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Luxton: Opening of the Pipfruit Growers Conference

SPEECH NOTES:
HON JOHN LUXTON

Opening of the Pipfruit Growers Of New Zealand Conference

Hastings Racecourse,
Hastings
9 September 1999
(check against delivery)

Chairman, Richard Easton, ladies and gentlemen, I am delighted to once again address your Annual Conference of Pipfruit Growers after another interesting but difficult year for your industry. Since I last spoke to many of you in May, a great deal has happened.

But firstly I want to acknowledge the pressure that has come on the industry from the international marketplace where apple production continues to surge, particularly in China and also from traditional producers, together with the increasing impact of other fruit in the retail of your product.

The current season has been described as the most difficult of the past 10 seasons, so I commend the work of your industry and its recognition internationally as a producer of the highest quality pipfruit in the export market.

Over the last 18 months there has been much debate on the issue of producer board reform. The Government has been very focussed on ways to increase industry returns overall.

There is also debate within your industry as to whether single selling or multiple selling is the best way to continue maximising returns for the New Zealand pipfruit industry.

That is an ongoing debate that is healthy and should continue. The last 12 months have been a rocky road but I believe we have made significant progress over that time.

Even in May when I addressed some of you at the Airport Hotel in Wellington, there was still a high level of uncertainty and finding a way forward was proving difficult. Now the Government and industry have agreed to a package which I believe puts the industry in a good position to face future challenges.

I am pleased with the level of consensus we have achieved among growers and I would like to thank John McCliskie and other industry leaders for their role in reaching it.

Just last weekend Parliament endorsed the Apple and Pear Industry Restructuring Bill with 117 votes to 1 and I believe the high consensus is a consequence of the rigorous debate that growers and politicians have had over that time.

Apple and Pear Industry Restructuring Bill

The Apple and Pear Industry Restructuring Act enables growers to determine the ownership of ENZA. It also separates the commercial activities of ENZA from the regulatory roles of the Board. For too long there has been a mix of regulatory and commercial functions within the one organisation which has made it difficult to get a very clear focus on one or the other.

I believe the majority of growers are supportive of the concept of having real ownership of the very large assets accumulated within the current Apple and Pear Board structure. With a corporate structure, every incentive will be on you as owners and growers to ensure your organisation maximises its returns.

Point of Acquisition

Another very significant change brought about by the legislation is that from 1 February 2000 ENZA will acquire fruit from Free Along Side Ship. This very significant change took place in the kiwifruit industry two years ago and resulted in quite significant reductions in onshore costs to producers.

We would like to see this move to Free On Board Ship within 2 years, especially if competing on-shore operators can arrange more competitive stevedoring.

New Export Permits Committee

Whilst the single buyer issue is still being debated within the industry, the new Act brings some changes. A separate, independent stand-alone Export Permits Committee is to be established. Its members will be appointed by the new regulatory Board. It is my view that this Committee should exercise its judgement and its discretion in the export consent area in a way that recognises the diversity of growers in the industry and encourages innovation and benchmarking.

An increasing number of growers I might add, are disappointed the Bill did not go further on this issue, and remove the export controls like the new dairy industry legislation potentially does. Certainly that was a lively piece I saw on the Holmes show a couple of weeks ago.

Although there has certainly been some heated debate over the single seller issue, I believe the structural changes we have made are very significant in moving your organisation forward.

The package is very different from changes made to the dairy industry legislation, which includes the removal of the single buyer, because of the distinct nature of each industry as well as the different stages of their evolution.

The dairy industry already has clearly defined ownership while the Apple and Pear Marketing Board does not. Perhaps growers will see fit to eventually take the next step and move to multi-exporting, a move, which I believe, will increase returns to growers.

Declining commodity prices

The apple industry is caught, as are most other parts of the agricultural sector, in the downward spiral of falling commodity prices which sees apple prices that were more than $1.50 a kilo in 1950 in today's money, now selling for around 35 cents per kilo. And commodity prices are still trending down. Increased orchard efficiencies have not been sufficient to offset the fall in prices.

