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O'Connor: Fruitgrowers Federation Conference

10 August 2004

Hon Damien O'Connor: Speech Notes

Fruitgrowers Federation Conference

Ladies and gentlemen, good morning, and thank you for the opportunity to speak today.

We live in a country where agriculture, horticulture and forestry form the backbone of our economy. They're at the heart of our land and resource use, and our society.

It's in these sectors that New Zealand has world-class technology, skills and market positioning. This is largely because they are scientifically sophisticated, dynamic, market-orientated and have economies of both scale and scope.

Agriculture, horticulture and forestry provide for 65 per cent of our merchandise exports, and 47 per cent of our total foreign exchange earnings.

The productivity growth of these sectors has far exceeded those of other key sectors. Total factor productivity in agriculture, for example, has grown annually by 3.3 per cent from 1972-2002.

Contrary to perceptions, the agriculture, horticulture and forestry sectors have increased their proportional as well as absolute contribution to our economy over the past 15 years.

From 1986/87 to 2002, agribusiness' contribution rose from 14.2 per cent to an estimated 16.5 per cent of GDP. When forestry is included, the contribution of all three sectors to GDP was 20 per cent.

As for fruit and vegetables, the total value of exports in these sectors has increased by an impressive 43 per cent over the last decade.

Fruit and vegetables are now estimated to have a net worth of $1.8 billion, with fruit worth about $1 billion and vegetables the remainder.


This government has developed a strategy around Growth and Innovation, focussing on three key competency areas: creative industries, information and communications technology; and the one of most interest to you as primary producers: biotechnology.

Biotechnology is an area of both natural and acquired comparative advantage for New Zealand and it's an area in which we have the capacity to develop exciting new products and markets.

Many still perceive the primary production sector to be competing in price-driven food and fibre commodity markets. In fact, the sector encompasses agritech, animal remedies, software, machinery, biochemicals and nutraceuticals. A major part of New Zealand's high value manufacturing and processing is directly dependent on agribusiness.

The agribusiness and forestry sectors in New Zealand have the scale, global marketing capabilities, technical skills and natural resource advantages that not only make them core to our domestic economy, but also provide us with a platform for future growth and diversification into new and non-traditional markets.

Achieving higher growth in any industry requires careful attention and energetic promotion of the key elements of economic transformation, such as human capital development, investment, innovation, export promotion, and business and regional development.

We need to attract investment, especially into areas of innovation. This then adds value across a broad sweep of industry sectors.

The full potential of our economy will only be realised if we build on our sources of natural advantage and deepen the competencies associated with them.

The enthusiasm with which New Zealanders' are prepared to embrace new crops and growing techniques is indicative of this sector's commitment to innovation.

The development and commercial adaptation of new varieties of apples and kiwifruit is particularly well-known, and I know this occurs across all New Zealand fruit species.

I realise it's the sector that's been on everyone's lips lately, but I'd like to briefly mention kiwifruit, a prodigious and highly innovative sector celebrating its centenary this year.

Described by one esteemed business commentator as "doing everything right from the vine to the supermarket", the kiwifruit industry is also celebrating financial and marketing records for the sixth year in a row.

It’s a sector that's fought its way back from near demise, by closely integrating along its entire value and supply chain, from plant breeding, orchard management and expertise in packhouse and shipping, through to international branding, marketing and distribution by Zespri. There are serious lessons to be learnt from the evolution of Zespri's marketing structure; lessons too often forgotten in the pursuit of more money.

Growers are reaping the rewards; Zespri sold $911 million of kiwifruit last year, up 6 per cent from a year earlier and up 14 per cent in two years. Its fruit payments to growers last season rose 12.5 per cent, with only one-third of that gain resulting from higher volume. The other two –thirds came from its ability to command higher prices.

Zespri is now a great example of a market structure and co-op model that's worked. A forecast drop in production and price, urban sprawl, and seasonal labour shortages are likely to pose future challenges to the industry, along with concern that packhouse power might outweigh grower influence over time. But I'm confident the industry will withstand these and maintain its position as global sector leader.


