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Anderton: Success in the Dairying Industry

08 June 2006

Encouraging Success in the Dairying Industry

Dairy Farmers' Conference and AGM, Mercure Hotel, Willis St, Wellington
Future of Dairying Seminar, Lincoln University, Christchurch

You've asked me to talk about encouraging future success in the dairy industry. The starting point is the existing success of dairy in New Zealand.

Our dairy industry is one of only industries where New Zealand has genuine global scale. The earnings from dairy are crucial to our standard of living. If we want to keep enjoying the state of the art goods and services we import from overseas, we can only pay for them with our earnings overseas.

Dairy is a huge contributor to those earnings. We export 95 percent of our dairy production. Two thirds of our foreign exchange comes from primary sector industries. And contrary to popular perception, the contribution of agribusiness to New Zealand’s economy has been rising. Over the last fifteen years agriculture, forestry, and related industries have increased their productivity at more than double the rate of the rest of the economy.

The performance of our primary industries has been a major contributor to our economy's success over the last six years. It's true that in the second half of last year – we saw the economic cycle enter a slower period. But our gross domestic product has grown by over 25 percent in the six years 2000 – 2005 and it has grown further since then.

As a result, real national income per head - that is, the average income of each of us adjusted for inflation - rose by nearly nineteen percent during the period. Put another way, twenty cents of every dollar that we earn in New Zealand comes out of the growth that has been achieved in only the last six years. Only eighty cents comes from investment and development over the entire span of the rest of our nation's history.

We have added over 300,000 new jobs in that time and now we have the lowest unemployment in the developed world. For decades New Zealand's production of milk from pastoral-based systems has featured centrally in the backbone of our economy. It's been backed by science, smart management and a major role in the international trade of dairy products. This is a profoundly strong platform on which to build the future success of the industry.

But we still have to develop further. We are no longer the world's lowest cost producer of milk. Argentina and Chile have this distinction. Brazil has recently become self sufficient in milk production. India and China are also building their milk production capacity. While we front up to these new competitive pressures, we also have to face other emerging challenges.

I was in Europe recently looking at agricultural issues there. We know Europe's history of protectionism. As the pressure grows on them to get rid of direct subsidies, creative new replacements are being found. In France, farmers are being paid to 'maintain the rural countryside'! In England to protect flora and fauna – like hedge-rows and badgers.

There is talk about the carbon output involved in shipping produce around the world. Shipments from New Zealand are the direct target of this commentary.
So we have to respond to these changing market conditions. If we don’t act, overseas markets are increasingly likely to penalise New Zealand producers.
We need to adapt to changing markets, too. Consumer demands are changing. Our lifestyles are changing.

Few people in developed countries have time to cook a roast for dinner now.
We're all exposed to global cuisine and we expect to be able to access the produce we need to make international dishes at home. Health awareness is high and rising. Consumers are more environmentally aware and want to be reassured their food is produced in a way that respects our natural environment and leaves something for the future.

We should also anticipate an increasing attention to the way that milk is produced in New Zealand, particularly from the affluent markets of Europe.
We should expect scrutiny of the way we care for our animals and on how well nutrients are managed. We have a good story to tell on all these fronts.
I was in New Plymouth last week and saw the plant nursery where trees are being grown to supply up to three-quarters of a million trees and shrubs each year for erosion control and cleaning up the local waterways – a co-operative project between the farming community and Taranaki Regional Council.

We can reassure the health conscious consumer, that we have the best tracking and tracing systems in the world. We can distinguish our products from producers who compete by exploiting labour and the environment.
We have a good story to tell about our environment. We are better placed than just about any nation on earth to give overseas consumers assurances that they are purchasing socially and environmentally responsible goods.
Our future success will depend - in part - on our success at differentiating our products around these valuable advantages.

I know the dairying industry has recognised these factors. The response has been the vision to be best in the world in dairying. It's embodied in the industry Strategic Framework 2005 – 2015. The framework aims to enhance the sustainable competitive advantage of NZ dairy farming. These plans never have appealing titles. But the goals are ambitious.

The industry is aiming to increase dairy farmer profit and create wealth for New Zealand through a fifty percent increase in productivity and 35 percent growth in milk solids. To achieve these gains by 2015 will require gains of four percent and three percent respectively, year after year for a decade.

Substantial work and effort has gone into developing this strategic approach.
I would like to congratulate the dairy industry for its foresight and commitment.
We have already seen some progress. For example, there have been steps towards the environmental performance targets in the Clean Streams Accord.