The only way to increase profit is to increase revenue or lower costs or to do both. In essence in most ventures today the focus has to be on both.

To increase revenue we can improve the marketing and I'm quite sure that the changes brought about with the Restructuring Act will assist that.

You can diversify product and it's interesting to see different product lines coming through particularly with new varieties and the growing demand for organic produce. And we can innovate. There are a variety of ways in which innovation is, and will occur in the industry.

Innovation

We see the potential of biotechnology allowing longer storage life of fruit. New products we've spoken about. New systems of handling and lowering costs. New marketing ideas and new processing technology. New varieties will also continue to be very significant in the apple industry.

The other focus has to be on reducing costs. On-farm, differing spray programmes, differing pruning programmes and the like. A focus on off-farm costs; Free Along Side Ship I'm quite sure is going to markedly reduce the costs that growers pay in New Zealand. Even more so with a subsequent move to FOBS.

What Government has done for Growers

Obviously New Zealand's economic changes and the Government's policies over the last 15 years have focussed very much on lowering the costs to growers and exporters so that you can remain internationally competitive.

I have to say it is with some surprise that I listen to people criticising Government reforms as not being of benefit to our agricultural sector. I find it very hard to think of a significant reform in this country that hasn't been aimed at lowering the cost structure of our agricultural sector and improving our international competitiveness.

Reducing taxes, opening up the fuel industry to competition, the Employment Contracts Act, now under threat from the Labour/Alliance bloc, the elimination of stamp duty, shipping deregulation which has lowered the costs of a container travelling across the Tasman or across Cook Strait. Tariff reductions and the list goes on.

For those who argue that we should retain tariffs in New Zealand, I ask why would anyone want to pay 20% more for their farm ute or farm tractor or for their gumboots or spray gear? That simply doesn't make sense. Eliminating tariffs is vital for the agricultural sector. I know of no New Zealand tariffs that actually help our agricultural sector.

Economic stability, low inflation, a stable exchange rate and low interest rates have also greatly assisted grower profits. Just this decade we've seen a halving of interest rates and it's one of the reasons why farming remains viable in this country - despite declining international commodity prices.

Parallel importing and of course producer board reform. You can also look at other significant Government reforms which have all been aimed at lowering costs by improving efficiency and prioritising spending in those important sectors.

Some in our society believe that increasing taxes and increasing Government spending in these areas instead of restructuring them and improving their efficiency might provide a solution.

But to those people I say that if the spending on a Government service increases then taxes will increase, farmers will have less money to spend on their farms and families and, basically, farming will become unviable. Many say it is at present but I have to say these difficulties are worldwide. And there are also many examples of innovation and success throughout New Zealand agriculture.

The future challenge

What the Government has to do is provide an economic environment that continues to lower costs.

The choices coming up to the election are stark. I noted comment from your organisation earlier this year that you were comfortable with Labour policies, well I hope you read carefully their Industrial Relations policy released yesterday and the promise to return to compulsory unionism.

Either we turn the clock back and run our country into the ground with costs increasing off-farm, to the extent that farms become completely unviable. Or we continue reform and restructuring in our society and open it up to allow new investment, new opportunities, new products and new jobs.

I am leaving this Conference now to go straight up to the APEC Conference in Auckland. This is one of the most significant conferences that this country has ever hosted. It is all about what we can do for this sector, the export sector, about lowering the hurdles into other countries.

It follows with the WTO Seattle Round at the end of this year, which will put agriculture on to the agenda for the World Trade Organisation. I have to say the Government is very busy in trying to ensure that the environment for the continued prosperity of New Zealand agriculture, horticulture and the apple industry is a positive one. Something that other parties don't seem to have focussed on.

With apple exports of $384 million in 1999, your industry is very important to the whole New Zealand economy - not just the apple growing regions. I'm confident that with the sound policies that my Government can provide, it's contribution can grow.

Thank you very much.


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