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What Does 2004 Hold For Rural New Zealand?

What Does 2004 Hold For Rural New Zealand?

Monday 22 Dec 2003 Gerry Eckhoff Articles -- Rural

The future of New Zealand land-based industry is no more, or less, certain than it has ever been. 2004 will inevitably throw up the usual challenges for farmers - some will be Government-induced, others by nature and international events.

The stars that have been in alignment for rural New Zealand have moved their separate ways. Interest rates could continue to slowly increase as the world clearly values a relatively safe haven to deposit some of its assets. Overseas investors will look to our interest rates, which are high by international standards. This will drive the New Zealand dollar upwards, as the strengthening dollar and interest rates offer international investors the best return with relative security.

The timber industry appears to be heading towards another period of depressed prices. Simplistic calls for added value appear to be seductive, but massive local and foreign investment is needed for such a development. The Resource Management Act, however, precludes any incentive to establish new industry in New Zealand. Given the uncertainty of the Kyoto Protocol being enacted and the loss of carbon credits, it is little wonder the future of the timber industry is, in the short term, less than desirable. The controversy over the health effects of treated timber did little to advance the cause of Radiata pine as a versatile timber. Lessons from the wool industry's decision to `stock pile' and not to supply existing markets at bargain basement prices cost the wool industry for years. That principal surely applies to the timber industry as well.

One of the key issues for the meat industry will be the performance of PPCS, given its rationale for the take over of Richmond. Increasing the returns to sheep and beef farmers is the only benchmark acceptable to livestock farmers. Should sheep and beef farmers decide to support alternative companies in both islands, PPCS could well face a few difficult years.

It would be untenable for the entire board to remain in light of judicial comment over PPCS's takeover tactics. The meat industry must have confidence that our biggest processing company - twice the size of its rivals - will adhere to the ethical requirements of its owners and the demands of the law into the future. It is very clear PPCS will exercise a pervading influence over Meat New Zealand which itself is undergoing change, however change is inevitable, often painful but always necessary.

The Wool Board did its best to retain the last vestige of respectability without understanding the need to reinvent wool as more than a fibre just used in the textile and clothing industry. Whether Wool Equities will achieve that - which the Wool Board failed to understand for decades - remains to be seen. Only half the growers appear to have any confidence that Wool Equities will perform better than the old Wool Board.

The extraordinary expansion of the dairy industry in recent years is unparalleled. Favourable exchange rates, coupled with high commodity prices gave this hugely successful industry a major boost over the past four years. The rapid expansion has caused some problems in the wider environment, and will probably continue to do so as demands for irrigation water is counted by an equally powerful demand for it to remain in the rivers or in the aquifer. The real challenge for the dairy industry in 2004 and beyond is to "decommodify". Exchange rates now impact on dairy farmers' income to a degree not normally experienced. One way out of the commodity trap is for greater investment into biotechnology.

The often-compared Tätua Dairy Company offers a lead for Fonterra to follow. The industry has a difficult future should Fonterra invest more in infrastructure than into high value, high demand products.

One vital component for all our land-based industry is the need to differentiate New Zealand's high quality products from those produced overseas. Branding will continue to have enormous impact, yet it's in our ability to decommodify products such as milk, wool, meat and timber, that will give New Zealand a future in the top half of the OECD. New Zealanders will continue to watch our land being sold to overseas investors as we fail to compete on price, if we fail to make the right investment decisions.

Rural New Zealand's greatest threat is in the political arena. The opening up of private rural land to the public poses the single biggest threat to private property and investment in land. It is totally unacceptable for a private rural business, such a dairy, sheep, deer, cattle farming enterprise, and indeed forestry, to be "opened up" to the requirement of recreational users. The impact of such legislation will of course ultimately lead to less public access, not more, as landowners shut down the rest of their land where the government has not forced public access.

For many South Island farmers, drought looms as the most immediate threat to their well-being. Most farmers can handle the challenges of nature. It is, however, the political threats that will ultimately occupy the minds and the time of rural New Zealanders in 2004.


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