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Clark: Opening Address at Agribusiness Conference

Tuesday 20 May 2008, 4.10pm

Rt Hon Helen Clark
Prime Minister

Opening Address at Agribusiness Conference

TSB Arena
Queens Wharf, Jervois Quay, Wellington

4.10 pm

Tuesday 20 May 2008

Many thanks for the invitation to speak to you today.

I’ve accepted your invitation because I’m acutely aware of the importance of agribusiness to the New Zealand economy and am heavily involved in promoting its exporting offshore as Prime Minister.

When I grew up, New Zealand was widely regarded as living off the sheep’s back.

My family certainly did – on our sheep and cattle farm.

Over the years as farming has waxed and waned and other sectors have also come to the fore, there’s been debate about the place of the pastoral industries in the economy.

But for me, there’s no debate.

• The pastoral and food sectors to this day provide a majority of our exports.
• Pastoral agriculture has been a leader in achieving productivity improvements.
• New Zealand farmers have always been leaders in their willingness to adopt new technology to enhance their farming operations.

So for me, pastoral agriculture is not part of an old economy which belongs to New Zealand’s past. It’s very much part of the new economy which will shape and drive New Zealand’s future.

Of course there are challenges – but there are also many opportunities.

We’ve seen both in the last week – with the PPCS announcement of restructuring and layoffs, but also the signs of movement on opening up market access for our primary products in Japan and Korea.

The way ahead for the sector will see us, as New Zealand Inc, working our way through the challenges and maximising every opportunity which we can create.

For many years, New Zealand agriculture has been fighting to export into world markets with a strong protectionist bias.

Our industry has been one of the few in the world to bear full exposure to international competition.

Food supply worldwide appeared to be boundless – and there have been many years of somewhat indifferent prices.

But times are changing. Internationally food surplus has turned to food shortage. Around the world in recent weeks we’ve seen riots over food scarcity and high prices.

And we’ve also seen scares on food quality offshore – as consumers worry about animal diseases impacting on human beings, and about contamination in food processing.

For some time now, our dairy industry has been receiving historically high prices overseas, resulting in good returns at home even despite the higher-for-longer New Zealand dollar.

I understand now that lamb prices are also on the move – upwards.

The factors driving international prices are long term ones. The world’s population is growing fast – and, within that, so is the size of the middle class populations within the mega emerging economies like China and India.

As well the impact of erratic climate on world agricultural production has had a significant effect on supply. Prolonged drought in Australia has also taken significant volumes of production off world markets. And events like the massive cyclone and flooding in Burma a couple of weeks ago impact severely on that country’s ability to feed itself.

These kinds of pressures I believe lie partly behind the re-examination in both Japan and Korea of the desirability of having free trade agreements with New Zealand.

Both are major food importing countries. They need reliable and quality supply.

New Zealand fits the bill.

For the first time perhaps, there’s a clear coincidence of interest between our export interests and their import interests.

This became apparent last week when I visited both countries, supported by senior and substantial business delegations with strong representation from agribusiness.

Against the background of food security and quality issues, and also the FTA our government has negotiated with China, I found a far greater readiness at the highest levels in Japan and Korea to discuss New Zealand’s trade access than ever before.

This is good news for agribusiness, and it’s good news for New Zealand. Japan is our third biggest market, and Korea our sixth. Access there matters a lot to us.

With Japan, we’ve agreed to begin a joint study on the potential of an FTA for both our countries. Senior Japanese commentators say that when Japan agrees to a study, it does carry through to negotiation of an FTA.

With Korea, the study agreed to eighteen months ago is complete, and we have agreed to preparatory talks about negotiations in the second half of this year.

We believe that once negotiations with Korea begin, they will move quickly because we are two of the most complementary economies in the Asia Pacific, and we have compatible negotiating approaches.

With the China FTA signed; with the end game for the ASEAN – CER negotiations clearly in sight; and with negotiations with Korea looking very likely; I don’t believe Japan will want to be left behind.

Our government’s approach to this push for trade access is strategic – we are seeking a network of FTAs throughout East Asia – and that is now within our grasp. The biggest gains undoubtedly will flow to our economy’s most important sector – the pastoral and food industries.

It’s worth noting also that we are engaged in a study on an FTA with India; we are in negotiations for an FTA with the Gulf states of the Middle East; and we have in the past 8 ½ years negotiated FTAs with Thailand, Singapore, and – in a four way deal - with Chile Brunei and Singapore.

And under that latter FTA, the United States is now getting involved in its next stage – the financial services and investment negotiations.

Of course the biggest game in town for agricultural market access and trade policy is still the WTO’s Doha Round. But after 6 ½ years, it’s struggling. Our government has made the judgement that we needed to get on with direct negotiations for market access with others, while also driving hard at the WTO Round.

There had been hopes of progress in the Round this month – to the point where a ministerial meeting could have been held to crunch a deal.

I am now told that that is unlikely.

