Comment: Federated Farmers president Andrew Hoggard takes a look at the positives and negatives of the Government's primary sector plan, "Fit for a Better World".
This week the Government announced what it described as "a bold primary sector plan to boost economic recovery".
The 24-page document, Fit for a Better World, sets out a 10-year roadmap to unlock greater value for a sector vital to New Zealand's economic recovery.
Its Action Plan centres on three themes:
• Productivity - adding an additional $44 billion in export earnings over the next decade through a focus on creating value (on top of the $46.6 billion for the year to June 2020).
• Inclusiveness - employing 10 per cent more New Zealanders from all walks of life in the food and fibre sector by 2030, and 10,000 more New Zealanders in the primary sector workforce over the next four years.
• Sustainability - reducing our biogenic methane emissions to 24-47 per cent below 2017 levels by 2050; and 10 per cent below by 2030. Plus restoring New Zealand's freshwater environments to a healthy state within a generation.
Full marks for the Government to recognise that the primary sector "can be the foundation of New Zealand's recovery".
The aspiration of nearly doubling export earnings over the next decade is laudable.
Doubling something over 10 years requires growth averaging 7 per cent per annum compounded year-on-year.
Over the decade 2010-20, overall growth in primary sector exports was 68 per cent, we had four years where annual growth exceeded the magic 7 per cent (2011, 2014, 2018 and 2019), but also two years of declines (2010 and 2015).
A doubling in primary sector exports would be a great effort, but it is a tough ask in a challenging environment.
I am sceptical about aspirational export targets.
Governments aren't the ones selling into the global marketplaces where our exporters, despite their best efforts, have little ability to determine prices and are subject to the vagaries of commodity prices, powerful market players (e.g., supermarket chains), and are often up against subsidised or protected competitors.
Being largely price takers is unlikely to change any time soon, despite talk of pursuing greater value.
The global economy will take time to recover and growth will probably be fragile, protectionism is on the rise, and there are only so many niche markets we can easily capture.
It is frustrating when politicians say "we need to add more value" as though the mix of products we currently sell have little value.
Our exporters generally do a good job of identifying products and markets and responding to consumer demand based on their own market intelligence.
There is good stuff in the document about how productivity can be enhanced by water storage; research; Māori agribusiness; market access and development; international trade; and maintaining "flexible regulatory systems".
Promoting the sector as an attractive employment opportunity is great and support for better connectivity and thriving rural communities will be welcomed by all.
In practice though, the problem with "Fit for a Better World" will be how to reconcile ambitious aspirations for export growth with the headwinds of government policy, especially on climate change and freshwater, which are intended to limit, if not reduce production for much of the sector and to increase the costs of that production with no guarantee there will suddenly be a price bonanza to get that increased export revenue.
If emissions prices are allowed to increase to $50 per tonne and beyond, as is likely under current climate change policy settings, it will be tough on all pastoral farming and could wipe out a lot of sheep and beef farms.
They will reduce agricultural production and export revenue. Farms will be replaced with plantation forests which might one day sometime in the future result in wood being harvested and forest products exported, but not at best for many years.
And that is before factoring in whether agricultural emissions will be priced at the farmgate, as signalled in the report. What will that do for thriving rural communities?
So, while there is some good stuff in "Fit for a Better World", it is one thing to say New Zealand will double primary sector export revenue but quite another to achieve it.
MPI's own forecasts for primary sector export growth out to 2024 suggest annual growth rates of between 1.5 per cent and 2.6 per cent, well short of the 7 per cent required.
If a major sustained acceleration is to be achieved, we need to ensure as many of the winds as possible are tailwinds and that we minimise the headwinds.