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Luxton Speech To NZ Fertiliser Manufacturers Assn

KEYNOTE ADDRESS: HON JOHN LUXTON
New Zealand Fertiliser Manufacturers Association Conference
James Cook Centra, Wellington
8 November 1999
(check against delivery)

Ladies and gentlemen. Thank you for the opportunity to speak here today.

Fertiliser sales have always reflected the heartbeat of the rural sector. It's the first thing we purchase when times are good, and one of the last things we purchase when times are tough. If ever there's an industry that has a keen interest in the Government's agricultural policies, it's yours.

Today I'd like to outline some of the things that I believe will assure the future prosperity of New Zealand.

New Zealand's future prosperity

The importance of agriculture to the New Zealand economy cannot be overstated. Including fish and forestry, food and fibre exports generate 75% of New Zealand's export returns.

While as a proportion of the total, this is less than it was a couple of decades ago, in dollar terms it continues to increase. The food and fibre sector remains incredibly important to the New Zealand economy. In fact it's contribution to the GDP has increased over the last decade.

The Government's policies of the past decade have been aimed at improving the trading conditions for our agricultural and export sector.

New Zealand exporters depend upon a low interest rate, low tax, low inflation economy that this Government is committed to delivering. Our job is to continue to provide the best environment for further growth in our export sector.

As a trading nation, our prosperity is dependent on the performance of our agricultural sector. It has been the Government's job to assist make New Zealand one of the most competitive investment environments in the world.

Labour market reforms, shipping deregulation, electricity reforms, the planned roading reforms, are all things which help farmers ,the New Zealand's export earners, to keep an ever increasing share of the pie that they create.

Last year as the Asian crisis struck economies across the globe, the New Zealand economy performed as it was supposed to in such circumstances. Our exchange rate declined making New Zealand exporters more competitive. Thanks to overseas confidence in the Government's economic stewardship, lower interest rates soon followed, and the economy is now bouncing back strongly.

Strong rural communities hinge on a competitive economy and the National Government has driven a reform process to ensure that New Zealand's farmers remain internationally competitive.

The Employment Contracts Act, tariff elimination, shipping deregulation, and stable monetary and fiscal policies are all about lowering the input costs for New Zealand's trading sector and making the producers of New Zealand's vital foreign currency earnings, more profitable.

Shipping deregulation has allowed the transport of fertiliser between the North and South Islands at costs previously thought impossible.

We now boast one of the lowest inflation rates in the entire OECD. interest rates are at a 30 year low, with average farm mortgage rates of 7-8% , - less than half of those a decade ago.

Through implementing these reforms to lower farm and business costs, the Government has tried to counter the impact of a long-term decline in commodity prices. But that alone will not be enough to protect the New Zealand food and fibre sector in the coming millennium.

The theme of your conference is economic and environmental benefits of high yield farming. I believe that environmental quality and a sound economy go hand in hand.

Global realities

There's little doubt that economic growth can be good for the environment. As economies get richer, people are increasingly demanding (and can afford) a cleaner environment. It follows that cheaper production methods, agricultural and others, create savings and generate wealth which can be used to alleviate environmental costs.

On the world scale New Zealand is still relatively well off in terms of our environment. With our low population density living we haven't experienced the environmental problems that many other countries face.

But the picture is very different when viewed globally. The major environmental challenges facing the world today, result from the way people go about living or making a livelihood. The core of the problem is what and how people produce and consume.

The challenge for New Zealand, is to find ways of utilising our natural and physical environment in ways that conserve its capacity for use in the future. The systems of seasonal farming that have evolved here are as near as can be, designed to work with nature rather than against it. Our primary sector has sustained our country for generations without significant cost to the environment.

The world we are living in is changing fast. As a food producing nation we have to contend with the global realities. The importance of managing our environment sustainably has to be balanced with the food needs of an ever-increasing world population. New Zealand leads the world in sustainable farming systems and this should place us in good stead for the future.

Expanding population

The world has just celebrated the birth of our six billionth baby!

The challenge for us in the 21st century is to drastically increase the output of the land we use for farming, while reducing any negative effects on our environment. We cannot meet this challenge with low yield farming.

High yield farming has increased the world's grain production from about 610 million tonnes in the 1950's to more than 1,900 million tonnes per year in the 1990's. By 2050 I note your guest speaker has estimated that we will need to triple the output of our farms to meet the world's food needs.

While the average farm in the developed world produces enough food for 40 families, the average New Zealand farm produces around twice that.

52% of our land area is devoted to agriculture. Pastoral agriculture is our main land use. We have 13 sheep and 3 cattle for every New Zealander. With such a massive chunk of our land area used for agricultural purposes, it is inevitable that we as New Zealanders are looking hard at the impacts of primary production on our landscape.

New Zealand agriculture has increased its production in real dollar terms by nearly a third over the last decade.

Environmental sustainability

The real answer is to use our pastoral lands more effectively so as Dennis Avery says, there is no need to elbow wildlife out of the way. Without high yield farming, we run the risk of losing more species and jeopardising our unique biodiversity. Since the arrival of man, New Zealand has already lost a number of species that cannot be replaced.

A truly sustainable system manages the environment for the benefit of future generations but also has to meet the economic and social needs of the current generation.

We know the roots of our economy lie in the productive sector, but it is clear that sheer volume alone is not the answer to its long term sustainability.

Prior to the removal of SMPs, New Zealand had over 60 million sheep. Fifteen years on, current estimates put the national flock closer to 46 million. This in itself is not remarkable. What is more remarkable is that this considerably smaller flock is now much more efficient.

