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Jim Sutton Speech To West Coast Fed Farmers

Speech Notes 2 May 2002

West Coast Federated Farmers annual meeting, Westport

President Dianne Milne, colleague Damien O’Connor, ladies and gentlemen: there is a lot of black humour floating round about the dismal performace of the Hurricanes rugby team lately.

It's the first day of school and the teacher thought she'd get to know the kids by asking them their name and what their father does for a living. The first little girl says: "My name is Mary and my daddy is a postman." The next little boy says: "I'm Andy and my Dad is a mechanic." Then one little boy says: "My name is Jimmy and my father is a striptease dancer in a gay cabaret." The teacher gasps and quickly changes the subject, but later in the schoolyard the teacher approaches Jimmy privately and asks if it was really true that his Dad dances nude in a gay bar. He blushed and said, "I'm sorry. My dad really plays rugby for the Hurricanes, but I was too embarrassed to say so."

Some people might say the same about Government MPs on the Coast - that we might be too embarrassed to admit what we do - but I don’t believe that.

I know there has been the odd policy decision you disagree with, but I believe that this is well and truly outweighed by the West Coast package of $120 million. The West Coast has an opportunity to leap ahead, and as I hear it, you are seizing this opportunity with both hands.

I know various Cabinet colleagues have projects in their portfolios here. >From my own portfolio, I know the Sustainable Farming Fund has contributed to a successful project for “flipping” soil, improving productivity here on the Coast.

And the figures tell a story. According to Statistics New Zealand, the number of businesses registered on the West Coast has increased from 2191 in 1997 to 2429 at most recent count - a gain of 10.9 per cent. Unemployment on the Coast is at 2.9 per cent. The number of employed Coasters had grown from 15,400 to 16,500 since December 1999 - a gain of 1100 jobs so far during this Parliamentary term. We may have the occasional disagreement, but this Labour-Alliance Government is committed to improving the wellbeing of our citizens, and I know that by working together we can continue to produce results like those I have mentioned.

When we make decisions about policy that will affect people’s lives, we consult on the issues, we listen to what people have to say, and if needed, we change the policy. I believe that the Government’s preferred policy package on the Kyoto Protocol is a demonstration of that.

Greenhouse gases - methane and nitrous oxide - produced on farms represent well over half of New Zealand’s climate-changing emissions. They have been exempted from the proposed emissions charge, to be levied from 2008 as part of the Government’s preferred policy package on climate change.

Farmers can’t do anything about these emissions, given current technology, so taxing them would be pointless, in terms of mitigating climate change. In return for this major exemption in the first commitment period (ending in 2012), the agricultural sector will be asked to invest, in partnership with the Government, in research to identify future options for reducing agricultural emissions.

The Government retains the option of imposing a research levy if the research effort falls below what is required. The ownership of that intellectual property would be negotiated between the Government and industry, but essentially, it will belong to the people who fund the research.

New Zealand’s farmers probably have the most to lose as a result of climate change, of any sector of the economy. But the climate change response is likely to be the biggest driver of technology in the first few decades of this century, so we have a chance to convert that threat into an opportunity, by adopting the leadership role in this specialized area.

The fact that the other advanced pastoral economies, Australia and the United States, are dragging their feet in fronting up to climate change will play into our hands wheninevitably, they eventually join the global effort.

This Government recognises the primary production sector as critical to the future wellbeing and success of our country. We are fully aware that you earn 60 per cent of all our export income. We are not in the business of ruining that. Quite the contrary, we are prepared to take tough decisions, even in election year, to provide the environment to help you perform better in the long term.

We’re putting a lot of effort into consultation, into obtaining good policy advice. We also put a lot of effort into getting you market access because, no matter how good your products are, if you can’t sell them, their quality doesn’t matter.

Improving market access sounds a bit airy-fairy, but it does have tangible benefits for you here on the West Coast.

The preliminary results of a recent MAF study of the gains from the Uruguay round of trade liberalisation indicated that each and every New Zealand dairy, beef, and sheep farmer earned at least $11,500 extra in 2000, mainly because of better market access to the key markets of the United States and the European Union.

And that is probably understating the gains they have received.

However, there is still a long way to go, and many other markets than just the American and European markets.

A Foreign Affairs and Trade Ministry report, released at the same time as the MAF study, describes the global dairy market as “the most distorted in the world”. And the markets for many of our other primary production exports are distorted as well, if not quite as badly as dairy.

That report shows duties paid on $17 billion of New Zealand exports to WTO founding nations were $525 million lower in 2000 than they might otherwise have been, because of the Uruguay Round commitments which had come into force. Of that amount, $131 million applied specifically to dairy products.

While the report found that duties on our exports were $525 million lower in 2000, those exports still attracted tariffs of $884 million. There is still considerable scope to push for further reductions in access barriers to our exports.

You’ve invited me here today to discuss whether the good times will last.

There certainly have been good times lately. Due to a unique combination of good exchange rates, high international prices, and good climatic conditions, farming has gone through an incredible past two seasons. It’s like nothing else I’ve seen in my 40 years associated with farming.

The problem with boom times is that they don’t last.

While fantastic incomes are pouring in, it can be hard to remember that.

Farmers will need to budget carefully. There is all the usual maintenance, fertiliser and so on to be paid for, as well as both terminal and provisional tax bills, and incomes of such impressive sizes cannot be guaranteed next season.

I know that Westland chairman Ian Robb has been reported as saying that the company will now have to quickly revise its forecast payout figure for next year, to give its farmers as much time as possible to plan, given the sharp drop in dairy prices internationally.

Whether that drop is already the bottom of the hole, or there is further down to go, remains to be seen.

MAF senior analyst Tony Wharton has predicted that the crash in international dairy prices should end soon and a long, slow recovery should start in June or July. He blames “irrational behaviour” by some international dairy product traders as contributing to a slump in prices. I could add that irresponsible behaviour by certain governments in increasing export subsidies has also been a major factor.

Tony Wharton says some traders were holding off buying and waiting until dairy stocks were at rock-bottom prices. This ``not entirely rational'' behaviour helped explain why dairy earnings had dramatically declined, despite low global interest rates and an improving world economy. Of course, it also implies that the recovery could be as rapid as the decline.

Other MAF analysis - the longterm forecasts over March 2002 to March 2005 - indicates that:

- Dairy production and export volumes are projected to expand over the outlook period. International prices while falling out to March year 2003 are projected to increase in out years. However, an appreciating exchange rate scenario causes lower NZD denominated prices.

- Meat production and export volumes generally fall over the outlook period. While some growth in international prices (expressed in USD) occurs, prices in NZD fall due to an appreciating exchange rate scenario.

- Forestry production and export volumes rise over the outlook period with an overall rise in export prices in spite of an appreciating exchange rate scenario.

So, not the booming good times that we have experienced in the past two years, but no reason for universal doom and gloom either.

Ladies and Gentlemen: the Government I am part of intends to do everything possible to make sure you can take full advantage of every opportunity for prosperity in the future.

That’s the driver for our policy decisions.

I look forward to answering any questions you might have.

Office of Hon Jim Sutton

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