CEOs think we need to look to diversify in the wake of the dairy slump. Fran O'Sullivan reports

Chief executives want the Government to form Plan B in case the dairy slump worsens. Their call comes as Fonterra slashes its farmgate milk price for the 2015/16 season by $1.40 to $3.85 per kilogram of milk solids.

Dairy farmers have seen prices tumble from a record $8.40 per kg/MS in 2014 -- the height of a lengthy bull run for dairy commodities which had sparked what became known as a White Gold rush.

But last week's brutal forecast payment downgrade has put farmers' finances on a knife edge. It has also taken billions of dollars out of the NZ economy.

Seventy-five per cent of CEO respondents to the Mood of the Boardroom survey said the Government should form a Plan B in case the slump lasted for longer than expected; 19 per cent were against fallback measures.


Some 80 per cent also believed the Government should actively look to accelerate the diversification of the NZ economy to avoid an over-reliance on dairy.

A market exponent noted: "We need to recognise that we are an agricultural commodity producing nation. Commodities, by definition, have price cycles and increasingly, higher levels of price volatility. We need better tools to manage this if we are to remain competitive."

Kiwi Property CEO Chris Gudgeon said the private farming sector will need a Plan B. "The Reserve Bank monitors rural sector debt and will need to be vigilant."

Others agreed that monetary policy settings provided a safeguard.

ICBC NZ chairman Don Brash said, "Plan B is, in one sense, already in operation as a result of lower interest rates and, even more important, the much lower exchange rate. Other components of Plan B might comprise pressing ahead with reforming the RMA, dealing with the Auckland housing bubble, and possibly increased investment in transport infrastructure, especially in Auckland," he added.

BusinessNZ's outgoing chief executive Phil O'Reilly noted. "Plan A works. Get the micro reform agenda correct and execute. Reduce Government spending as a proportion of GDP. Work on skills and all the rest. Execution is key."

Still more offered a nuanced view.

"I think a better way of looking at it is that the Government needs to be acutely aware of the different scenarios (and implications that can flow from them) and consider what if any responses to adopt," said Deloitte chief executive Thomas Pippos. "The ambulance at the top of the cliff will always be having a diversified economy (that avoids concentration risk) and has natural hedges. Risks as presently being experienced can't be eliminated, they can just be managed as part of a portfolio of activity."

When it comes to forming Plan B -- the views differed.

Said an agribusiness chief. "Not sure what a plan B might be? I don't think socialisation of debt to support farmers staying on their land is a particularly good idea."

"The Government should always be looking at supporting a broad cross-section of industries," said one dairy boss who refused to get into special pleading.

Others thought this was not an area for Government involvement.

The Warehouse's Mark Powell said, "we usually look too often to the Government to solve things, I'm not sure that the Government can do much here where there is a global market at play."

Cooper and Company's Matthew Cockram agreed: "Why the Government? What about all the other players -- Fonterra included. Solutions if they are to be effective have to come from industry and those directly affected."

Is diversification the answer?

Though there was massive support for a more diversified economy, those chief executives and company chairmen who offered an on-record opinion seriously differed. For some the question scratched a nerve.

A meat sector chief said the Government could ensure diversification by putting market access for other primary industry products higher on the country's trade agenda. "We still have no chilled or meat based manufactured foods access into China! Dairy has dominated New Zealand's trade access issues agenda with that market and others."

"Diversification of our economy is always desirable, particularly towards a higher-tech, higher-value economy, and to lessen the reliance on dairy and tourism as our two biggest industries," said Spark NZ CEO Simon Moutter. "But it's important that other industries learn from the success of dairy and tourism and seek to step up and emulate their growth and success -- New Zealand will become more economically successful when we have more industries at their level.

"Others need to step up, not dairy or tourism step down."

Callaghan Innovation chief executive Mary Quin said New Zealand should never be "over-reliant" on any one product or sector. "Just as no business should rely on one customer for more than 10 per cent of its sales revenues nor should a country's economy rely on one industry (let alone a single commodity product) for more than 10 per cent of export revenue."

For others the question smacked of Government intervention.

Don Brash pointed out the record of government "diversification policies" has been very poor, at least in New Zealand. "Taking pressure of the exchange rate is probably the most important single "diversification policy", and Government has been slow to deal with this issue (which required tighter fiscal policy)."

Investment banker Rob Cameron said the Crown should focus on interventions that enable capital and talent to move to attractive opportunities and sort its own portfolio of assets rather than picking winners.

An agribusiness investor was adamant. "I do not want Government picking winners! Question is how diversified can a 4.5 million person economy be?

"It will never be self-sufficient. So the question might be what things should we be doing and why is that not the case?

"What is the missing ingredient. The answer however is not clear to me."