Speech: Key - Federated Farmers National Council
Hon John Key
18 November 2009
Speech to Federated Farmers National Council
It’s great to be here.
I’d like to thank Don Nicolson and members of your National Council for the opportunity to speak today.
And I’d like to acknowledge Dr Stephen Goldson, who works with my Chief Science Advisor, Professor Sir Peter Gluckman.
Many of you were at your National Conference back in July, and I won’t repeat the speech that I gave there.
But I do want to revisit some of the themes and ideas I touched on then.
Because they tell a story about where we are as a country and where we are going as a government.
And they explain how we want to work with you to help lift the value of the returns you earn on the world stage.
Today I’ll talk about the opportunities and challenges New Zealand faces in agriculture.
I’ll update you on some of the work the government is doing to make the most of these.
And I’ll focus on some areas where I think that you – as farmers and as an industry – can contribute to improving our country’s prospects.
Let’s start with the big picture.
There are a number of things New Zealand has going for it in agriculture at the moment.
We export high-quality food and agricultural products, and we have an excellent reputation for food safety.
Despite our small size, we have real international scale and expertise in two agricultural sectors – dairy products and sheepmeat – where we lead world exports.
We also have innovative producers in a number of niche areas such as merino wool.
In fact, as a general rule, our farmers are extremely innovative.
They are quick to adopt new technologies and improve how they work.
Over the past 20 years, total agricultural productivity grew by 3.2 percent – almost three times the average rate in the rest of the economy.
In the next 20 years, world population is expected to grow by about 50%.
At the same time, the growing economies of Asia will see a massive increase in middle-class consumers who will demand better and higher-quality food as they get wealthier.
The bulk of this increased demand for food will have to come from massive growth in agricultural productivity.
And yet, there is already pressure on arable land in many parts of the world due to growing water shortages.
Water is an area where New Zealand has a major competitive advantage.
We only use a fraction of the water that falls on our land mass, and there is a lot of scope to make better use of this resource without undermining our environmental credentials.
Meanwhile, after decades of high tariffs and import quotas imposed on our products overseas, we’re finally seeing real progress towards free trade among our major trading partners.
just the past few weeks, we’ve signed or reached
high-quality free trade agreements with:
• Malaysia – our eighth largest export market
• the Gulf Cooperation Council – our seventh largest market, and
• Hong Kong – the gateway to China.
Meanwhile, our FTA with the 10 nations of ASEAN will start coming into effect on 1 January.
We have agreed with India to commence FTA negotiations once procedural matters have been resolved.
And just last week in Singapore, President Barack Obama announced that the United States would formally engage with the Trans Pacific Partnership.
The Partnership is a group of eight Pacific nations, including New Zealand, who are working towards a free trade agreement.
Don’t underestimate how big an impact these kinds of agreements will have on New Zealand and the value of your products.
In the first year since signing an FTA with China, our export earnings grew by an astonishing 61 percent or 1.3 billion dollars.
China is already our third largest export market, and within a decade we will have totally free trade with what is likely to become the world’s largest economy.
There is also the prospect of an FTA embracing ASEAN, Japan, China, and Korea, India, Australia, and New Zealand.
And with luck, the eventual completion of the WTO Doha Round.
This is a world that’s very different from the one our agricultural exporters faced 20 or 30 years ago.
And it’s clear that you – as farmers – face some incredible opportunities in the years ahead.
But we must also recognise that there are some real challenges to meet.
New Zealand is only just starting to recover from one of the worst global recessions in 70 years.
The government is facing a decade of deficits and growing public debt.
We’re currently borrowing about $250 million a week to maintain spending on the public services New Zealanders want.
Meanwhile, unemployment continues to rise.
Our productivity is low compared with other developed nations, and in recent years it has been growing more slowly than most other countries.
Our agricultural sectors face some operational challenges.
It’s important that the likes of Fonterra and our meat companies have capital structures in place which allow them to maximise our opportunities.
Then there are the challenges posed by your customers.
One hundred years ago, New Zealand became one of the richest nations in the world because our forebears understood what was going on internationally.
They knew their market – the world’s most important country – Great Britain.
And they understood what their customers wanted.
They fashioned their supply chains to meet that.
They made New Zealand a food basket for Britain.
And along the way, they made something of themselves and this country.
It’s now our turn to understand what is going on internationally.
We have the chance to be a food basket not just for Britain and Europe, but for the growing Asian middle class.
But we face some complex challenges when it comes to understanding our customers in the 21st century.
One example is halal.
Last month, when I was in Malaysia, I visited Fonterra’s newest plant with Trade Minister Tim Groser in Kuala Lumpur.
It is fully halal-certified.
And it feeds into Malaysia’s vision to be a halal hub for food and ingredients.
The global market for halal food and halal products is estimated to be around 2 trillion dollars.