Speaking of labour shortages, I am aware that this is an issue facing many horticultural producers. It's also an issue the government is taking seriously and working to resolve. In fact I met with key ministers just last night to discuss the issue.

I've also met with fruit growers in various parts of the country to discuss industry growth and employment needs. And involved as I am with both agriculture and immigration, I am often faced with the criticisms of producers wanting a silver bullet for the problem. I know your federation has called for a review of immigration policy and for a programme that brings labour into New Zealand specifically to fulfil horticultural needs.

But there is a range of complexities here. Plugging labour gaps with foreign workers is not a long-term solution to issues like recruitment, retention, accommodation, local labour supply and unemployment.

Where shortages are due to recruitment difficulties, as they may well be in many cases, immigration responses are generally not the long-term answer. Immigration does not address underlying problems associated with recruitment and retention of valuable workers.

And there are risks, namely the exploitation of or indeed by migrant workers. Also, if we continue to bring in cheap labour, the incentive to invest in skills development may diminish and the industry could lose opportunities to lift productivity through better practice.

Extensive discussions are underway between Immigration, Labour, and Work and Income departments to resolve labour and skill shortages. What's become apparent from these discussions is that both the government and the industry have a role to play.

It goes without saying that maximising local labour is a priority. This may involve employers considering non-traditional sources of local labour – women, different ethnic groups, people with disabilities, older workers and migrants already living in New Zealand.

Employers may need to make adjustments, such as offering more competitive wages and conditions, and meeting accommodation, transport or childcare needs.

They may also need to invest in innovative and alternative forms of production, to assist with productivity – particularly labour supplementing or replacement technology.

I'm not denying that immigration has a role to play. We've already put schemes in place that allow foreigners to assist with shortages where appropriate. One such scheme is the fast-tracking of temporary work permits in areas affected by labour shortages, and where there are no New Zealanders available for the work. In this case, and with the okay from Work and Income, visitors onshore can be issued with work permits within 48 hours.

To date, this has worked well in Dunedin, Southland, Nelson/Malborough, Hawkes Bay and Northland. A total of 2,106 work permits were issued for horticultural workers for the season ended 31 June. Though admittedly this is only a fraction of the estimated 44,000 workers needed through the year by the horticultural and vegetable sectors.

Working holiday schemes also help alleviate shortages. There are currently 19 schemes with various countries and several more are either being implemented or negotiated. Places available have increased to 31,000 in 2004/05, and Cabinet has agreed to an additional 5,000 places per annum from 2005/06.

The key role for the government is to get the mix of interventions right. The Department of Labour is currently preparing advice for Ministers on responses to skill and labour shortages and a range of interventions over the short and long term.

I for one am confident that we'll strike a balance with this issue and find a workable solution. In the meantime, MAF is busy working with industry to implement the agriculture and horticulture sector's pan-industry Human Capability Strategy, which also seeks to provide solutions to skill shortages.

The first phase of implementation used half a million dollars from MAF's Sustainable Farming Fund, plus considerable industry contribution. A strategy is being developed and will be implemented through a series of projects.


Biosecurity is another pertinent issue facing the horticulture industry. And it's another area in which the government's commitment is indisputable.

New Zealand is thankfully free of many of the world's major pests and diseases and this gives us a distinct edge in productivity and market access. We're determined to protect this status and we're investing heavily to do so.

We spend about $304 million annually on biosecurity services. In the recent budget, we allocated $46.5 million in new funding over four years. As well, we increased baseline funding for 2004-05 by $12 million, which represents a 7.4 per cent increase over the previous year and a huge 57.5 per cent increase since 1999.

In August last year, the government released its Biosecurity Strategy, noting at the time that New Zealand was facing an increasingly challenging biosecurity environment. The strategy identified 10 steps to enhance New Zealand's biosecurity.

I'm pleased to announce we've achieved the first four of these goals, and are making steady progress on the rest.

