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Craig Norgate Speech NZ Agritech

Speech by Craig Norgate

NZ Agritech / New Zealand Trade and Enterprise

Fieldays Export Breakfast

17 June 2004

Remaining competitive in agricultural exporting

New Zealand has a unique place in the world of agriculture, with strong natural advantages, a respected knowledge and science base, a reputation for quality products, and wide-ranging and effective trade networks. Nevertheless, we face a range of issues that we must overcome to maintain and enhance our position.

I’m here today to give my views on these issues and some suggestions as to how we might tackle them. I should say at this stage that I expect to talk for about 30 minutes, and I’ll be happy to take questions and discussion following that.

I should also say at the outset that I’ll be putting forward a broad view. Our focus might be specific to agriculture, but that shouldn’t preclude some peripheral vision. We are very much affected – to some extent, even governed – by issues and events that are not the least bit specific to agriculture. These will ultimately be very important to our competitiveness. They can be captured under the headings of economic policy, culture and attitudes to fundamentals such as growth and innovation.

I’ll come back to them a little later. Meanwhile, I want to take a short diversion into the international environment….

On the face of it, the world should be a reasonably friendly place for a trading nation like New Zealand to operate in.

Over the past generation the idea of democracy has taken hold in places where this might not have been predicted just a couple of decades ago. Globalisation is in the process of further breaking down political and economic barriers, and generally reducing the costs of doing business in the process.

In conjunction with this there is – perhaps most importantly – what seems to be an inexorable trend towards global trade liberalisation. Note that I said inexorable, not smooth or linear. The trade liberalisation process resembles a waltz – albeit perhaps on a minefield – rather than a 100-yard dash. I’ll return to this issue later.

Global economic growth has continued at a good clip over the past few years, albeit not at the headlong pace of the 1990s. Barring accident, the consensus appears to be for reasonable growth rates in the developed world including Japan and for continued progress in most developing nations

In political terms, there appear to be few barriers or perceptions that would impede our economic progress. I think it’s fair to say that we are regarded as a small, unthreatening democracy with sound and acceptable values, an independent outlook, regard for the environment, and respect for international treaties.

Against that, there are some very real issues facing the world we live in, and they have potentially severe consequences. One is the so-called ‘clash of the civilisations’ – a phrase that seems less exaggerated as time passes – manifesting itself in the form of wars and terrorism. Along with that, there is clearly a body of opinion that finds the growing US influence in global affairs unpalatable, and there is a prospect of election year politics in the US exacerbating that feeling as candidates posture for domestic support.

In the economic domain, the biggest issue is the rate of progress on opening up trade. The trend to liberalisation must benefit New Zealand – and the developing world – in time. The failure thus far of the Doha Development Round to achieve fundamental liberalisation of trade in agriculture has been a major disappointment, but there is a worldwide demand for action.

The absurdity of agricultural protectionism on its current scale is well understood. Developed countries pay their farmers US$350 billion a year in subsidies. That is seven times the amount they give to poor countries in aid, and more than the GDP of southern Africa. The US receives $200 million more in tariff income from imports from Indonesia than it does from imports from Britain, every year. Meanwhile, the World Trade Organisation estimates that simply halving agricultural subsidies would boost developing countries by $150 billion per year.

Hopefully, the momentum that seemed to exist earlier in the Doha round can be restored, but it has to be said that the US and Europe, in particular, remain apart on many important issues

In summary, it is clear that New Zealand is operating in an uncertain global environment, but that we still have great opportunities and prospects.

There has been a fair bit of anxiety about our near-term prospects – especially given the influence of lower commodity prices and the high New Zealand dollar. These are, of course, determined largely by the international realities, and of late the position has improved significantly.

But what should we be doing for the medium and longer terms? I want to look at this in two parts – firstly, the broader factors that I referred to earlier; and secondly, the need to build on what I’ve already characterised as the agriculture-specific advantages.

Among the broader factors are the issues of policy, culture and attitudes. Although these might not seem directly related to agriculture, I believe they’re fundamental to our view of ourselves and our place in the world – they permeate and influence every sector of our society and every significant undertaking. So agriculture needs to address these issues as much as every other sector.

In terms of policy, we should be anything but complacent. The 90s and early 2000s have been good to us, but we haven’t taken advantage of the good years to build the basis of future growth. We have drifted in the wrong direction in policy and regulation, inadequately addressed important issues such as infrastructure and innovation, institutionalised impediments to growth in the form of some of our environmental and planning law, and failed to address the needs of small business, which is the backbone of employment in our economy.

I think this highlights some key attitudinal issues – in particular, our attitudes to business, to growth and to innovation.

We need to craft policy that harnesses our propensity to produce efficiently, our capacity for innovation and our willingness to work. Tax is a case in point. The current approach doesn’t incentivise people – it almost seems designed to achieve the opposite.