This will continue to grow as the middle classes of Malaysia, Indonesia, the Gulf States, and other Islamic nations grow.
New Zealand is already the world’s largest exporter of halal dairy products and halal sheepmeat, and probably the third or fourth largest exporter of halal beef.
There are some sensitive issues around halal certification and the government is working through these with Malaysia and Indonesia.
But if we can create a climate of confidence around our halal procedures we can build on this competitive advantage.
Another example cropped up in last week’s Guardian newspaper, where a columnist criticised New Zealand’s environmental credentials.
He pointed out that we’ve had a 22% rise in greenhouse emissions since 1990 and he claimed that our clean and green image increasingly defies reality.
This is more important than you may think.
The readers of the Guardian – and other newspapers – buy our meat and our wine.
Environmentally aware consumers across Britain and Europe are increasingly demanding higher environmental standards for the food that they buy.
Meanwhile, America’s largest supermarket chain, Walmart, is introducing a Sustainability Index.
It includes factors such as the impact on natural resources, energy, and climate change in the manufacture of its products.
It is not alone.
From McDonalds to the UK supermarket chain Waitrose, the big companies that sell our products are demanding better standards for the products they stock.
So regardless of your view about the environment or climate change, the opinions of your consumers will ultimately decide how well your products sell.
This is what my Minister of Trade calls “the customer as the new regulator”.
As trade barriers fall around the world, the key to selling what we grow won’t be the demands or regulations of governments.
It will increasingly be the demands and requirements of consumers concerned about what they eat, where their food came from, and the impacts the growing of that food has on the environment.
That’s something we need to be very careful about.
THE GOVERNMENT’S CONTRIBUTION
So our question as a government, is how do we make the most of these opportunities, and how can we best meet these challenges?
First of all, the government’s top priority is New Zealand’s economic success.
We have an economic agenda that is aimed squarely at lifting the performance of our economy through six main policy drivers:
• Regulatory reform.
• Better public services.
• Education and skills.
• A world class tax system.
• Investment in infrastructure.
• Innovation and business assistance.
These last two items have particular implications for agriculture.
Steven Joyce will talk more about infrastructure investment tomorrow – particularly in broadband, roads, and water – but there is one point I want to make.
We see broadband as a key technology that will help farmers connect with and understand their customers, and their ever-changing requirements, around the world.
That’s why, in addition to our $1.5 billion commitment to build an ultra-fast broadband network in cities and towns, we’ve launched a $300 million plan to boost broadband in rural areas.
Innovation and business assistance is an area where agriculture has a great deal to contribute and a lot to gain.
We recognise the huge potential that science has to lift our economic performance.
That’s why I appointed Professor Sir Peter Gluckman as my Chief Science Advisor earlier this year.
One of the things Sir Peter is exploring is how we can enhance the contribution of agricultural science.
And I’m very interested to learn what Dr Goldson has to say on that subject in today’s address – although, I must apologise that I’ll have to leave half way through his presentation.
The government has set up a taskforce to determine how New Zealand can best benefit from our Crown Research Instititutes.
We’re reviewing investment priorities in science.
And we’re assessing options for improving business research and development performance.
We’ve also made a big contribution to boosting research and innovation in the primary sector through the Primary Growth Partnership, which commits $190 million of government investment over the next four years – to be matched by industry.
I spoke about the PGP at your annual conference, so I won’t go into detail here.
But I do want to emphasize that the Primary Growth Partnership will only be as successful as you want it to be.
The willingness of farmers, and the farming industry, to get behind PGP and contribute matching funding will determine how well it benefits your industry.
Part of the funding for PGP is dedicated to a Centre for Agricultural Greenhouse Gas Research, and Nick Smith will have more to say about that tomorrow.
This is our commitment to boosting research into on-farm emissions reduction technology.
Since your annual conference, we’ve made some important steps towards developing the Centre into a Global Alliance.
There is an urgent need for more international research and investment into ways of mitigating such emissions.
There is also a need for greater coordination of existing efforts.
Our proposed Global Alliance will involve working with other countries to find solutions for greenhouse gas emissions in the agricultural sector.
And given the huge reliance of our agricultural sector on pastoral farming, and the fact that about half our emissions come from livestock, it makes sense for us to lead this initiative.
Already, some of the world’s biggest economies – the United States, Japan, India, and China – have expressed support for the proposal.
Cabinet has agreed that New Zealand will lead work to establish the Global Alliance.
Agriculture Minister David Carter is currently in Rome at a world summit on food security where he is building further support for the Global Alliance.
And we will be convening an international meeting on the Global Alliance next year, and inviting other countries to take part.
There’s an important point I want to make here.
As I said back in July, there is only so much the government can do to meet the challenges we face in our economy and that you face in your industry
Because we know that the future of agriculture is not just up to us.
In so many ways, that future is in your hands.
