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Cullen Speech To Open Meat NZ’s AGM

27 March 2002 Speech Notes

Speech To Open Meat New Zealand’s AGM

It is my pleasure to be here today to open Meat New Zealand’s Annual General Meeting. I would like to convey to you first of all the greetings of the Prime Minister who was unable to be here due to her visit to the United States, where she is meeting President George Bush and members of his administration to discuss trade, among other matters.

Your theme for this year’s Annual General Meeting is “Enhancing New Zealand’s Natural Advantage”. I believe this accurately reflects the general position of the agricultural sector in New Zealand. It is a sector that enjoys great natural advantages; but the challenge is to find innovative ways to add more value to what nature has provided to us.

Confidence in the primary production sector is at an all-time high, and for good reasons. Climatic conditions, the cyclical movement of prices and the low dollar are combining in an extraordinary way to deliver excellent earnings to farmers and others in the industry. As a result, the contribution of agriculture in general to gross domestic product last calendar year is estimated at 16.5 percent.

This result is very heartening. However, the question we must continue to ask ourselves is: how can we sustain this good performance over time, when all of these key variables are, as one would expect, variable?

The answer, put simply, is science; but science in two forms:

ƒæ first, what we might call the “rocket science” of the meat industry, that is, technological know-how and its application through innovation in production, processing and marketing; and

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ƒæ second, “science” of a more political kind, in the form of stable economic policies and determined and intelligent action by government to take an active role in fostering growth and clearing away obstacles.

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I mentioned climate, prices and exchange rates as the key variables in farming; but surely a fourth variable has to be brought into the picture: the application of technology to every aspect of production, processing and marketing.

Agriculture is already a dynamic sector, at the leading edge of innovation and technology adoption. It is disheartening to find that New Zealanders in general still have a fairly prosaic view of the meat industry, as one in which the essential skills are a strong back, an aptitude with farm machinery, and the ability to wield a sharp knife. This view is long out of date.

When we talk about a knowledge-driven society or the knowledge economy, agriculture should spring readily to mind. Over the past 15 years or so, since farm subsidies and price supports were abolished, the average annual gain in productivity in agriculture has been 3.9 per cent. For our economy as a whole, it was only 1.1 per cent. Much of this gain, year on year, has been due to the adoption of new technologies.

What these figures do not show, however, is that there are two components to the application of new technology to agriculture. First, we can use it to increase yields and produce greater volumes per farming unit. Important as this is, it is still about producing a commodity - more of it, more cheaply, and hence with greater margins, but a commodity nevertheless. The second application of technology - and one that still has great untapped potential - is the kind of innovation that turns a commodity into a niche product which can command a premium on world markets.

The government has recognised the importance of fostering innovation in all its forms throughout the economy, and importantly has recognised that this involves a partnership between government and business. Innovation does not happen because of government assistance; nevertheless, without government involvement opportunities to innovate and to gain the benefits of innovation are often lost.

Our innovation strategy highlights three areas where New Zealand has proven capability and where there are opportunities to overcome our natural disadvantages of distance from major world populations and a small domestic market. These are: information and communications technology; biotechnology; and creative industries. It is important to note that we are not viewing these as industry silos, but as capabilities that have a broad application across the economy.

Thus, while biotechnology has an obvious affinity with the meat industry, the strategy invites consideration of how innovative use of communications technology could enhance returns for the meat industry. And while it is perhaps stretching the imagination to find synergies between the meat industry and the Lord of the Rings Trilogy, there are clearly very high returns to those who capture the imagination of the food industry worldwide. It is well said amongst marketers that, at the end of the day, protein is best viewed for marketing purposes as a form of entertainment.

The innovation strategy is more than a glossy report. Shortly, my colleague, the Hon Pete Hodgson will be releasing information on the nuts and bolts mechanisms for forming and funding partnerships between business and government. I trust many people in the meat industry will get involved.

Fostering innovation - harnessing the particular “rocket science” associated with the meat industry - is one important goal for the long term. I want to focus on two other goals which fall more into the purview of “political” science.

The first is simply the maintenance of sound economic management, in the form of clear monetary and fiscal policy. The latest financial indicators reveal a very positive outlook for the New Zealand economy, from the short to the long term. Our economy is growing steadily, with low inflation, rising employment, moderate unemployment, and a current account deficit that is very low by recent standards. Real wages and share prices have both risen. Government spending is at prudent levels, with healthy fiscal surpluses, and manageable public debt. All of this despite the events of September 11 last year, and all that those events have meant for confidence in the world economy.

I am not going to attribute this success to the current government’s policies - not entirely, at any rate. However, good economic management has played a role. For example:

ľ We re-negotiated the Policy Targets Agreement with the Governor of the Reserve Bank to require the Bank to be more sensitive to the impacts of its monetary management on output in the real economy in the immediate term;

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ľ We are running a tight fiscal policy in which the government has raised all the extra money required to cover its extra spending on social and economic development programmes;

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ľ We have undertaken a wide range of smaller initiatives, dealing with skill shortages, upgrading the regulatory environment that applies to the electricity and telecommunications sectors, supporting the development of e-commerce, improving the funding of research and development, and simplifying the tax treatment of private sector R&D.

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The second set of political actions involves clearing away obstacles to growth, in particular obstacles that have to do with institutional structures and intractable problems of governance. Clearly the major example of this in agriculture has been the completion of the deregulation programme. Although an interesting variation on that theme - a variation which illustrates the basically pragmatic and non-ideological approach of the government - has been the consolidation of the dairy industry.

Another important example, however, is the government’s recent $227 million land transport package. An important part of the impetus for this package has been the need to ensure - literally - a smoother road for our exporters to move goods to market. From the fund, $30 million has been earmarked for regional development - the first time land transport funding has been specifically dedicated to regional development.

It is also true that a large portion of the package is aimed at reducing traffic congestion in Auckland, which has long been a Gordian Knot, both politically and literally. This is not intended as merely a gift to Auckland commuters. That city’s transport woes are estimated to cost the country around $1 billion a year. A portion of that cost relates to lost productivity as goods moving to market have to pass through the clogged transport arteries of our major urban area and one of our major ports.

In this instance, it is clear that what is good for Auckland is good for the rest of the country.

The government is in no way overlooking the importance of agriculture in general - and the meat industry in particular - in New Zealand’s economic future. Recent governments have tended to view the primary sector as something of a sunset industry; an industry, they might say, with a great future behind it.

In my view, a diverse agricultural base, in combination with a community of innovators with the capacity to shape new products for new markets, and in partnership with a government that believes in intervening in an intelligent way in the economy, will become if anything more vital as a cornerstone of our future prosperity.

It is important that we work together - government focusing on what it best can do; the industry focusing on its core tasks - to secure the potential that we all know to be within our grasp.

Thank you.

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