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Address to the Meat Industry 2003 Conference

Hon Michael Cullen
14 September 2003
Speech Notes

Address to the Meat Industry 2003 Conference

Welcome to Hawke’s Bay. You have chosen a fine venue for your conference this year.

It goes without saying that your industry is a very substantial component of the New Zealand economy, in every respect: jobs created, contribution to GDP, and share of export earnings.

It is also important to stress right at the start that this industry is a big part of our economic future. It is not a sunset industry. Nor is it a static industry: it is not an industry that has realised its full potential and continues to contribute to economic performance as a mature industry. It is an industry with unrealised future potential.

I have to repeat this because there may be wrong impressions abroad that the government’s growth and economic framework is about greenfields industries, not about our traditional industries. That has never been the case.

Right at the outset, and going back to the original Growing an Innovative New Zealand document that was published in February last year, the government recognised that agriculture was one of the very few New Zealand industries that had world class scale and specialisation.

If our small scale and distance from major markets are a drawback – as well as an advantage in other respects – then our resource based industries provide a base from which we can lift output without having to overcome scale barriers.

I have also often said that there is a very powerful arithmetic imperative that means we must lift our game from primary based industry. Some countries have achieved a solid lift in growth rates and average income levels by transferring resources out of low productivity, traditional agriculture into higher productivity growth nodes. In our case, the resource based industries are knowledge and capital intensive, with the result that per capita productivity of the workforce in them is high by national standards.

There are always boundary and definition problems in talking about productivity levels, and I am not trying to be precise in this, but as a broad rule of thumb, labour productivity in the resource based and related industries is close to twice the national average. What this means is that if we transfer resources out of the so-called traditional industries into the rest of the economy and achieve something close to average productivity in the other sectors, the average level of national productivity actually falls.

This is not just a “must do” thing. There are also technological and market opportunities that suggest that there is much more value to be added to, and captured from this sector.

It is worth repeating a story I told to a business group in Tauranga recently.

Not so long ago, if the powerhouse nations of the world economy slowed, primary producing nations like New Zealand and Australia slumped. At least since the Asian economic crisis of 1997, we have sailed through turbulent global economic conditions and have led the growth stakes in the developed world.

Of course it would be silly to base an entire economic growth strategy on one business cycle, but on my trip to Australia last year I did get some food for thought. The question that was posed is whether we are entering another age when primary production – admittedly high productivity, knowledge intensive, smart, value-added primary based production – gives certain countries a national advantage.

The last quarter of the last century was a time when there was a global explosion of manufacturing capacity. There is now a global overhang of productive capacity in just about anything that is manufactured: from textiles to electronic goods, cars to computers. In order to stay competitive, manufacturers have to constantly innovate and tailor production to the needs of their customers.

This means that they are always looking to new lines of product development, and primary products, in combination with exploding biotechnologies, offer new opportunities for product development.

At the same time, globally, the effect has also been that vast numbers have left subsistence agriculture and moved in to urban based wage employment. They have to be fed and clothed.

Primary products may well be moving away from being the poor relations of manufactured goods to becoming the new scarce resource and the basic ingredient for the next wave of innovation. It is important that we do not foreclose on the national advantage that could again propel us up the international income ladder.

That is why the government is putting a lot of effort into negotiating better trade agreements on both the multilateral and bilateral fronts. It also explains why we have identified biotechnology, information and computer technology and the creative industries as areas where we need a special focus in a growth sense.

We never saw these sectors as narrow, vertical or new. We saw an improvement in our biotech, ICT and creative capacity as having multi-sector applicability, not least to the primary resource based sectors of the economy.

All of this brings me back to meat.

Meat has been a success story during the last ten years, in spite of much of the public attention focussing on dairying, and the tendency for dry stock farms to convert to dairying.

Sheep numbers fell from around 70 million in 1982 to under 40 million now. Meat and Wool Innovation – the old Meat and Wool Board Economic Service – has produced some fascinating figures on volume and price trends. Since the mid 1980s, conversions to dairying, afforestation, viticulture and the growth of lifestyle blocks have impacted dramatically on commercial sheep and beef farming, to the extent that the number of farms has fallen by nearly 30 per cent.

Between 1990 and this year, sheep numbers fell by 32 per cent, and dairy numbers rose by over 50 per cent. But rather than this reflecting a declining industry, increasing lambing percentages and higher weights have meant that the volume of meat from lamb has increased by 11 per cent. That is an 11 per cent increase in output from 30 per cent fewer sheep, an amazing lift in productivity.

The gain is a mix of nutrition and genetic improvement. This does show us that biotechnology has the potential to generate quantum rather than marginal gains. The genetic improvements have not involved genetic modification, but more what us lay people would describe as selective breeding. It is just that with modern technology that can be done much smarter and much faster.

I make this point because biotechnology is not just about GE. I also make the point that when the GE moratorium is lifted, it is not open slather: the approvals process folds into one of the most elaborate and careful in the world. This suggests to me that we will continue to see a lot of progress made in livestock performance outside of the GE side of science.

That is on the supply side. Gains have also been made at the market end of the spectrum. MAF recalls that as recently as 1994, predictions were for the average price of a lamb to rise from $40 to $46 by 2001, and for lamb receipts to rise from $1.1 billion to $1.4 billion. In fact the average price rose to $64 and despite the decline in stock numbers total receipts rose to $1.9 billion.

Meat and Wool Innovation calculates that between and 1991 and this year, real lamb prices rose by 6 per cent per annum: that is a remarkable growth rate over a long and sustained period.

In some ways we are in control of our own destinies here. New Zealand accounts for 55 per cent of world sheep meat exports, so given our world class scale, advances in production, product quality and market realisations depend a lot on our own innovative effort.
We are much less dominant in the world beef trade, and perhaps as expected the performance trends are less pronounced. Beef cattle numbers have been fairly static over the last decade, and while production volumes are up, real price gains have been more muted – averaging 1 per cent a year.

I don’t think that this means that the beef trade is commodity trade. To me, there does not seem to be any intrinsic reason why we should not expect the production, product and market price improvements that we have seen with sheepmeats.

There are a number of issues that have to be faced throughout the full range of the meat industry value chain, if you will excuse the pun. There are science issues, skills supply adequacy, infrastructure standards, climate change challenges, water quality questions, food standards and market access developments that will all impact on the shape and pace of the development of this industry.

I make two observations. One is that no one agency, private or public, has all the responsibility for making progress on these issues, and no one agency has all the answers. Progress in the industry requires a combined focus on our economic potential. The second observation is that whatever it is that we are doing on the economic development front, the natural resource based industries in general, and the meat industry within that, are central to our plans and our prospects.

Thank you for the invitation today. Best wishes for the rest of your conference. I hope you enjoy the special facilities of the Bay, and in the time left with you I am happy to take questions from you.

Thank you

ENDS

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