Comment: As a country if we don't want to lose half our shirt we need to ensure we are earning at least what we are spending, writes Otago Federated Farmers President Simon Davies.
I've heard several people of late, including a current labour MP, question the need for our farmers to produce more food than New Zealand needs for its own consumption.
It got me thinking ...
When I was at high school, which was more than a couple of decades ago, one of my elective courses was economics.
At the time, commerce and accountancy were popular choices for careers. I realised after a time, that this was probably not the case for me. However, the course did teach me a few home truths about business.
The big take home message was that to remain in business one can only spend as much as one earns.
Ideally you want to earn more than you spend, so you can put some "savings" away for a rainy day.
Moving forward I have run several different businesses and a couple of farming operations, a food manufacturing and consulting business. I've found that basic tenet of economics and trade has very much run true.
Most of those businesses were successful, but one was not. The simple truth with the failed venture was that I was spending more than I was earning. As a result, I lost "half my shirt". This is economics 101.
If we were to scale this concept up a little, from a business to New Zealand as a country, the numbers are bigger, but the concept is the same.
As a country if we don't want to lose half our shirt we need to ensure we are earning at least what we are spending, and ideally be able to put a little away for downturns and calamities sometime in the future.
Currently New Zealand earns money overseas by selling goods and services (exports) and selling New Zealand dollars to visitors to spend in this country (international tourism).
In the same way New Zealand spends money buying goods and services from overseas (imports).
For New Zealand to remain "in business" we need to ensure that our exports and international tourism is greater than our imports.
If this is not the case, we must either earn (export) more or spend (import) less.
Pastoral agriculture is the largest export earner for New Zealand. Currently there is considerable pressure on the agricultural sector to reduce production.
The consequence of this will be less exports and less dollars earned. To balance this New Zealand will either have to earn more from other exports or international tourism or spend less on imports (more directly controllable).
Spending less means not buying so many cars, washing machines and iPhones, etc.
In very basic terms the annual production of one sheep is approx. 1.3 lambs, and 4kg of wool.
Each lamb is worth about $165 and the wool is worth about $2/kg or $8 per sheep.
So, for each 1,000 sheep removed from production NZ exports drop by about $222,500 every year – that's a whole lot of iPhones or imported pharmaceuticals.
In terms of dairy, each cow returns about $2,700 of returns for milk solids to the farmer each year, never mind the value our processing companies get from adding value and never mind the value of her calves (a grown 300kg bull is worth about $1,860 in meat).
You don't even need to get out your calculator to recognise how quickly export returns mount up at scale.
The recent carbon bill wants to see methane reductions of between 22 and 47 per cent.
For its submission on the Zero Carbon Bill Federated Farmers calculated, based on current tools available to farmers, that quantum of reduction represents a loss in processing factory gate income from the dairy and red meat industries by 2050 of $14 billion per annum and climbing.
Keep in mind NZ exports 95 per cent of the milk products we produce here, 94 per cent of lamb products and 88 per cent of beef and veal.
To ensure the country stays in business, New Zealand must reduce imports by the same amount.
So, for those of you who change your iPhone (or any phone for that matter) regularly you need to remember that as our exports fall, the ability to import those phones for you to buy also falls.
Perhaps it is worth remembering that all actions result in additional actions and consequences.
One consequence for our aspirational goal of zero carbon is the reduced availability/ affordability of everyday items – from iPhones to pharmaceuticals, bananas to batteries.