But I've been in front of a number of farmer groups in the past few months with a message we need to speed up. We need to accelerate progress at excluding cows from waterways and treatments of dairy shed effluent to meet the nutrient management planning targets. There is progress to be seen elsewhere. There are targets for better efficiency for water use in the 'Dairy Industry Strategy for Sustainable Environmental Management'. (I said these strategies never have appealing titles).

The work to put the strategy into effect is underway. Similar work is underway on fodder and production, animal health and welfare, milk harvesting and 'business and human resources'. The investment this industry makes in research and the effort it is putting into quality will help to maintain its competitive edge.

The government is playing its role as a partner with the industry in all this work. Cash for research comes from the Foundation of Research Science and Technology. The MAF Sustainable Farming Fund has provided over $10 million for dairy industry projects support since its inception. There'll be more funding announced very soon for projects beginning after 1 July.

The science is important because it underpins innovation. Overall, the Labour-Progressive government invests over $83 million/year in pastoral farming research. And it is innovation that will increase our productivity and provide us with an edge in global markets as they evolve in future. Innovation has always underpinned our primary industry.

Some years ago I wrote a book about New Zealand's Unsung Heroes.
One of the individuals who shaped New Zealand that I chose for inclusion was William Saltau Davidson. He was the pioneer of refrigerated shipping. If we go back over a century to Davidson's time, agriculture looked very different.
New Zealand farmed mainly for exports of wool. We exported almost no meat and no dairy.

Property speculators dominated land use in New Zealand. It is easy to imagine the business leaders of the day pronouncing, "New Zealand will never be able to sell butter, cheese or lamb. We're too far from our markets - in Britain." Davidson proved them wrong. His innovation changed the face of New Zealand industry. And it helped to secure a hundred years of prosperity. Just as innovation in the nineteenth century set alight our primary industries then, it will continue to fuel our future prosperity.

Some will be in businesses that grow out of our primary sector. Businesses like the Gallagher Group, for example. It moved from electric fences, to animal management products, to sophisticated security, tracking and tracing products. It now operates in 130 countries globally. I hope we produce many more businesses like that.

But as they grow, dairying will still remain the heart of our economic machinery. There is a great story to tell about our West Coast dairy development. First came the innovation of humping and hollowing, rendering formerly unusable land into prime dairy land. The price of this land is now $25,000 per hectare and there is an 8 per cent increase in production from Westland Dairy Co-operative. As you can imagine, it has revolutionised the economy of the West Coast, which has only 13 per cent of land area available for use.

Our edge - our source of value - will be our excellence. We need more high value products, and better exports because we won’t get far competing as the lowest cost producer. The last couple of years have not been easy for many of our primary sectors. The high exchange rate and low commodity prices were brutal. Industries like forestry have felt a scorching heat.

Two weeks ago I spoke at a Deer Industry dinner. Venison is achieving around $3.58 per kg for a 60kg stag. The same product was achieving $6 a kilo before 2003. No industry can easily sustain a fall in returns like that. The dollar may have come down to more competitive levels now. And many sectors can look forward to higher commodity prices. It will take time but these will provide relief. But relief from the immediate challenges is not a long-term solution to lock strength and resilience into our primary industries.

We need to develop better resilience against the business cycle. There is no magic bullet that will lock in export returns and insulate the industry against future challenges. But nor are we helpless. We are custodians of our own future.

Our future is best guaranteed though innovation, and steady progress in everything we do. We have to get a lot of things right: Investment in skills and infrastructure; Innovation, driven by science and superior business processes to differentiate our products and improve yields; Global marketing networks that ensure we are responsive to the demands of consumers.

And we need to ensure we have world leading practice to stay ahead of the challenges coming on this front. As Minister I am putting my hand up for the challenge. We are all on the same team. We all want a prosperous and sustainable future for New Zealand. We are all reliant on our primary industries succeeding. We should celebrate and build on these advantages we have, and make a virtue of necessity.
New Zealand needs to do a better job of recognising success in all our businesses. We need to cheer business success as much at least as we cheer the All Blacks. We spend far too much time clubbing our business failures around the head - with handbags! We need to get better at celebrating achievements. We celebrate business success not for the material recompense it brings, because those are their own reward.

No, we celebrate for its inspiration to others; the example to emulate and the idea of possibility planted in the minds of others. We celebrate for the opportunities created for other New Zealanders in jobs and better incomes from successful businesses. And we need to celebrate also the talents and skill it takes to be successful. We need to unleash our potential. We need to keep moving to new, higher-value markets and protect the valuable markets in which we have gained a foothold.

I'm committed to working in partnership with the sector to overcome the barriers to faster growth. We have a lot of work to do. The job will never be finished. But tomorrow's success will be harvested from the seeds we plant today. It's time to get out into the fields.

ENDS

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