Zealand have coined to refer to reciprocal trade deals between two countries or a group of countries. With the conclusion of the CEP with Singapore, we are now entering into exploratory discussions with Hong Kong. Other countries may follow.

And to conclude, a word on the image of New Zealand I would like you to leave this discussion with.

The image of an active, vibrant New Zealand. The image of a New Zealand in which agriculture plays and will continue to play a key role. The image of New Zealand as a dynamic economy, adapting to the challenges of globalisation. The image of a New Zealand which is pursuing international trade interests that are the result of the needs of its people and which will pursue these interests through every means available to it.

And, I would like to think, the image of New Zealand freely trading its high quality, delicious food products on the international market. That last image, I'm afraid, is still some way off. You can't buy much New Zealand unsalted butter in Europe, nor much of our beef. You can't eat our apples in Australia. And our kiwifruit is rare in the United States, as is the chocolate you're eating now. That needs to change.

Office of Hon Jim Sutton

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