Prime Movers report: Rural economy leading the way

Agriculture provides the bulk of New Zealand's exports and its development is central to the wellbeing of the economy. Agriculture editor PHILIPPA STEVENSON reports on the outlook for growth.

One in seven New Zealanders - more than 530,000 people - live in our rural heartland.

Among the hard-working rural bunch, one in three adults works in the primary sector - agriculture, horticulture, forestry or fishing.

But just who are they, what do they look like, what do they do?

This special report introduces a handful of these prime movers who Agriculture and Rural Affairs Minister Jim Sutton calls "the heart of the New Zealand economy". The figures tell the story, he says:

New Zealand pastoral agriculture provides 60 per cent of our total exports.

We export 87 per cent of agricultural production.

Of the New Zealand population, 13 per cent is involved on the farm or in processing and marketing agricultural production.

Agriculture provides 17 per cent of gross domestic product (GDP), from only 13 per cent of the population.

In the past 15 years, agriculture has grown at 4 per cent a year, much higher than the economy as a whole.

"The full potential of our economy will only be realised if we build on our sources of natural advantage and deepen the competencies that are associated with them. That means working with the primary production sector in agriculture, horticulture and forestry," Sutton said recently.

New Zealanders had the capacity to develop exciting new products and new markets.

"Many - but not in this government - still perceive the primary production sector to be competing in price-driven food and fibre commodity markets.

"In fact, agriculture and forestry industries encompass agritech, animal remedies, software, machinery, biochemicals and nutraceuticals.

"A major part of New Zealand's high value manufacturing and processing is directly dependent on agribusiness, including processing, packaging, agritech equipment, machinery and software."

Sutton said the agribusiness and forestry sectors had the scale, global marketing capabilities, technical skills and natural resource advantages that not only made them core to our domestic economy, but also provided New Zealand with the platform for future growth and for diversification into new and non-traditional markets.

"The enthusiasm with which New Zealanders are prepared to embrace new crops and techniques of growing older ones is indicative of an innovative farming and forestry sector."

Meat New Zealand chief executive Neil Taylor agrees the primary sector, particularly the $5 billion meat industry, is often regarded as a poor cousin to industries seen as more exciting, such as tourism and information technology.

Any doubt the primary sector is an important contributor to economic growth should be dispelled by Treasury's recent post-election briefing paper. It is a broad-based treatise called Growing Higher Living Standards for New Zealanders.

"But on practically every page it tacitly underlines how important agriculture's role is in this aim, and shows where our thinking should be going in order to grow New Zealand enough that it starts to keep up with its OECD counterparts," Taylor says.

"The central message from Treasury is one that the meat industry strongly supports - growth matters and we must get more ambitious about it, quickly.

"New Zealand's growth is projected to be around the OECD average, but Treasury says that is not enough to catch up, and they want focus placed on policies that lift growth."

Taylor says agriculture has led the way in economic performance over the past 15 years.

"Over this time, the whole economy has grown by 37 per cent in real terms - but agriculture has grown even faster and increased its contribution to GDP from 14 per cent to 17 per cent.

"Agriculture is at the core of the economy and has clearly adapted and grown in the open environment, building on its international competitiveness."

Treasury notes that New Zealand is doing well on a range of economic measures but Taylor says it is worth examining how farmers are affected by factors such as labour markets and inflation.

"While Treasury says the general labour market picture is rosy, with a strong and sustained rise in employment, the primary sector is facing a shortage of skills and labour at all levels that is predicted to hit harder in coming years."

Agriculture loses young people to other industries because it suffers from the misconception that it is low-skilled and unprofitable.

"Changes to industry structure have reduced opportunities for young leadership, and not enough is being done to develop youngsters who show potential. The industry will certainly not continue its growth curve without new, skilled young people to bring new ideas and leadership."

Inflation affects farm businesses because they purchase big-ticket items like machinery and stock, and the agricultural sector exports 80 per cent or more of its production and is focused on world markets.

"For this reason the agriculture sector needs the domestic economy to be efficient and internationally competitive. In particular, we must be wary of inflation. International markets will not compensate us for poor economic management, and letting inflation loose would simply accelerate New Zealand's slide in world economic rankings," Taylor says.

Treasury says that while growth in labour and capital inputs are important, big gains will come from productivity growth.

"This is clearly an important message for sheep and beef farmers and processors, and one they are already very familiar with, having continually improved productivity through the years to the point that New Zealand's top farms and processing facilities rank best in the world for productivity.

"Meat New Zealand invests $8-15 million each year in research and development that will benefit the whole meat industry. Continued investment in industry-good R&D, especially in biotechnology, which is likely to give the next big advances in productivity for the meat industry, will ensure this momentum is sustained.

"The meat industry is rich in innovation, and would be in full support of Treasury's point that we need a business environment that encourages innovation, with clear market signals, if we are to grow the economy."

Taylor says the meat industry is very conscious of New Zealand's clean green image, which forms the basis of its generic promotion for beef and lamb overseas.

"Investment in preserving that image is well worth making. Other countries are jumping on the 'clean green' bandwagon, so it is all the more important that we stay a step ahead.

"If there is one message to take away from this, it is that the primary sector needs to be recognised as a major contributor to economic growth, and one that is significantly affected by policy decisions across the board in employment, investment, environment, innovation, global connectedness and fiscal control."

Facts:

Industry: Primary sector

Export value: $19.8 billion

Percentage of total exports: 60%

Number of farms: 80,000

Farm and orchard area: 11.8 million ha

Plantation forests: 1.7 million ha

Further reading:
nzherald.co.nz/primemovers