Fed. Farmers: Challenges, opportunities, success

Challenges, opportunities, success

Speech by Don Nicolson, President of Federated Farmers, to Federated Farmers National Conference, at the Ascot Hotel, Invercargill on 25 June 2010

Good morning my fellow farmers.

Last evening we celebrated the best agriculture has to offer. If there was a World Cup for farmers we’d be Brazil. Which makes Monday’s historic 1-1 draw with World Cup holders, Italy, as well as our historic placing above them in our Group, so very sweet.

I wish to outline some principles, a manifesto if you like, that our political parties wishing to address farmer concerns may choose to adopt. Back in 2008 we released a full manifesto that has some picked up but others remain work in progress.

Yesterday, Kevin Rudd’s playing of climate politics cost him his leadership. Two years ago if you had predicted that, you would have been laughed at. The reason his poll ratings really tanked was the mining super tax.

Australians are not stupid. They know the land and the sea is where their economy is at.

Rudd’s demise is a timely warning to those whom assume the rural vote is theirs as of right. Our needs can be summed up in one word that is missing from the mouths of MAF and politicians. That word is a big ‘P’ word and it stands for profit.

Last weeks SONZAF ‘lite’ report skipped the national farm balance sheet. Could it be that MAF wanted to get the good news out to sway public opinion while leaving the gritty reality for later in the hope it will go unnoticed?

Last year, New Zealand’s farmers collectively retained a mere 6.2 cents out every dollar we earned. 6.2 cents. If we come across as grumpy it’s because we see everyone loading up their expectations on our ever decreasing profit.

I need to make this abundantly clear. Agriculture is to New Zealand what minerals are to Australia. When you play with fire you will not only get burnt but so will every New Zealander.

While I will be upbeat, I also wish to sound a warning. Our means of production is ripe for the taking by overseas investment. Only when our farm balance sheets increase, as opposed to decline, will our economy take flight.

The best defence is a good offence. We need to be bold and ambitious for New Zealand to become a global exporting powerhouse. Yes we have finite land, but lets bring it into higher production before taking our skills to foreign shores.

Norway is the biggest force in global aquaculture, but production is largely done off shore. That’s building off what we know a lot about. Agriculture is New Zealand’s unique competitive advantage and it’s time for Government to get it.

Growing our profit on-farm enables us to add more to the economy - more opportunities, more jobs, with more wealth for all.

The post-Kyoto challenge: I cannot start my speech without first touching on the challenge we face right now - that being the Emissions Trading Scheme.

Unlike the Prime Minister’s Chief Science Adviser, Sir Peter Gluckman, I’m not going to blame the ‘popular’ media. While some in the media do have closed-minds, I find most, like ordinary Kiwis, just don’t understand the ETS or what it’s meant to achieve. Do you?

For a glimpse of Kyoto’s future I refer you to May’s Hartwell Paper, written by noted non-sceptics such as Professors Gwyn Prins of the London School of Economics and Mike Hulme of the University of East Anglia. Professor Hulme is important to focus upon. His University was at the epicentre of ‘Climategate’ scandal but just listen to this markedly different tone: "It is not possible to have a 'climate policy' that has emissions reduction as the all-encompassing and driving goal.”

The report’s executive summary, and I hope our policymakers listen, states this:

“The currently dominant approach has acquired immense political momentum because of the quantities of political capital sunk into it. But in any case the Kyoto model of climate policy cannot continue because it crashed in late 2009.

“The key for completing the job is for policy makers to focus on the first steps, and not on outcome targets or timetables. Current policies fail because they are back to front, politically and technologically. They also misinterpret the core message that scientific research on climate issues gives to policy-makers.”

And what has been Federated Farmers policy since 1985? It’s that voluntary market mechanisms work towards efficiency than state-led intervention. I cannot tell you how refreshing it is to see experts turning away from the global emissions trading juggernaut.

New Zealand, with its ETS, has instead entered a policy cul-de-sac while the rest of the world moves on. To the Labour Party, I ask them to sit down and fundamentally reassess the direction of international policy. In Opposition it’s time for new thinking.

The Hartwell Paper looks to a flat carbon charge. Yes. But if we are to do something then such a charge is simpler, cleaner and less fiscally convoluted than the ETS.

The central thrust of the Paper is to fund research to develop commercially viable energy sources.

This is not building solar or wind that the Paper sees as overly expensive and unreliable. It’s about developing cheap energy that can compete head to head with fossil fuels unsupported by subsidy, tax breaks or incentives. It’s about breakthroughs.

Its authors and remember these are not sceptics, deniers or any other form of insult readily thrown at us, wish to raise global living standards by way of economic development.

