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Agriculture -- The Next Three Years

FEDERATED FARMERS OF NEW ZEALAND (INC)

"Agriculture -- The Next Three Years"

Ian Corney

Speech to Rotorua Chamber of Commerce

Grand Tiara Hotel

Rotorua

Ian Corney is a Federated Farmers' National Board Member.

When I sat down to write this speech last week, the caretaker prime minister was still trying to stitch together a government.

I couldn’t be certain of the final makeup.

There were various options.

However, it was clear that we would have a Labour-led minority government of some description and that we would see pretty much a continuation of the policy direction of the past six years.

This direction has been one of slow but steady incremental change to the economic policy framework established post-1984 and largely carried on through the 1990s.

Some of these changes have been positive and many of the key policy settings for farmers, such as maintaining an open and competitive domestic market and the push for international trade liberalisation, have been left largely intact.

From a farmer’s perspective, however, most of the things that have changed have been in the wrong direction. Taken on their own, they may not appear earth shattering, but taken together they are akin to ‘death by a thousand cuts’ and strike at the heart of farm and business competitiveness. We in Federated Farmers have called this ‘the big squeeze’.

My wife Barbara and I farm 1,300 hectares in the King Country in partnership with our two children. We run a sheep and cattle breeding and fattening operation comprising 13,500 stock units. We feel the big squeeze every day.

Changes to legislation governing employment relations, health and safety in employment, and holidays have reduced labour market flexibility and increased costs for those of us who employ staff.

The Government continues to over tax hard working, productive New Zealanders and it is continuing to increase government spending as a proportion of the economy.

The tax grab will continue with a carbon tax coming into force in 2007. The Government says that the tax will increase petrol and diesel prices by 4.5 cents per litre and energy bills by more than a cent per kilowatt hour. We estimate that the carbon tax will increase the costs on a typical dairy farm by over $1,000 per year.

I can’t mention tax without a comment on the Greens’ proposed $20 a tonne fertiliser tax. Such a tax would add cost for no benefit to the environment. I have calculated that it would increase my own fertiliser costs by $10,000 a year without any change in the amount I use. The tax is a crazy idea and must be consigned to the rubbish bin.

There has been a steady trend of re-regulation, building of bureaucracy and, to add insult to injury, new compliance costs. There has also been increasing cost-recovery in areas as diverse as accident insurance, food safety, border control, transport, communications, energy, building, and hazardous substances. The list goes on and on.

The RMA has been tinkered with but the law remains a major constraint. It impacts heavily on primary production. Much is made about $100 million infrastructure projects facing $10 million RMA costs. What about the farmer who wants to build a $15,000 hay shed but must pay $7,000 for a consent because of landscape requirements. Then there is the regional plan that proposed that all farmers were required to get approval from a registered engineer before installing a culvert. If this were required for my farm it would cost me around $7,000 to install a $2,000 culvert. The RMA may not affect many farm businesses at any one time, but we farmers know that once exposed to it, the RMA becomes a nightmare.

Some recent changes to the RMA will make matters worse. While no one would disagree with the need for infrastructure projects to proceed in a timely fashion, the greater emphasis on the so-called ‘national interest’ without compensation for the impact on the private individual is terrifying.

The pylon debate is yet another example of the attack on private property rights that is eroding farmer’s confidence to invest in their business. Farmers have had enough.

You might be familiar with Federated Farmers’ ‘Action Orange’ campaign against proposals to allow as of right walking access across private land.

We, like all businesses, must remain vigilant and fend off the creep to remove property rights without full compensation.

Before I go on to discuss what farmers want from the Government, I need to address the challenge that is repeatedly thrown back at us.

Those who benefit from the growth in government say that the economy has been doing nicely thank you very much. They point out that if the ‘big squeeze’ is undermining competitiveness, surely we would have seen the impact through lower economic growth.

We’ve heard already today an interesting but worrying economic overview.

The fact is that for most of the last six years our governments have had luck on their side. They have been able to implement their policies in a generally benign international economic environment. This has masked the negative impacts of government policy on business.

There is no doubt that the good economic growth New Zealand has had was aided by the economic reforms of the 1980s and 1990s. Those reforms made our economy more resilient, but that resilience has now been severely weakened.

I’ll throw back another question.

What would have happened had the New Zealand economy not experienced in 2001 and 2002 high commodity prices, a low dollar, low interest rates, good weather, good growing conditions, and the absence of severe economic shocks?

The Government can’t take credit for any of those pieces of good fortune. Equally though, it shouldn’t be blamed for their more recent reversal.

However, it can and should be blamed for policy changes that make it harder for businesses to cope with a higher exchange rate, lower commodity prices, higher interest rates, poor weather, poor growing conditions, and economic shocks like the recent spike in oil prices.

