Commodity returns a comfort in turbulent times

By PHILIPPA STEVENSON

Agriculture is poised once again to lead New Zealand towards greater prosperity in the coming year.

Last year the industry did well and the indications are that it will do even better in the next 12 months.

Commodity exports, often maligned for their lack of technological wizardry, were our buffer against last year's global downturn.

This means we are entering the new year in something of an oasis of prosperity.

Exporters, led by agriculture, enjoyed prosperity last year and "Kiwis should enjoy their summer with the domestic economy awash with cash", said WestpacTrust economists.

The biggest blow for agriculture doomsayers was the formation of Fonterra, New Zealand's biggest company by a country mile.

The $12 billion conglomerate is the giant of the dairy industry and it generates more than 20 per cent of the country's export earnings and more than 7 per cent of its gross domestic product.

Ranked fourth among international dairy companies, it is our only company of global scale.

Forecasters expect gross revenues from agriculture and forestry to rise this year.

The Ministry of Agriculture and Forestry's December update says some products will suffer from the expected global downturn but other products will perform better.

The effects of the September 11 terrorist attacks could weaken international dairy prices and forestry revenues but other factors have been having a positive impact on export receipts. These include a favourable exchange rate and the continued European animal health crises.

The value of all pastoral exports for the March year is estimated to rise by 19 per cent to $13.43 billion, mainly due to a $1.46 billion rise in dairy exports.

Forestry exports are forecast to increase 4 per cent to $3.72 billion.

Horticultural exports are estimated to rise by 1 per cent to $2.04 billion, with a rise in apple prices offset by a fall in kiwifruit prices.

There are many signs of primary sector change, not least the continued demise of the once all-powerful producer boards.

Apple exporter Enza began last year as a statute-backed near-monopoly seller whose aim was to shift its head office to the main growing regions of Hawkes Bay.

By year's end not only had it gone from the capital but total deregulation saw its umbilical-like link to the Beehive cut.

The dairy industry severed the regulatory ties that had given the Dairy Board the sole right to export.

The shrinking Meat and Wool Boards still occupy a few floors of Wool House - which is no longer owned by the Wool Board - and last month the perennial Government lobbyist Federated Farmers swapped ownership for renting at Agriculture House, though the name, at least, will linger for up to six years.

Kiwifruit exporter Zespri, although never resident in Wellington, followed the trend and will move its head office to the Bay of Plenty.

But, besides weaning themselves from the Government, what did the agricultural industries achieve last year to prepare themselves for new challenges?

This time last year, Wrightson chief executive Allan Freeth warned that the top of the commodity cycle was a perilous place for a sector typically complacent at such times.

Did anyone heed his words?

"We've certainly seen a lot of reinvestment back on farms, particularly in capital areas," he said.

There had been purchases of shiny toys - cars, swimming pools and tractors - but also money ploughed into machinery, fences and fertiliser for "a replenishment of the productive capability of a lot of farms around the country".

Farmers had been conservative but "their memories are working a wee bit better", Dr Freeth said.



The good commodity returns that had served New Zealand well in the past year showed there was nothing wrong with making money from selling food and fibre to the world.

"When we talk about the knowledge economy we should be talking technology transfer, creation and innovation around agriculture, but we are not producing the foundation for that.

"We are still producing huge numbers of lawyers and accountants from our universities which we export overseas.

"On a comparative basis we are producing very few technically and scientifically qualified people to go into agriculture."

Dr Freeth picked last year's debate over genetically modified organisms as the most significant factor in determining agriculture's future.