One commentator illustrated this problem in an analysis of the redistribution policies outlined in the recent budget. This set out to show the financial outcome after the budget measures for two hypothetical one-income families with two parents and two young children – one family earning $38,000 gross and one earning $60,000 gross. After tax, ACC levies, family assistance and accommodation supplement, the current gap between the net incomes of the two families is just over $9,000 a year. By 2007, when the budget measures are fully in place, the gap in net income narrows to just over $2,000. Does that make sense to you?

Then there is a raft of non-economic policy – in areas like education and training. There isn’t time to dwell on them this morning, but they’re also critical. Some of our current education policies seem more designed to build the competitiveness of other countries than our own.

Not only do some policy stances need to change, but also business needs to lift its game. We should know by now that the old approach of sitting on the bench while policy develops, running on to the field in the last 10 minutes, losing the game and then blaming the referee is not a winner. It is not the fault of the government if we don’t get the policies we prefer.

To further the rugby analogy, there is no point in simply arguing with the referee –we need to influence the hearts and minds of the other players and the spectators. We in business need to be more persuasive and compelling in advocating the policy positions we know will be of benefit. We need to understand the gap between our perceptions of the role and importance of business and the community’s perceptions, and we need to work on closing that gap. Thus far, we have not mobilised to address negative attitudes in the media, in education and other fields; or the indifference in government.

More broadly, there is evidence that New Zealanders accept that economic growth is important, but are deeply suspicious of the concept, and of its potential consequences. Is it any wonder, then, that we pay lip service to the need for growth and meanwhile fail to advance it? I don’t know of any serious economist who is suggesting that we are set up to achieve the 4 percent growth target often talked about.

The Government’s Growth & Innovation Board, of which I’m a member, carried out a major research project that identified the shifts required in perception for New Zealand to move to a growth and innovation culture.

Essentially, it found that New Zealanders have a ‘big picture’ in which economics is intertwined with lifestyle and other considerations, rather than being a prime motivator. The research team concluded that to make the idea of growth one that New Zealanders find motivating we need to relate it to this picture. I’ll take just three key strands to illustrate how such a shift might be effected:

Move from a concept of vision that is solely about the future, to one that includes an additional proposition about New Zealand in the here and now – one that reflects our place in the world.

Move from a concept of growth based on a narrow economic definition to one that includes quality of life and environment and is more closely identifiable with New Zealanders’ core values, and

Move from an attitude that innovation is something that other people do to one that individuals feel they can participate in, contribute to and benefit from.

Perhaps you will see a framework of this kind as slightly soft – a social sciences response to a bunch of hard economic and policy issues. Of course we must tackle the hard issues head-on through debate, through proposing alternatives and occasionally through digging our heels in. But we also have to influence at the level of ideas and even emotions – we simply will not win the battle for hearts and minds by focusing on facts and figures alone, and we will not win the battle for policy without winning the battle for hearts and minds.

Outside our borders, we need to make sure that our trade and commercial networks deliver to us. Not many countries would have a superior combination of international goodwill, trading history and personal and corporate networks and relationships. They’ve stood us in good stead over a very long period. If they’re going to continue to do so, we need to take a very strategic view, and invest accordingly.

I believe we need to ‘up the ante’ – to elevate the issue of the way New Zealand connects to the rest of the world so that it is debated, discussed and dissected in a positive and forward-looking way.

Perhaps the biggest issue here is the way we relate to the economic powerhouses of the world – the United States and China in particular, and in our own region, Australia.

I have long been an advocate of broadening our relationship with the US, including the negotiation of a free trade agreement between our countries. The economic impact is an obvious prize, and also the spinoff social benefits – in education, science, health… you name it – would be tangible.

I think it’s fair to say that there is not currently a consensus for pursuing such an objective. The relationship with the US has clearly cooled in the past two decades, and there is a range of views within our country coloured by politics, economics, culture and other influences, and generally characterized by a misunderstanding of the facts. But I also think we are a long way short of recognizing how important these issues are to us, and a long way short of a good debate about them. I would like us to have that debate, to recognize that we share an extremely common heritage and sense of values, and consider a fundamental redefinition of our relationship across business, education, and cultural dimensions, as well as in foreign affairs, trade and security.

A second key relationship issue is with China. If the 20th was the American Century, the 21st has commenced confidently as that of the Chinese.

It’s encouraging to note that there has been progress towards a trade agreement between our countries. Clearly also, there is growth in business links. But we have a very long way to go, and we have a significant body of reticence within our community, based on fears of economic and cultural loss.

It could be said that we want the benefits of dealing with the world’s largest nation but we are uncertain whether we want to accept the side effects. In fact, again, we need to do more than just get comfortable working with the Chinese. We need to embrace them across multiple dimensions. Let me use education as an example: Many of you will recall the days of Colombo Plan students from Asia. They were embraced by our communities and when they left took a part of New Zealand with them, and in turn left part of their hearts here. Over 30 years later, you still hear stories of the affinity they have for our country – and stories of the tangible differences they have made in our relationships with their countries. I wonder… what is the experience of today’s overseas students?!