Forecasters suggest we’re in for a period of slower economic growth as the price to pay for the housing-led consumption boom of the past couple of years.

I look at economic forecasts with the same scepticism I look at weather forecasts, but it does indeed seem that some pretty nasty clouds are gathering on the economic horizon.

If economic growth over the next few years is going to be considerably lower than it has been over the past five years, then to what extent will it be thanks to policy changes?

That’s not clear but what does seem clear is that we will be in for another three years of more of the same. Now we will be squeezed on both sides, increasing costs and falling returns.

Policy-wise, I foresee further chipping at the foundations set in the 80s and 90s as the “nanny state” continues to expand. I see New Zealand drifting into low or negative growth.

The election result suggests that, for many New Zealanders drifting along is good enough. But the problem with drifting is the greater risk of becoming becalmed, swamped by a storm, or sunk on a reef.

So, what are we in the agricultural sector looking for from the incoming Government to stop the drift and get New Zealand back on the right track?

Recognise Success

First and foremost we want new and existing Ministers, MPs and their advisers to know and appreciate the importance of agriculture. All else derives from this understanding.

Agriculture remains the backbone of New Zealand’s economy and will remain so for the foreseeable future. Forty percent of our exports are agriculturally based and the sector contributes over 17% of GDP including downstream processing, up from 14% two decades ago.

Without the understanding of the importance of agriculture the Government runs the risk of making decisions that would perpetuate the big squeeze and endanger our main breadwinner.

What else do we want?

Research Research Research

In 2004, New Zealand invested 1.17 percent of its gross domestic product in research, compared with the OECD average of 2.26 percent – a difference of $1.7 billion a year.

The government must encourage growth in research expenditure, especially in areas where New Zealand has a competitive edge, the most obvious being agriculture.

Keep up Trade Push

Efforts must continue to push for trade liberalisation through the World Trade Organisation and bilateral deals. Removing the many restrictions our exporters face will allow greater trading opportunities and is far better than taking a protectionist ‘fortress New Zealand’ approach.

Protect Property Rights

Farmers must retain the right to control who comes onto their land. Federated Farmers will oppose any attempt to pass a law giving anybody, no matter their character or intent, the right to walk on private farmland along rivers and lakes.

No urban business would be expected to provide public access to the factory floor without strict controls. No other business would be forced to expose itself or its production unit to opportunistic crime.

Cut Taxes

The tax burden must decrease. A flatter tax structure with lower rates would allow the vast majority of hard working New Zealanders to invest in their businesses or save for their retirement.

Individuals are far better able than the Government to decide how they should spend their own hard-earned money.

Proposals for carbon taxes and fertiliser taxes that would harm our competitiveness should be ditched.

Slash Red Tape

The escalation in regulation and compliance costs must be stopped. I’ve lost count at the number of new Acts and regulations passed since 1999, but a few months ago the figures were somewhere in the vicinity of 500 new Acts and almost 2,000 new regulations. Every time the law is changed there are compliance costs.

The recent Business New Zealand – KPMG compliance cost survey indicates that businesses employing fewer than five people face compliance costs of $3,600 per employee per year, 14 times the equivalent figure for businesses employing over 100 people.

This cost is a major drag on the productivity, the competitiveness, the growth prospects and indeed the viability of many small businesses.

Overhaul Rating

A Royal Commission of Inquiry is needed to look at alternative ways of funding local government. The rates rort must cease.

Farming families cannot continue to be asked to carry the unfair burden imposed by the current dependence on property value rates.

Education not Regulation

To deliver sustainability, agriculture must remain competitive in international markets. The Government must assist by investing in research to give access to improved technical and decision-making tools.

Passing a law to say that everyone must have a nice garden will not give people the skills and knowledge to garden. Information and education is likely to be a more fruitful approach.

The same is true for the environment. Sustainable agriculture now and in the future is delivered by thousands of producers responding to market signals and making informed decisions on how to efficiently use their resources.

Roading Paid by Users

The Government must stop stealing more than half of the petrol excise tax collected from road users. This approach led to the chronic underinvestment in roading that is only now being tackled.

It also results in local roads being unfairly funded by property owners through their rates rather than by the users of roads.

Fix Flawed Laws

Finally, the RMA must be amended to remove some of the Department of Conservation’s powers . DoC has the ability to impose conservation controls on private land and to require the general public to compensate farmers for land set aside in the public interest.

To conclude, what’s most important is that today’s and tomorrow’s decision makers have the knowledge of farming and its needs to make the right decisions to help New Zealand’s most important industry.

Regardless of what happens over the next three years and in spite of the big squeeze, the country will continue to rely on farmers. Our sector will continue to lead the way in innovation, productivity and dynamism.

We can only hope that with an LP or an LPG government at the helm we will be going on gas and not becalmed.

ENDS

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