And just as the Primary Growth Partnership – and the investment we’re making in research and innovation – relies on your contribution for its success, so too do the other challenges farming faces.
The future of Fonterra is one of these.
Fonterra has a big impact on the New Zealand, so its fortunes play a big part in the fortunes of our country.
We want it to have a structure that puts it in as strong a position as possible to maximise its opportunities.
Fonterra’s capital structure proposals are currently being voted on by shareholders.
I hope the process it is going through will bring about the changes that Fonterra – and New Zealand – needs to make the most of our opportunities in dairying.
Similarly, we want to see meat farmers taking ownership of the problems their industry is grappling with.
I’m pleased that the recent Silver Fern Farms capital raising will enable that company to reduce its redemption risk and pay down some debt.
But this action won’t address the wider concerns the meat sector faces.
In a speech I made to the Meat Industry Association a few months ago, I said that the government wants to see the players in the meat industry looking for common ground and working together where this makes sense.
I pointed out that if change in the industry is to be successful, it must come from the industry, and not from government.
But I also said that if the industry comes to us with a plan that has the support of farmers, we will see what we can do to make it work.
Your influence is absolutely critical to resolving the problems in the meat industry.
And I encourage you to exert it.
In the wool sector, the government’s approach has been to facilitate industry discussion, with David Carter leading formal discussions in recent months
And I hope that wool farmers will get behind this process.
Your contribution is also vitally important when it comes to meeting the changing expectations of your customers.
The most obvious example is around greenhouse gas emissions.
The government is taking important steps to protect New Zealand’s environmental credentials and ensure that we meet our international obligations on climate change.
As I’ve mentioned, we’re pushing hard to establish a Global Alliance on agricultural greenhouse gas emissions.
We’ve set a 2020 target range for emissions reduction of 10% to 20% below 1990 levels by 2020.
And we are revising the Emissions Trading Scheme to make sure it balances our economic opportunities with our environmental responsibilities.
I know there is disagreement among some of your members about the ETS and our commitment to including farming in it – especially since Australia has announced that agriculture will not be part of their ETS.
Nick will address this in some detail tomorrow, but I do want to make a couple of important points.
Firstly, responding to climate change is not an easy issue for the government.
It’s one of the most difficult policy issues that governments around the world are grappling with.
And as a trading nation, we simply cannot afford to get it wrong.
Our international reputation with our overseas consumers is at stake.
Secondly, we don’t want to unduly disadvantage New Zealand farmers.
Labour’s scheme would have done that.
That’s one of the reasons why we’re amending the ETS.
We’ve delayed the entry of agriculture until 2015, introduced a more gentle abatement rate, and invested heavily in the Primary Growth Partnership and the Global Alliance.
The result of our changes is that the cost of agricultural methane and nitrous oxide for the average farmer by 2030 will be in the order of $3000 a year, compared with the $30,000 it would have been under Labour.
Thirdly, we need to be very careful about comparing our farming sector with Australia’s.
Agriculture accounts for just 16% of Australia’s emissions, but it’s 48% of ours.
And since 2000, their agricultural emissions have actually declined by about 7%, whereas ours have grown.
So it’s easier for Australia to reduce emissions while excluding agriculture from their ETS, than it is for New Zealand.
worth noting that, depending on what happens in Copenhagen,
Australia may have to subject their farming sector to much more stringent regulations, because agriculture is excluded from their ETS.
Finally, it’s important we realise that, in the end, it won’t be the Emissions Trading Scheme, an international agreement on climate change, or the United Nations that damages New Zealand’s agricultural sector.
Because it’s our customers around the world – in Britain, in Europe, in the United States, and in the growing markets of Asia – who have the ultimate power to damage or enrich our farming sector and our economy.
A few months ago, Waitrose banned fish that it deemed to be either over-fished species, or harvested by what they considered to be irresponsible fishing methods, such as bottom-trawling.
Bottom trawling happens to be the method that New Zealand hoki is fished.
And so hoki was banned.
You’d imagine that Waitrose’s costs went up and that they were unable to find alternative suppliers for some fish species.
So did they suffer commercial consequences?
The move was a big commercial success.
Consumers rewarded them for delivering products to the standards they wanted.
For me, the lesson is very clear.
While we, as a government, may have some sway over access to overseas markets, we can’t force the consumers in those markets to buy our products if they think they do not measure up to their environmental standards.
But we can help protect against that possibility.
That’s what we believe our Emissions Trading Scheme does.
And I hope you will see it in that light.
Ladies and gentlemen, New Zealand produces some of the best food in the world.
And we face some great prospects in the years ahead.
But we also face some challenges.
The government is working hard to make the most of these opportunities and meet these challenges.
But we can’t do it alone.
We need your help to invest in innovation, to push for changes in Fonterra and the meat industry, and to realise that tackling climate change can bring advantages if we have the courage to seek them.
Thank you very much.