Hon Dr Michael Cullen

Address To Hortresearch's Plant Breeding Group

Hawkes Bay Research Centre, Corner of Crosses Rd & St Georges Rd, Havelock North

Good morning.

I would like to thank Dr Mooney for inviting me to speak with you today here at the Hawkes Bay HortResearch Centre.

As a government we talk a lot about transforming New Zealand’s traditional economic base and becoming a knowledge economy.

This week government ministers and MPs are meeting with leading international bankers, scientists, economists and policy experts at the country's first conference dedicated to exploring the Knowledge Economy.

But here at Havelock North and at other Crown Research Institutes throughout the country, scientists and technicians have for years been practising what the rest of the country is now preaching.

You know that becoming a knowledge based society does not mean that we turn our back on our natural advantages or our traditional industries. On the contrary, transforming our economy means that we fully utilise the areas where we have a natural competitive advantage. Transforming our economy means adding value to our products by using the talents, skills and innovation of our people.

Your work is an excellent example of the knowledge based advances that are then applied to resource based industries.

I note it was here at this centre that researchers pioneered the controlled atmosphere storage which made it possible for New Zealand fruit to reach markets on the other side of the world in tip top condition.

And now the horticulture sector is the fourth largest contributor to our total exports with a total value of $1.9 billion. The new pipfruit and summerfruit varieties you have developed now demand price premiums across the world.

Economic transformation builds the new, more secure, higher earning base out of, not instead of, the old. New Zealand will never replace its resource base and nor should we try to.

Agriculture, the dairy industry, fishing, forestry, tourism and our successful wine industry are the backbone of our export sector. Gains in science and education complement these resource based industries.

As a nation and an attractive investment destination New Zealand has other advantages which we tend to take for granted: stable institutions of government, a functioning democracy, respect for human rights and attractive lifestyles.

But important though these advantages are, they are not enough to lift New Zealand back into the top half of the developed world. New Zealand, once a proud third in the developed world for living standards, now languishes in 26th position in the OECD.

I do not wish to down play what we, as a nation, have achieved so far in the new century.

- We are managing modest economic growth despite the slow down in the economies of our major trading partners.

- Our unemployment rate at 5.4 percent is at its lowest level in thirteen years.

- Our current account deficit is falling rapidly, driven by our strong exports and tourism receipts.

But we need to ensure more consistent economic performance at higher rates of growth than we have managed for the past decade. For too long New Zealand has been riding the commodity cycle - prospering when overseas prices for primary produce are high and slumping when they are not.

In the global market we have to compete with other countries who not only share our advantages but are much closer to large markets. These competitors have the twin advantages of economies of scale and deeper capital markets whereas we here in New Zealand must wrestle with the twin tyrannies of size and distance.

Our task then is to foster a climate of innovation which levers off both our natural long term advantages, and our talents and skills as people. We need the capacity to create new knowledge and to apply it to new and existing industries and primary production.

Strong economies develop by educating and up-skilling their people; by investing in science and research; by inventing and applying new technologies; constantly innovating; and being enterprising in everything they do.

We are reshaping the tertiary education sector to provide higher quality, less fragmentation, more collaboration, and more specialisation. And new funding is available for centres of research excellence.

We need to be able to turn our good ideas into good businesses. Your work is an example of the kind of successful marriage between R&D and commercial programmes that can lift our economic performance.

HortResearch holds important national skills in a wide range of plant science and biotechnology. Your wide-ranging research groups are vital to New Zealand's agricultural base.

You add value to our successful horticultural exports. Fruit bred and developed at this centre fetch prices between 50 and 100 percent more than standard fruit.

A trip to any supermarket shows the popularity of your work. On the market for only four years, the hugely successful Pacific Rose apple, to name just one, now has an estimated value of $3 million a year here in New Zealand.

We have significantly increased science and research funding - last year we provided the largest ever increase in Government support for private sector R&D, putting $11.8 million into a new grants scheme, plus an extra $8.5 million in the business assistance schemes already run by Technology New Zealand.

We have improved the tax treatment of research and development and we are investing $100 million over the next three years in New Zealand businesses developing technology and high value-added products and services through a new venture investment fund.

We need to spur more New Zealand businesses on to global success by increasing their access to international experts, networks, and market knowledge.

The Fund will help commercialise the innovations from Crown Research Institutes, Universities and the private sector for while New Zealanders are known around the globe for their innovative ideas; we have not been so smart at turning good ideas into good businesses.