The relationship with Australia is also complex. CER has now been in place for more than 20 years, yet there is still much to be done to maximize the benefits. At a time when the European Community has just grown to 25 nations – with open borders, a largely common currency and a host of other measures they have chosen to agree on – it seems strange that two highly similar and geographically close nations in the South Pacific choose to remain so separate.

There might also be other, less obvious, relationship issues. From a strategic point of view, what are the opportunities and threats inherent in the changing international landscape? For example, did we have a strategy for the nations of Eastern Europe as they emerged from decades of low or no growth under communist rule and moved toward joining the European Union? It’s too late to be establishing embassies once they’re almost through the door to Brussels. We need to think strategically about the way nations and regions are evolving and invest earlier and heavier if we are to maximize the potential benefits. Look what the early recognition of China as a market economy has opened up for us.

This is overlaid to a very significant extent by the issue of market access. Of course we cannot wait for the liberalisation trend to work in our favour. It’s often said that New Zealand boxes above its weight in international forums, and that might be true in trade. We need to use every bit of influence we have, all our international connections and all our powers of persuasion, to advance the cause. The strategic country-to-country relationships provide the backdrop to myriad interactions at the industry and enterprise levels. We need to nurture relationships at every level, and take a strategic view about what will serve our interests over the medium and long terms.

I’ve spent so long this morning on these broad issues because I believe they’re fundamental to long-term competitiveness – in agriculture as in other areas.

So, coming back specifically to agriculture….

As I’ve already suggested, we have a set of natural advantages that most other countries cannot replicate.

The ‘clean and green’ proposition is a powerful selling tool, and we need to protect it – both in the sense of preserving our natural environment and of getting the branding right. We need to deal openly with genuine environmental issues such as the use of chemicals, the runoff from farming, and the implications of gene science. And we need to have a clear and robust position about our use of emerging technologies and the way we harness our scientific and technical knowledge.

‘Clean and green’ is double-edged if it is allowed to frustrate research and development that is outside the narrowest political viewpoints. What I mean is that we can shoot ourselves in both feet if we take a Luddite position that says all science is bad and the only pure food is food grown by traditional methods. I recognise that there is a significant challenge for us in managing the tension between different viewpoints, but I believe we can have our cake and eat it.

Our knowledge and science base is respected and – particularly in the dairy industry – even envied. We have a leadership in the development of value-added food products based on dairy, and a range of potentially very valuable research and development initiatives in nutrition and health. Similar claims can be made in fields such as forestry.

We also need to build the forums in which our world-class science gets talking to commerce. This is starting to happen through various university initiatives, and we must encourage it.

Changing tack slightly, perhaps the most important issue is clarity around what really contributes to competitiveness. We often fall into the trap of talking in a glib way about moving a greater proportion of our output into value-added products. That’s a good idea, but it’s also difficult, costly and time-consuming. We shouldn’t fasten onto it like a mantra, but hold it up as an aspiration that is realised consistently, and rewarded greatly.

The reality is that unless you are at the sharp end of the value chain – in high value, highly differentiated products with technological barriers to competition – you are selling a commodity. In the pursuit of added value, you might in reality be adding only cost.

In a world where consumption of commodities continues to rise, there is absolutely nothing wrong with being a commodity marketer – providing you are the low-cost producer. That is a position we have occupied successfully for generations. I’m not saying we shouldn’t aspire to anything else… just that there’s still a lot of mileage left in it and that it is at the heart of our competitiveness.

We must continue to work hard to retain our low-cost status. In this regard one of the most urgent issues currently facing us is maintaining our infrastructure in energy and transport. We used to have an edge here, but it’s disappearing rapidly. I might also have mentioned communications infrastructure for knowledge and information transfer, but the issues there look likely to be resolved in a reasonable timeframe as you’ll see at the Telecom stand. But in both energy and roading we have under invested over the past decade to an extent that we now face significant cost and availability issues.

Finally, I’ll briefly mention another issue that is now close to home for me. Currently, New Zealand’s excellence in agriculture is generally defined by world class on-farm productivity, and by farmers and growers working together to market their product to the world. This is good in itself, and must continue, but it tends to obscure the fact that little is heard of the agriculture input sector, other than some notable achievements in innovation.

I believe it’s absolutely critical that this sector makes a significant and ongoing contribution to the overall competitiveness of our agriculture. It can provide ideas, products, information and inspiration that lifts our agricultural performance across the board.

This is the major reason I have joined with the McConnon family to bid for control of Wrightson. As the largest nationally operating rural servicing organisation, Wrightson is ideally placed to provide the type of leadership required to lift the performance of this critical sector.

Our vision is to bring a level of information and service to customers that they have never dreamed of, and to create an environment in which the people working in the business genuinely feel they can make a difference.

We believe in New Zealand and we believe in agriculture. And we believe that we can make a difference.

And we look forward to the opportunity to put our money where our mouths are.

Thank you.

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