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Government Arrangement: Initial Implications

Government Arrangement: Initial Implications for Sheep and Beef Farming

As you will know, last Thursday New Zealand First announced that it has elected to enter into a coalition agreement with the Labour Party to form the next New Zealand Government (‘the Coalition Agreement’). To stay in Government, the coalition will need to rely on a separate agreement with the Green Party to support the coalition in budget votes, and on votes of confidence in the Government (‘the Support Agreement’).

I wanted to share with you some of our initial analysis on key implications for sheep and beef farmers, and what we see as the next steps for Beef + Lamb New Zealand (B+LNZ) engagement with t he Government.

Water

The ‘Water Tax’ proposed by Labour has become a royalty paid by exporters of bottled water. This is good news for farmers relying on irrigation, but we will have to see how some of the challenges to the proposal – including who ‘owns’ water in the first place – plays out. As the policy around this is thought through, we will need to stay part of the debate as we can only be sure that a ‘Water Tax’ is off the agenda for this three-year term.

The Supply Agreement has a focus on freshwater quality improvement, and specifically mentions stronger regulatory instruments and stricter enforcement of the Resource Management Act. We are supportive of freshwater quality improvement, but the risk here is that a one-size-fits-all approach is taken. B+LNZ will continue to develop and promote an approach to improving freshwater quality based on identifying and managing the specific issues faced on-farm or in a catchment. We need to invest in actions that make a difference, not in uniform requirements that ‘everyone has to do’.

A positive from the Supply Agreement is a focus on promoting diverse and sustainable land use. Optimising land use is something that we have long advocated for, and diversity is key to this. The barb in the tail is that the Supply Agreement also talks about promoting more forestry – more on that below.

Climate Change

Under the agreements, there would be a Zero Carbon Act and an independent Climate Commission – both based around a United Kingdom (UK) model. The UK model sets a total allowable amount of greenhouse gas (GHG) emissions over a five-year period, and sets the limit for each five-year period 15 years in advance. The limits are legally binding through legislation to give certainty about targets that stretches longer than election cycles.

Certainty helps with investment decisions, which can be positive. But there are some clear risks for sectors with limited opportunity to reduce emissions. On the limited detail available, it seems that agriculture would be excluded unless and until the Climate Commission recommended its inclusion. If that happened, agriculture would only be liable for 5% of its GHG emissions, with the money generated from that going to mitigation research and tree planting.

This last point – tree planting – appears in many places in the agreements and this is going to be a significant challenge for the sector over the next three years. There is a place for trees, but not at the expense of productive hill country farmland. We will be urging the new Government to recognise what sheep and beef farms already contribute to carbon sequestration – through shelter belts, wooded gullies, and permanent pastures – before looking to sheep and beef farmers to retire productive land into forestry.

Trade

The agree ments say very little on trade directly. The exception being to re-start the FTA negotiations with the Russian-led Customs Union, and to work towards some sort of Commonwealth FTA post-Brexit.

The agreements do talk about strengthening the Overseas Investment Act and building a register of foreign-owned land and housing. This has clear links to election policies around restricting foreign access to buying existing houses and buying farmland.

The issues these policies aimed to address – housing and farm affordability – are real issues that we need to be thinking about. The challenge will be to address these issues in a way that does not jeopardise our FTA position.

We export 95% of our lamb and over 80% of our beef, and we need to stay competitive in our offshore markets. Opening up FTAs to renegotiation could be problematic and lead to demands for something in exchange from the other side, or to delays in implementing FTAs.

The TPP is a good example here. If it enters into force, the over 10% tariff advantage Australian beef exports to the lucrative Japanese market have over New Zealand exports to Japan will disappear. If we re-open negotiations with 11 countries, it may take years before they conclude again. We need to address the downsides of foreign investment without having to hamstring our exports.

Rural Investment

A positive from the Coalition Agreement is the establishment of a $1 billion per annum Regional Development (Provincial Growth) Fund. Part of this would be targeted to planting 100 million trees/year, which does present challenges. However, it would also be used to fund large scale capital development – such as rail and port infrastructure – which would be a great investment.

Next Steps

We will keep watching over the coming days and weeks as the policy behind the headline announcements becomes clearer.

Now that Mi nisters have been announced, we will be seeking meetings with key portfolios to help them better understand how they can support our sector – and in turn how we can work with them to meet each other’s’ strategic priorities.

We will keep you up to date as we go!


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