We understand that funding for basic research underpins New Zealand's innovation system as a whole. VIF will improve the commercialisation of ideas, and continuing support for basic research will keep those ideas flowing.

The Science and Innovation Advisory Council, chaired by Rick Christie, this week released its national innovation strategy and action plan. We are now seeking feedback from across all sectors on the seven challenges identified in the report, called An Innovation Framework for New Zealand.

Those seven challenges outlined are:

- Reward 'can do', risk taking and success

- Educate for a knowledge economy

- Become a magnet nation for wealth

- Generate wealth from ideas and knowledge

- Excel globally

- Network, collaborate and cluster

- Take an investment approach to government.

The SIAC report set the goal of building within the next twelve months a national movement for revitalising our economy with the help of business, educators, local government and community leaders.

This is an exciting time for New Zealand. There is much public debate about how we can build a stronger economy.

And the scientific community has plenty to say about its role in the economic transformation.

Crown Research Institutes are key components in New Zealand's innovation system. They supply a substantial part of all R&D effort and they:

- contribute to international pools of scientific knowledge;

- help us to access, identify and import both people and useful ideas from overseas;

- are custodians of knowledge which is of national significance;

- hold stocks of what can be called 'knowledge in waiting;

- develop 'human capital' internally through their own research and through extensive contributions to tertiary teaching;

- and most importantly, they transform knowledge into new technologies and services.

New Zealand generates a very small portion of the world's new knowledge and new technologies and our firms are typically very small and isolated. We need to build their capacities to discover, absorb and transform knowledge, wherever it may come from.

New Zealand must expand our horizons and capabilities in advanced sectors such as biotechnology based on our historical primary industries, where we already have a natural advantage.

We need to push into the niche markets of high technology, short-run manufacturing, information technology and medical and health industries.

New Zealand must create the conditions that make other nations and entrepreneurs pick us as winners.

Last month I paid a visit to Ireland to see what sort of lessons their now booming economy might have for New Zealand.

Many commentators outside of Ireland claim that it is the low 10 percent corporate tax rate that lies at the core of its economic transformation.

This has certainly played a part in attracting substantial investment, especially from the United States, but for the Irish, tax policy is only a small part of a much bigger story.

Three core factors emerged as being crucial to Irish success:

The first was a very focused strategic approach to skills development. This began in the mid-1960s, but over the last twenty years successive Irish governments have built on the good level of general education by investing primarily in the skill areas deemed essential to economic success.

The second was an equally focused approach to investment attraction which has involved activities and companies with potential being targeted, rather than relying on an across the board or scattergun approach.

Both of these factors were enhanced in Ireland’s case by an ability to draw on a vast, talented, loyal and often wealthy Diaspora.

The third essential factor in Ireland's success was the building of strong partnership agreements between the government, the business and farming sectors, the trade unions and even the voluntary sector.

All of the government officials I met with emphasised the importance of building broad support for economic development.

This is good sense and good policy. Here too in New Zealand, a similar dialogue is taking place. I do not believe that the economy exists in one box and the rest of the society in another.

We must have highly effective government systems, health systems, social systems and environmental management systems. These are as much part of creating a knowledge society as business and commercial activity.

To this end, this week I released a report developed out of the Government's commitment to increase the wellbeing of New Zealanders by building a more inclusive and innovative economy.

When I took over the finance portfolio, I instructed the Treasury that this work should have high priority. Since then, a team of 10 officials has been working on it. They have delivered a suite of reports, drawing upon previous work within the Treasury and upon a burgeoning body of overseas literature.

The Inclusive Economy Report is high level. My intention was not to come down with hard recommendations but to provide a framework to policy-makers for measuring competing proposals and for assigning spending and resource priorities.

Finally, I would like to say just a few words about the Royal Commission on Genetic Modification.

As you know the major theme of the report is 'preserving opportunities' and it rejects the extreme views; both a New Zealand absolutely free of all genetically modified material and unrestricted use of genetic modification.

The report states that New Zealand would be unwise to turn its back on the opportunities of the 21st century if we wish to create greater prosperity.

This report is the most wide-ranging enquiry into genetic modification ever undertaken in any country.

It is comprehensive, thorough and large - running to four volumes.

So as far as food for thought goes, we have been presented with a veritable feast. You can expect its digestion to take some months.

Ends

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