Its authors talk of resilience and policies of Government should be about building resilience into our communities to adapt to a changing world than putting the climate of 1990 into aspic.

Resilience is a word we farmers readily embrace. What impresses me is that its authors realise the clock cannot be turned back. 1990 was one year out of the billions that preceded it of this planets existence. We need to move on, evolve, adapt.

Now this is complete heresy in the current environment. It’s heresy against Sir Peter Gluckman. Does he have a monopoly on every right answer, or could Professors Hulme and Prins have better ones? The weight of global opinion is shifting towards a whole new approach.

It’s time to decouple the political capital instead of throwing good money after bad. Humanity cannot be King Canute, ordering back climate variation by dint of an Emissions Taxation Scheme.

And this is all written by those at the heart of the climate variation debate, writing in 2010 and not the closed mindset locked back in 1990.

If the ears of politicians open, I think this Paper provides a refreshing look as to where the international direction will likely head. Are we going to take a ticket to ride or hop onto the wrong bus?

Our mission is to get Government to that pragmatic solution but with the public fully on board.

Farmers epitomise efficiency: Efficiency will define Kyoto’s successor. What better example than agriculture.

Since 1990 we’re producing seven percent more lamb but from 55 percent fewer sheep.

With beef, our meat volumes are up 23 percent but from 11 percent fewer cattle.

Meanwhile dairy production growth per cow has averaged an amazing 26 percent since 1990.

Memo to Russel Norman - all this off 20 percent less farmed land than was in production back in 1990.

We’ve made such great strides and apparently our emissions growth has gone up by a mere 12 percent since 1990. Compare that with a 72 percent growth in transport related emissions or the 120 percent growth in electricity related emissions.

Yes agriculture is said to account for half of New Zealand’s emissions profile but in global terms, that’s a mere 0.1 percent. New Zealand’s farms do not produce 99.9 percent of the world emissions.

If our lamb, milk or fibre was oil, it wouldn’t even attract the ETS and why? The ETS only accounts for oil products consumed within New Zealand. Oil is now one of New Zealand’s major commodity exports.

If we farmers were an international airline, carting tourists and expatriate actresses from far distant shores, we’d be ETS free too. International aviation fuel is ‘100% Purely’ exempt from the Kyoto Protocol.

Since the European Union has voluntarily enrolled long haul aviation into its ETS and ‘clean green’ New Zealand hasn’t, does that not make a mockery of the ‘trade backlash’ argument?

So what is the ETS? It’s a tax pure and simple: It’s a tax on production and productivity.

It’s a tax on young families struggling to make ends meet. It’s a tax on retirees who watch every penny they spend. It’s a tax on students huddling around a single bar heater in a Dunedin flat. It’s a tax on everybody from a new born infant to the funeral home. The ETS is a tax from the cradle to the grave.

Federated Farmers wishes to be a catalyst for groups from the left and the right who may disagree about climate change, but agree the Emissions Taxation Scheme won’t save our planet.

We have not done a policy 180 degree turn but National has. It stood shoulder to shoulder with us in 2003, again in 2005 and in 2008 with Labour’s old ETS. Come 2009 suddenly the ETS is the solution. Where are you National?

1 July does not mark the end of opposition to the ETS but merely its start.

Soon, very soon, Federated Farmers will launch its Switch Off campaign for the public to switch off the ETS.

In a world of increasing food poverty we are choosing to grow trees?

Switch Off isn’t for sceptics or deniers. It’s for those who believe the ETS is a stealth tax that won’t make one jot of difference on curbing emissions growth.

A straw poll by the Dominion Post gives me hope, real hope, that the public isn’t buying the ETS. Readers viewed the ETS as being a sneaky way to raise money that will not solve New Zealand or global emissions.

The public is right and therein lays the danger for the National-led Government. Its embrace of the ETS invites lampooning. Do we really need a Ministry of Silly Gases?

With ACC levies, increasing interest rates, excise taxes and these ETS imposed cost increases, come October and the tax cuts, the public may actually find themselves worse-off than the year previously.

The risk National now faces is a winter of discontent.

So what are the ETS alternatives? Aside from the Hartwell Paper and a post-Kyoto world, we must continue doing the great things that eliminate any need for the ETS.

If the ETS is all about growing trees, we could plant thousands of hectares for far less cost than the ETS. Let’s benefit New Zealand and not overseas based plantation owners who will literally take our money and run.

If the ETS is about saving the planet, why we are not spending $11.25 million dollars a year, over four years I must add, on the ETS. Putting $1.06 billon, being the Budget’s commitment to emissions trading, into international collaborative research instead?

Even if you believe climate variation to be hokum or holy writ, our research priorities are completely wrong in a world where 1:6 human beings live in food poverty.