We have: Agreed that MAF's chief executive will be accountable for end-to-end management of the biosecurity system. Agreed to establish a biosecurity strategic unit and restructure the Biosecurity Authority. Allocated additional funding to the Protect NZ Prgoramme, which encourages New Zealanders to help keep the system vigilant. Required MAF to develop a Maori responsiveness strategy. The rational behind this is that Maori are significant landowners with interests in ensuring biosecurity works. They're also able to provide critical intelligence about what's happening.

We've also required MAF to develop an integrated risk management framework, to increase capability in some areas, and to coordinate a biosecurity research strategy.

For the time being, work is concentrated on building a biosecurity system that can look ahead, plan and invest its resources in the most effective way. It's expected that the complete implementation of the Biosecurity strategy will be a 3-5 year process.

On the subject of biosecurity, mention must be made of the government's push to get New Zealand apples into Australia.

Australia has banned our apples for over 80 years because of the perceived risk of fireblight. There are two points to make here. The first is that the world's pre-eminent authority on trade matters, the WTO Disputes Settlement Body, has confirmed that there is " a negligible risk" of the disease being transmitted from apples in commercial trade.

The second is that yes, we have fireblight in New Zealand, but we also have one of the most efficient and productive apple industries in the world. Indeed, for the last five years the World Apple Review, which comments on trends in production, pricing, variety mix, and comparative advantage in the world apple business, has ranked New Zealand first or first equal overall among the 28 major apple producing nations.

There’s been quite a bit of publicity in Australia about New Zealand apple access, and the Australian apple growers have run quite an excitable campaign about it. Unfortunately, a further obstacle has recently been added to the mix; the Import Risk Assessment carried out by Biosecurity Australia will now be peer reviewed, meaning further delays.

I know that Minister Jim Sutton has expressed his frustration to the Australian Trade Minister over this delay, but we've had assurances that input from New Zealand will be fully considered as part of the final review process.

In the meantime, we as a government will continue to keep the pressure on. We've been fighting for this for 80 years and counting and we're not giving up now.


I understand the proposal to unite the fruit, vegetable and berry fruit federations under one umbrella group - Horticulture New Zealand– will be top of your agenda during this conference.

The government supports the merger. For us, it's preferable to work with fewer industry associations, because this is more likely to result in a generic approach to generic issues. For the industry, it should mean bigger bang for its buck. It will have the strength of a collective voice and the opportunity to speak louder and to greater effect.

The challenge for Hort New Zealand is to ensure it adequately represents its members' interests. It will be up to growers to take up this challenge. Should they choose to, I believe it will vastly strengthen the organisation.


Finally today, I'd like to be brave and touch briefly on compliance costs. I am only too aware of the contention such costs inspire in the primary sector, and within rural communities generally.

The government is often accused of lumping industry with onerous compliance requirements. But in actual fact, the government has undertaken several initiatives focused specifically on reducing costs for business.

Let's face it, most countries don't want our produce and put up every barrier they can to stop it. And they will continue to do so, as we increase the pressure through WTO to allow access. Non tariff/trade barriers in the form of phytosanitary requirements and biosecurity measures are now a greater reality, and so are the resulting compliance costs.

Government's job is to minimise these, but we can't promise to eliminate them. And, just for the record, New Zealand ranked surprisingly well in an international study of compliance costs for companies. That is to say, we're not actually doing too badly.

Ladies and gentlemen, the horticulture sector will always face challenges, take the recent floods in the lower North Island and the Bay of Plenty. My sympathies go out to anyone here today affected by either.

But horticulture has a good base and a bright future, and it's a exciting time to be involved with it.

Before I finish, I'd like to briefly acknowledge New Zealand Fruitgrowers Federation President, Martin Clements, and his board, and congratulate them on the good work they've done to bring the federation to where it is today.

Fruitgrowers Federation has longevity on its side. It has shown vision, and I congratulate Martin and the Board for the changes they're proposing to create the new Horticulture New Zealand body, which will be an appropriate evolution of the Federation.

I wish you well for the remainder of your conference; let your deliberations focus on looking and moving forward.


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