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Jim Sutton Speech To Dairy Farmers of New Zealand

Hon Jim Sutton
Minister of Agriculture
Dairy Farmers of New Zealand council meeting, Wellington
Speech Notes
16 June 2003

Chairman Kevin Wooding, Ladies and Gentlemen: Thank you for the invitation to speak today.

Dairy farmers are in the news again ? it seems that everytime I come to meet you, you are in the news.

That is not surprising, really ? dairy is New Zealand's biggest industry. The fall in international prices and the drop in the United States dollar have had dramatic impacts on incomes. This has been exacerbated by the drought in many areas that are not used to such dry conditions. Some herds have dried off early and many farms are entering the winter with lower feed stocks than we'd like.

The drought has worsened financial pressure brought about by high land prices and a lower milk payout, and is estimated to have cost the rural economy up to $180 million. The bulk of the impact has been in Taranaki and Manawatu, with some large farms counting the individual cost at up to $200,000 each in lost production and extra expenses.

For some, this will make things extremely difficult.

But coming after two exceptional years, many farmers will be in a better position to ride out the downturn than might have otherwise been the case.

Dairying is a dynamic industry. Despite the downturn, you are still growing. Milk production is increasing, and the number of animals in the national dairy herd are growing.

Industry leaders are tackling the big issues too, such as the environmental impact of dairying.

Each company is doing it in their own way, but Fonterra as the largest company is attracting the most attention, as you might expect.

Dairying plays a vital role in our economy, processing the milk from 13,000 dairy farms, and generating over $6 billion annually in exports. Fonterra produces 95 per cent of those exports. It's our largest company now, and, as such, it's a target for knockers.

Last month, Environment Minister Marian Hobbs and I welcomed the commitment by Fonterra to meet clear environmental targets when it was signed in Wellington last month.

I believe this accord is an important step forward for dairying as a whole. To the public, worldwide, it signals that farmers are taking charge; mitigating the impact of their activities; adding credibility to New Zealand's clean green image.

Taking the lead like this puts farmers fairly and squarely in the driver's seat.

The default position would be regional bureaucracy in the driving seat, with farmers and environmental non-governmental groups squabbling for backseat drivers' rights.

Most farmers are good environmental stewards. 48 per cent of farmers have already fenced their streams off.

I think there has been a lot of discontent about this accord. It has put salt in the wound stemming from the reduction in payout, and the reduction in profitability. It is a very worrying time for farmers who've borrowed to invest to increase their production. They've got a lot on their minds. Having to spend an extra $250 a year on fencing off waterways may seem like just an extra burden at a time when they feel overburdened already.

But headlines earned by whinging and resisting environmental measures and by prolonging a noisy debate about "dirty dairying" will be far more damaging, and over a longer term, to farmers' interests.

Personally, I think Fonterra is to be applauded for taking the initiative in putting farmers in the driving seat, thereby creating a powerful international marketing tool for "clean, green, 100 per cent pure New Zealand food. This sends a strong message to Fonterra's markets that it produces safe foods and respects the environment.

New Zealand dairy products are the best in the world, but international markets do not open for us as of right.

International dairy markets are the most distorted in the world, and we have a continual fight to maintain and increase our access. That means that we need to continue striving to improve, to enhance our image, and to argue our case at every available opportunity and forum.

As Trade Negotiations Minsiter, I spend a large amount of time overseas because that is where our markets are. We are a trading nation. We are need export earnings to maintain our living standards and jobs.

International trade issues are vital for people in our primary production sector. Our biggest exports are dairy products, meat products, and forestry products. More than 90 per cent of all dairy products produced here in New Zealand are exported. 90 per cent of all lamb, and 80 per cent of all beef, is exported. Market access matters ? if New Zealand loses access to key markets, we all suffer.

The Government recognises the importance of maintaining and enhancing market access. More than $73 million over four years was provided in last month's Budget to fund a range of initiatives to enhance New Zealand's trade performance.

These measures include government-level efforts to open up markets and to get more firms into exporting. Global connectedness is a major priority in the Government's growth and innovation framework.

Of course, global connectedness is not just about trade ? it's also about security and peacekeeping, people-to-people links, scientific co-operation, saving whales, and much much more. But it all helps trade.

Budget 2003 allocates $14.2 million more over four years (and $3.2 million a year thereafter) to support World Trade Organisation and other negotiations. That means more people on the ground both here in New Zealand at the WTO's headquarters in Geneva, and in other key capitals, arguing our case.

I welcome the growing emphasis on trade in economic development policies. Increased trade through reducing government-level barriers among our trading partners and making it easier for firms to get into exporting and to export more, will give the New Zealand economy a significant boost.

Recent debate about bilateral trade agreements has clouded the waters somewhat.

WTO-consistent bilateral trade agreements are important, but the biggest game in town ? and the most potentially lucrative to New Zealand by far ? is the WTO's own Doha Development Round. This latest round of multilateral negotiations has huge potential for New Zealand.

Research by MAF and MFAT published last week shows just how important the key outcomes from the Uruguay Round for New Zealand were. Through these outcomes, New Zealand exporters have received, in various forms, benefits through an increased ability to export higher volumes of product at lower tariff rates, and an increased ability to access high-value markets and higher world prices.

It is estimated that over the full implementation period of the Uruguay Round ? that is, 1995 to 2004 ? New Zealand's agricultural export receipts will be cumulatively worth an extra $6 billion, compared to what they would have been without the round.

In addition, all New Zealand's tradeable goods sectors have benefited from an increased ability to access world markets at lower tariff rates, which has resulted in tariff duty savings of $3 billion.

This provides a total estimate of Uruguay Round benefits as being in excess of $9 billion over the 10-year implementation period. Most of those gains came to the agriculture sector, still one of the most heavily protected sectors in the world.

Officials tell me that due to data limitations and that their analysis has concentrated solely on tariff reductions, tariff quota expansion, and export subsidy reductions, it is possible that the total gains to New Zealand are underestimated.

In addition to the $9 billion of gains from those measures, New Zealand exporters have also gained from firmer trade rules, a strengthened disputes settlement system, and the dynamic effects of a world economy stronger than it would have been without the Uruguay Round.

All this adds up to 17,600 extra full-time jobs, more than we would have had without the Uruguay Round.

But the Uruguay Round was only a toe in the door, for agriculture.

The Doha Development Round has even greater potential ? especially for dairy farmers.

So that's why this Government is putting extra resources into trade negotiations. That's why I and numerous trade officials are spending so much time overseas at meetings where trade liberalisation is slowly making progress.

Trade is increasingly important to us, all of us in New Zealand, but especially for people in the primary production sector.

We have to explain to our fellow citizens, who may not see the direct connections between their standard of living and our need to export, just why it is so important. That means following our highs as well as our losses.

The results of the Uruguay Round are important.

But they, and any results from the Doha Round, are just opportunities. Without the competitive, outward-looking domestic policies that have enabled our producers to become successful global traders across a range of sectors, those opportunities mean little.

Opportunities will only be converted into new markets, growth, and employment if New Zealand enterprises continue to seize the new openings that have been secured.

And we all have a role to play there.


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