Hon Phil Goff
Minister of Trade

25 July 2007
Speech Notes

Support for Pipfruit exporters
Pipfruit NZ Annual Conference, Hastings

Thank you for the invitation to attend this year's Annual Conference of Pipfruit New Zealand.

I would like, first, to acknowledge the good working relationship I have had over the last year with Ian Palmer, as Chairman, and Peter Beavan, as CEO, of Pipfruit NZ.

The issues are often difficult but a professional and cooperative relationship enhances our collective ability to deal with them.

Exporting has never been easy and today's increasingly globalised world has thrown up both new challenges and new opportunities.

Access to markets, and dealing with tariff and non-tariff barriers, is critical in an industry that exports 85% of its product.

Apart from real and imagined SPS issues, environmental considerations such as "food miles" linked to carbon emissions and questions such as pesticide residues are being highlighted.

At home, a tight labour market and an over-valued kiwi dollar are further challenges.

World commodity prices have favoured some industries such as dairy, which has had a 96% lift in prices in the last year. This has put pressures on other producers that have not enjoyed the same increases.

The pipfruit industry has had to work hard over a long period to compete in a difficult and intensely competitive environment.

It has a strong history of innovation. Apple varieties bred and selected in New Zealand currently account for 12% of the world's apple crop.

Research partnerships between government and industry remain strong and are appropriately focused both on maintaining quality, and delivering what customers want.

This fits with the theme of this conference, "understanding your customer".

The development strategy for the New Zealand pipfruit industry sets out a clear vision for the sector becoming a leading niche player.

That vision identifies the imperative of outdoing competitors in quality and innovation.

That is essential for a country that is the furthest away from its major markets, and whose key competitors have lower costs of production.

Government support through New Zealand Trade and Enterprise, the Ministry of Economic Development, the MAF Sustainable Farming Fund, and the Crown Research Institutes' Crop and Food and Horticulture Research, have all helped in the implementation of the pipfruit industry development strategy.

One of the early initiatives identified was the need for the development of an enhanced orchard management system, which would produce no detectable pesticide residue products.

I am pleased to announce to the conference today, on behalf of the Minister of Economic Development, Trevor Mallard, the Government's decision to allocate $2 million of government funding over three years for the Apple Futures Project.

This project is a partnership between the Hawkes Bay, Nelson and Otago regions, Pipfruit New Zealand and New Zealand Trade and Enterprise.

Government funding will be supplemented by $667,000 from the pipfruit industry.

The funding will be used to employ a national project manager and three technical staff to rollout a programme of refined orchard management techniques in the participating regions.

This includes more intensive plantings to make it easier to grow fruit that complies with international pest and disease regulations, wider use of biological controls and education about how to reduce pesticide use.

Achieving an outcome of no detectable pesticide residues will give growers a strongly competitive edge in markets where environmental considerations are becoming increasingly important.

The project is expected to increase annual value of exports from the industry by $152 million after five years.

Sustainable environmental management is critical for New Zealand's clean, green reputation in the world.

To ensure substance behind our branding, New Zealand has to address ways of improving environmental practice and reducing our carbon footprint.

Environment is an issue not only in its own right, but increasingly one with major economic implications.

It is also, of course, capable of being misused by those with protectionist motivations. Food miles is a case in point.

The food miles argument simplistically claims that the further food has to travel to market, the higher its transport emissions are – and the worse its impact is on the environment.

To add to the lustre of the argument, false claims are being made about New Zealand horticultural produce being airfreighted to the United Kingdom.

In fact, 99.75% of our food and beverage exported to the UK is sea-freighted – a form of transport which has a relatively low carbon footprint.

Food miles is a fundamentally flawed concept.

Transport to the market is only one – and often a small – component of a product's carbon footprint.

The whole of the product's production and transport energy input has to be considered.

Research carried out at Lincoln University shows that New Zealand apples have a carbon footprint overall, that is lower than that of their UK equivalent – even after accounting for 18,000 kilometres of refrigerated sea transport.

New Zealand is actively confronting the food miles claims through Government, media and NGO channels in the UK, with the result that recent media coverage has become more balanced.

There is an effective partnership between Government agencies, industry and academia through the Food Miles Group in New Zealand, and our High Commission and a PR Agency in the UK, to ensure sharing of information and a rapid response to inaccurate claims made on this issue.

Our primary industries have a good story to tell. Some exporters are already being certified as carbon neutral in their production processes.

The pipfruit industry is clearly playing its part too, through the Pipsure Integrated Fruit Production system, and its emphasis on good growing practices.

And the focus on integrated pest management had the added benefit of maintaining lower pesticide residue profiles, which is emerging as another customer-driven concern in our key European markets.

At home, a number of changes have been made as part of Export Year 2007, to assist exporters at a micro and macro level.

At the micro-level, a $33 million expansion to the Market Development Assistance Scheme, opening of new NZTE offices in Asia, expansion of the successful Beachheads programme and export education and mentoring programme are among the useful initiatives being promoted.

At a macro-level, $2.1 billion in corporate tax cuts, and a quarter-billion dollar boost through tax credits for R&D over the next four years will also help business.

On the other side of the ledger, I am very aware of the pressure that the high and over-valued New Zealand dollar is putting on some sectors of the export industry.

It is not a problem susceptible to simple solutions.

A big part of the problem is a weak US dollar, which has fallen against nearly all other major currencies, and may continue to do so.

A further cause is the high prices received by some commodity areas. Dairy, which constitutes nearly 20% of our total returns, is getting returns on exports not seen since the wool boom during the Korean War.

That, and since 1999, the longest period of sustained growth in the New Zealand economy for more than 30 years, has also promoted the value of the New Zealand dollar.