Instead of helping meet the needs of a growing world population by efficient food production, we will, Marie Antoinette like say, ‘let them eat trees’.

Finally, we could kick for touch as many other countries are doing. Socialise New Zealand’s Kyoto liabilities, bearing in mind we have a Kyoto surplus right now and focus on Cancun and the end of Kyoto in 2012.

Now some accuse Federated Farmers of denying the windfall gains that ‘could’ be substantial - ‘could’ being a small word with a very big meaning.

Over 111 years, Federated Farmers has seen get rich quick schemes come and go. Often that’s been led by a flush of Government funded enthusiasm only to be followed some years later by a Government funded retreat.

ETS-led carbon forestry is no different from the ‘quick rich’ rush that in recent decades has bedevilled the wine industry in the 1970s through to the tax-dodge led boom then bust in angora goats, deer and forestry.

I have a foreboding fear of here we go again.

But what will the international reaction be? As farmers do we welcome the idea of the ETS as being some protection racket? Money we must pay to our Government in order to retain market access?

There is no way we’ll face a trade backlash just as airlines flying tourists into New Zealand won’t face a backlash for being Kyoto exempt on fuels. Remember Europe does include international aviation fuels in its ETS but ‘clean-green’ New Zealand doesn’t.

We heard Keith Cooper say that international buyers don’t know about our ETS, don’t particularly care about it and won’t pay a cent more for it.

Time Magazine’s Top 100 most influential people list, released in May did not feature Nick ‘ET’ Smith, John Key or any mention of New Zealand. So much for the ETS making us a global player.

Searching the New York Times for mention of an Emissions Trading Scheme brings up two hits, both related to Europe’s. The UK’s Daily Telegraph returns three passing references to New Zealand in connection to the ETS going back to 2006.

This is not front, middle or even back page news. It’s not news at all. Yet of real concern to me is what the Wall Street Journal said about us last year. This is what the international investment community thinks of us and I quote “The global warming religion runs so deep today that most politicians figure it's best enact some sort of green policy, regardless of whether or not that policy actually reduces global warming. Exhibit number one is New Zealand...

What Mr. Smith didn't say is that from an environmental perspective, it doesn't really matter what New Zealand does. The island nation contributes 0.2% of total global emissions. The amended scheme isn't expected to reduce even that already-miniscule figure much.”

There are no ETS success factors: And that’s the clincher. What is success for the ETS policy? No one knows.

The Crown is putting $1.06 billion of our money that will cost us all at least another $527 million more - no one can tell us how success will be measured.

Is it 10-20 percent below 1990 levels? Not according the Prime Minister who said before Copenhagen, that it would be a ‘hard ask.’

Are we are seriously pouring over $1.5 billion into a policy that is unmeasurable?

Well yes we are. Unbelievable but true. This is why it’s time to switch off the ETS and switch on to a whole new policy that has buy-in from farmers, businesses and the public.

Unshackling our entrepreneurial farmers: Now I fully admit that Federated Farmers sometimes comes across as grumpy. That’s not because farmers like complaining, it’s because we’re impatient to improve.

At lunch today you will be given the South Island’s first ever sample of MO2. Another first at Federated Farmers National Conference 2010.

MO2 is a milk soft drink. ‘It’s milk Jim, but not as you know it’.

Was this developed by a multinational? Did it have research and development grants?

No. MO2 was developed by Richard Revell, one of our members, beavering away at his farm house in Te Aroha. Richard started with a Soda-Stream and now has a super product on his hands.

He has taken the concept of milk in a radical new direction. MO2’s flavours are lemonade and cola but there’s five more flavours on the way.

Yes it sounds weird but wait until you taste it, as you will later.

Memo to Rod Oram and the others who snipe at us. MO2 is potentially game breaking and is something Federated Farmers wishes to trumpet. It’s a Kiwi farmer using Kiwi ingredients that keeps the providence to New Zealand.

Milk soft drinks may sound strange but so is taking carbonated water, adding sweeteners, flavours and additives to it, then selling at a premium price

MO2 takes our nutritious Kiwi milk, packages it like a fancy soft drink to deliver the flavour of carbonated sugar water, but with vitamins, protein and natural sugars of milk. MO2 is the new healthy alternative because it’s also a food.

Now here’s the opportunity.

In 2002, world soft drink sales exceeded $272 billion but by 2009, that had grown to an estimated $676 billion. That’s more than three times our entire GDP. Capturing just one percent of this global market translates into sales of $6.7 billion.

It won’t happen overnight but Richard and MO2 is about fresh thinking in agriculture.

Wools new clothes: MO2 is an example that conventional products can be taken in completely new directions.