In the 1997-98 year the sheep meat sector exported 471,507 tonnes of product. This compares rather favourably with the 478,981 tonnes exported in 1988-89 from that far larger flock.

In the past decade, lambing percentages across the flock have increased from around 90% to well above 110%. That figure could be even higher this year with some top-producing farmers achieving well over 150%. Out of the same flock New Zealand is also producing, on average, significantly larger lambs. Over the past decade, lamb weights at slaughter have increased from 13.07kg to 15.45kg, up 18%.

By world standards, New Zealand's farming systems are low-input and there is constant pressure to utilise inputs efficiently. Farmers are moving cautiously towards higher input systems but they are constrained by the risk of volatile world market prices.

In the past decade, New Zealand farmers have come under strong pressure to increase their efficiency simply to survive. Initially, farms became larger and more mechanised to spread their labour cost over greater numbers of livestock.

But New Zealand does not have unlimited farmland. Much of it is marginal and prone to erosion. If we want to continue increasing production, high yield agriculture can avoid the take-up of erosion prone land and the negative environmental spin-offs that entails.

The responsibility to rectify some of the major problems created when previous generations developed land that is inherently unsustainable, is also recognised by the Government.

Re-afforestation of large tracts of erosion-prone steep hill land is desirable, and in the case of the East Coast, is directly assisted by Government grants.

Issues for the Fertiliser Sector

It has to be acknowledged there can be negative environmental spin-offs from over usage of fertiliser.

In the 70s and 80s for example, the subsidisation of fertiliser created over-application with run-offs and other polluting effects. Farmers now think twice before applying fertiliser at non-subsidised prices and the more careful usage has reduced adverse impacts on the environment.

Fertiliser sales dropped dramatically when subsidies came off in the early 80s. From the artificially high levels of 2.5 million tonnes in 1979, sales fell to the low of 1.2 million tonnes in the late eighties as Labour's rural recession reached its peak. Since then, consumption has recovered to the more market driven level of 2.1 million tonnes where it is today.

As you will be aware, the Fertilisers Act is being repealed and fertiliser will be covered by the Agricultural Compounds and Veterinary Medicines Act 1997.

The Agricultural Compounds and Veterinary Medicines Act 1997 provides a framework for regulating compounds such as pesticides, fertilisers, stock feeds and veterinary medicines used in the management of plants and animals. The purpose of the Act is to manage risks to trade, animal welfare, agricultural security, and domestic food residues arising from the use of agricultural compounds.

However, because its commencement is tied to the commencement of the Hazardous Substances and New Organisms Act, commencement has been delayed until that Act is ready. Meanwhile MAF has completed its industry consultation for the fertiliser regulations and the expectation is that the regulations will be operative early next year.

Demonstrating compliance will be the responsibility of industry with an approved industry code of practice being accepted (by MAF) as evidence of compliance with the regulation.

I'd like to acknowledge the excellent work that the Fertiliser Industry has done to develop the Fertiliser Code of Practice. It's important that the sector owns this code.

Other countries concerned with the certification of our produce, consistently remark on our high level of compliance towards the voluntary approaches utilised here. We need to demonstrate this same characteristic in following the best practice guidelines set out in the Fertiliser Code of Practice.

It is important that the code is universally adopted because the alternative -prescriptive regulation - will be much more costly in the long run.

The challenge now is for sector organisations that work in close contact with landowners to explain why these measures are needed and particularly the benefits to the individual farmer.

If a fertiliser is a hazardous substance, it will be covered by HSNO.

This Act establishes a new system for managing the risks to the environment and human health from plants, animals, and microorganisms including genetically modified organisms. The Environmental Risk Management Authority (ERMA) is responsible for operating this Act.

Fertiliser use is also subject to the Resource Management Act. The regional plans developed since the inception of this Act takes the approach that fertiliser application is a permitted activity provided that the Code of practice is complied with.

Regional Councils seem prepared to allow self-regulation based on the codes of practice and will review the effectiveness and efficiency of this approach as part of the normal plan review process.

MAF is continuing to advocate an 'effects based' approach. In other words, Councils should set performance standards for effects of an activity that are of concern rather than listing activities and prescribing how they should be carried out. I am aware that some Councils are overzealous in this area.

New Technology

I understand that MAF along with the New Zealand Fertiliser Manufacturers Research Association have developed Overseer - a piece of computer software that enables landowners to model nutrient balances.

It is a significant step forward in terms of assessing adverse effects of nutrients on the environment. And it is an excellent example of industry working with Government to address sustainability issues.

There is no doubt that such new technology will, over time, better target fertiliser requirements and application.

Conclusion

To return to my opening remarks about the prosperity of the agricultural sector being reflected in fertiliser sales. In two weeks time New Zealand will go to the polls to elect a Government that will determine future success of the sector.

This Government has often been criticised for our commitment to free trade especially by those on the left, for reasons that don't stack up. So I'd like to leave you with a quote from your keynote speaker - Dr Dennis Avery who I'm will attract a lot of media attention

'High yields won't be enough by themselves. We'll need to use the world's best and safest farmland to treble world crop yields. Thus, free trade in farm products will be vital. Without free trade, the next century will put too much of the food population burden on tropical lands, which face higher soil erosion risks from the lack of organic matter in their soils and torrential monsoons - and greater yield risks from fierce tropical insects and diseases. The farm subsidies in America and Europe have failed to improve farmer's incomes and they have committed serious environmental sins.'

New Zealand agriculture still drives the New Zealand economy and the fertiliser industry is a key provider for this sector.

I wish you all the best with your conference and for the coming year.

Thank you

ENDS


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