A ministerial meeting is still possible by mid-late July, but if one is not held by then, the general view would be that it will not be possible to finish negotiations this year. By the time a new Administration of either party gets settled in the United States in the course of next year, the Round would have a lot of catch up to do.

While overall I see a lot of opportunity for our agribusiness in the international marketplace, I don’t believe there are any grounds for complacency.

In time there will be a market response to the food supply shortage, from agribusiness and smaller players world wide.

What we know is that there’s not a good future for New Zealand in endeavouring to compete on price and volume with the low cost, high volume emerging economies of Latin America and South Africa.

Our land area for pastoral agriculture is limited. While there’s always room for productivity gains in production systems, our agriculture is already highly capital intensive and investing in the latest technology.

In large part I believe our income gains for agribusiness will need to come from down stream processing, from the export of agri-technology and services, from investment in agribusiness offshore, and from ensuring sustainable practice through the value chain. I have no doubt that a premium will be paid for the sustainable production of goods and services in future.

The government’s thinking on the way ahead for the pastoral and food sector has been informed by the work of the Food and Beverage Task Force; by the advocacy of the Pastoral 21 Research Consortium; and by the debate at the Primary Industries 20/20 Summit in Christchurch last year.

All have advocated more research and innovation focused on the value chain all the way from the farm to the fork.

In discussion with agribusiness leaders, the government developed the Fast Forward proposal, which sees us making an up front investment of $700 million into a specific fund for research and innovation in the pastoral and food sector over the next ten to fifteen years.

With earnings from investment of capital and with matching funding from the private sector, around $2 billion will be generated to invest in the future of the pastoral and food sector.

Fast Forward will have its own independent board to set its strategy and approve the programmes it invests in. Through the initiative we will see improved links between producers, processors, and researchers; and even more rapid uptake of new technology and processes. The initiative should support diversification into new markets and into highly differentiated new products.

Fast Forward is also about helping New Zealand address the sustainability challenge, by investing in the science and innovation we need to create production systems which protect our water, land, biodiversity and climate.

Increasingly in our first world markets, consumers are making ethical judgements about the products and services they buy. Central to those judgements is the environmental integrity of products and services.

If campaigns like “food miles” and “travel miles” gain traction, then there would be a bleak future indeed for our exports and our tourism.

So we need to go the extra mile to show that we care about getting the balance right too.

Part of the government’s strategy for dealing with these issues is the proposed emissions trading scheme announced last September.

We kept our word to the agricultural sector that it would not be included in the first Kyoto commitment period.

Agriculture is due to come into the scheme in 2013, with an allocation of free emission units representing ninety per cent of the sectors 2005 emissions.

That level of free allocation would not begin to phase out until ten years from now in 2018 – and the end of the phase out would be in 2030 – 22 years away.

At all times we have taken into account the particular challenges agriculture faces in dealing with its greenhouse gas emissions. But we can’t overlook the fact that when New Zealand’s terms of entry to the Kyoto Protocol were negotiated in the 1990s, agricultural emissions were put on the table. As a result, they are prominent in our overall emissions profile – about half the total.

Despite the challenges, the premium we need to extract from being clean and green and serious about sustainability is considerable. If we were seen as part of the climate change problem and as not part of the solution, there would be a price to pay.

Clearly our own climate has caused agriculture considerable grief in recent years, with major flooding, the huge and early snowfall of a couple of years ago, and during this past year with the long drought.

While the drought has broken for the most part - although areas of difficulty remain in the South Island - the effects will be long lasting and far reaching. The Minister of Agriculture and MAF on behalf of government have worked closely with the sector throughout and will continue to do so.

The past week has also highlighted issues within the meat industry, with the announcement of substantial restructuring by PPCS.

The Minister of Agriculture is due to meet again with the Chairman of the Meat and Wool Task Force to discuss ways in which the government might help facilitate progress towards a more integrated and coherent meat industry.

The Minister of Social Development and Employment and her officials are also keen to work with the meat industry on how to retain the skilled workforce displaced in recent restructuring to meet industry needs elsewhere.

I would like to end by commenting on the opportunities for agribusiness offshore beyond our goods exports.

The expansion of pastoral farming from Latin America to the former Soviet Union, Central and Eastern Europe, and Asia offers opportunities for NZ agribusiness as an investor and as an exporter of services, technologies and systems. For example, I understand that Fonterra is now Chile’s biggest dairy exporter, and I am aware of a number of examples of investment in pastoral farming off-shore.

In these ways we can overcome the constraints of our biophysical environment, and achieve greater access to and connections with our markets.

I’ve come today because while I recognise the challenges agribusiness faces, I’m also excited by its opportunities, and I’m fully appreciative of the massive contribution the sector makes to New Zealand’s economic wellbeing.

I hope that our government can continue to work with the sector to maximise the returns for it and for New Zealand.

It is now my pleasure to declare this agribusiness conference open.


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