Look at Jeremy Moon of Icebreaker. A finalist for last year’s Federated Farmers Agri Business person of the Year. Jeremy has made merino wool sexy.

Look at the development of gold kiwifruit cultivars and now in recent weeks, red.

Yet some commentators seemed perplexed about the loss of the wool levy.

One leading commentator went as far to describe it as ‘brainless’ and driven by ‘raw emotion‘. Blaming hard pressed sheep farmers whose returns have imploded, is like blaming investors in a finance company, for the failure of a finance company.

For wool to be on a par with the 1980s returns, it ought to be a $2.8 billion export but now it’s down to just under $500 million.

As oil-based synthetics compete with wool, the demand drivers that have forced down price isn’t just a New Zealand problem, but a global one. It demands a global response.

The Wool Council is part of the Prince of Wales’ wool project – designed to do just that. The Wool Council’s ‘wool hotel’ challenge is an incredibly exciting extension to switch global architects back to wool. It’s regulatory too – unbundling the road blocks erected by oil-based synthetics against complacent wool.

In New Zealand, wool insulation should be everywhere but we’ve got glass and synthetic batts as standard.

Wool offers immense potential, but that hinges on consumers to tune back into wool as an exciting, natural and renewable product. Yet the problem with wool is wool.

Much of the thinking and research effort has put wool into two separate boxes - textiles and floor-coverings. What wool needs is research anarchy. A Richard Revell or a Roger Beattie to take wool and turn it on its head.

What we need is a Wool-X prize to inspire innovators, entrepreneurs and inventors.

A prize to take wool and manipulate it in completely new and novel ways. I’m not talking evolution but revolution. We’re not talking keratec but mass market products. It’s time for business unusual because you cannot tell me that everything that can be done with wool, has been.

Other futures: Federated Farmers fully supports harvesting our on and off shore mineral wealth. Minerals are an economic jumpstart, given we have close to a trillion dollars worth, if we have the political will to go out and extract it.

Federated Farmers further believes aquaculture has a massive role to play in our economic future. That is both coastal and on-land aquaculture.

Yet why is trout, a member of the salmon family and a fish type demanded around the globe, afforded greater protection than much of our native fauna? Sanford has told Federated Farmers it would farm trout tomorrow, if trout’s protection was lifted.

Sanford estimates one hectare of sea trout farming could easily generate $2 million of revenue a year - 100 times the revenue of mussel farming.

If we are serious about economic development then farming trout represents the lowest of low hanging fruit. It is an easy test to pass if the Government wishes to prove it is serious about aquaculture.

It’s also time for New Zealand to grow new industries that support agriculture, given it is the world’s largest industry. Where is New Zealand’s version of Monsanto, Novartis or the Chicago Mercantile Exchange?

Why are we not a global leader in seeds and genomics as well as agricultural productivity? Why are we not a world leader in the development, production and export of animal remedies? Why are we not be a global powerhouse in physical commodity trading, given we are the world’s largest exporter of dairy and lamb?

The opportunity for New Zealand business is to take what we do on-farm and build off it. It’s working with agriculture instead of trying to become something we can’t. It’s called leverage.

I take my hat off to Fonterra, Westland, Ravensdown and Ballance who are doing exactly that and as cooperatives too. I add the likes of Gallagher Industries, Dairy Automation and Donaghys. There are countless other companies I haven’t got time to touch on, who operate with innovation here in New Zealand. Let’s build off our unique competitive advantage and grow these into international powerhouses.

It’s about vertically integrated agriculture, from what goes into the farm gate to what goes into the consumers’ house.

Success: Success for us is to be revered by society. Never lose sight of the fact we farmers get most things right.

Success for us is seeing farming as a profession of choice.

Success for us is for the public to have easy access to verifiable facts than the slurs, spin and innuendo that shapes an incorrect perception of farming.

Success for us is having New Zealand’s fantastic water quality, the second best on earth, recognised at home as it is by the Ivy league US universities of Yale and Columbia.

Success for us is New Zealand adopting the world’s view of New Zealand, as opposed to a presumption about what we think the world thinks of us.

Success for us is harnessing water during high water flow as part of integrated and planned national water storage infrastructure.

Success for us is Government recognising that fibre from the farm is integral to long term economic progression.

Success for us is harnessing the mass of data enabling farmers to surge ahead productively, profitably and progressively.

Success for us is being backed by a Ministry which goes into bat for farming every bit as much as we do.

Success for us is for Government, any Government, to put agriculture at the heart of our society and our economy.

Success for us and every New Zealander is less Government, greater freedom and the opportunity for free enterprise to flourish.

Finally, success for us is a state where the word profit is a cherished mark of success.

Thank you.

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