For overseas investors, that makes us look like a reasonably safe prospect, on top of returns from our high interest rates.

The Reserve Bank has pushed up interest rates, and thus the exchange rate, because of imbalances in the economy, and inflationary pressures.

After a decade during the 1970s and 1980s of double-digit inflation, and interest rates that went as high as 19 or 20 percent, we don't want to return to entrenched inflationary expectations.

That's why the Reserve Bank was given independent powers, and why neither major party is keen to undermine its efforts to keep a lid on inflation.

It's also why the Government has invested surpluses into paying off public debt and building up the Superannuation Fund, and creating the Kiwisaver scheme to keep inflationary pressures down, and turn around New Zealand's appalling savings record.

But, it is also true that we don't have a lot of tools reinforcing monetary policy. That issue will shortly be considered by the Finance and Expenditure Select Committee.

Action to address problems such as an overheated housing market, however, under MMP requires multi-party support to be implemented. So far, this does not look to be forthcoming.

For me as Trade Minister, a major challenge is trying to secure improved access for our exports into overseas markets.

Tariffs for horticulture as a whole cost New Zealand around $175 million last year.

However, tariff levels for apples in our top five markets – around 90% of apple exports by value, have an average tariff rate of only 1.9%. Take Taiwan out of the equation and that tariff drops to about 0.2%.

But it is equally true that in some of our key emerging markets, apples face high tariffs – 20% into Taiwan, 40% into India and Viet Nam and 10% into China.

A key part of our strategy for market access is promoting a successful conclusion to the Doha Round of WTO trade negotiations.

After several failures to complete the Round, and missed deadlines, negotiations will take place this week in Geneva based around papers released by the Chairs of the Agriculture and Industrial Products negotiating groups.

After the summer break they will resume in early September.

Completion of the WTO Round would be worth around $1 billion a year to us, but with success far from assured, we are also exploring regional and bilateral means to ensure market access.

Our FTA with Thailand removed a 10% tariff on apples and lowered other horticultural tariffs, saving exporters $1.8 million a year.

We hope to complete a Free Trade Agreement with China over the next nine months, and are aiming to eliminate tariffs on goods, albeit phased out over a period.

That would save $100 million in tariffs alone, as well as increasing trade by $260 to $400 million a year, each year for 20 years.

Japan, Korea and India are targets for an FTA but the traditional strength of agricultural protectionism in all three has until recently ruled them out as serious prospects.

Changes are occurring. We will complete a pre-FTA study with Korea this November. We have agreement, in principle, from India to undertake such a study. We are talking with Japan, though this is likely to be a tougher proposition.

Tariff cuts, of course, are only half the story. Non-tariff barriers are an increasingly important problem.

This is most clearly the case with respect to the ban on export of apples to Australia.

Ironically, our CER agreement with Australia constitutes – without doubt – the best bilateral trade agreement in the world.

It has eliminated tariff barriers, and most other barriers to trade, in goods and services.

Apples remain the exception and after 85 years we remain locked out of the Australian market.

We have consistently argued that Australia's quarantine measures are not scientifically justified – apples in commercial trade do not transmit fire blight.

Working with your industry, we felt in the last 12 months we had finally made at least some progress.

Australia published its final Import Risk Analysis for apples from New Zealand last November, and issued its Final Policy Determination in March this year.

We believe, and have argued strongly, that the restrictions these documents still impose are scientifically unjustified, and unnecessarily trade restrictive.

However, for the first time in 85 years, we had the possibility of exporting at least some apples into Australia.

While not ruling out the option of taking the matter to the WTO disputes procedure, we decided, in consultation with your industry, to work in good faith to explore whether the conditions set by Australia would, in fact, allow commercially meaningful access.

We instructed Biosecurity New Zealand to negotiate with its Australian counterpart a Work Plan and Standard Operating Procedure, in accordance with the regime prescribed by the Import Risk Analysis.

We made it clear that this process could, and should, be concluded this month or early next month if orchard inspections were to be completed in time for the next exporting season.

We have provided all of the material requested of us promptly and fully.

Yet late on Friday afternoon last week, we were informed of further delays on the Australian side. Australia now intends to hold a technical experts' workshop on the SOP on 3 August.

We understand that this process is the result of the Australian industry's pressure to slow progress, and political pressure from the Australian Senate Committee, which is asking to consider the Standard Operating Procedure before it is agreed to.

Indications that I have had from my counterpart Warren Truss, and that Jim Anderton received last night from Australian Agriculture Minister McGauran, is that this process will not be concluded any time soon and is unlikely to happen in August.

One might assume from that, that it is unlikely before the Australian election – expected in, or before, November.

Given the track record, I have no confidence that new excuses or legal action by Australian apple growers will not further delay the process beyond that.

And I would want to reiterate that what is on offer may, in any case, not provide commercially meaningful access.

Frankly, I am appalled at the process and concerned that in the context of an excellent overall trading relationship that this issue continues to do damage.

Next week, Jim Anderton and I are meeting with Australian counterparts in Auckland. This will provide a final opportunity for Australia to clarify its position.

Following that, Ministers will meet with your representatives, within the next fortnight or so, to discuss options to take to Cabinet.

The WTO option has always been a live option. It is not quick – it could be expected to take several years.

I am, however, confident that a case taken to the WTO would succeed.

It would be open at any point along the way, for Australia to negotiate an alternative means to resolve the dispute – provided that it allows commercially meaningful access with restrictions only to the extent that they can be scientifically justified.

As has been our recent practice, my intention would be for your industry and government agencies to share information and work together in partnership to secure a fair deal.

Once again thank you for your cooperation, and the invitation to address your conference today.

I look forward to continuing to work with you to confront the challenges, and realise the opportunities, that lie ahead for the industry.

ENDS

© Scoop Media