Dairy sector is 'wasting investment' says economist

Dairy farming is not a business but a "third-rate political sideshow," says leading economist Dr Gareth Morgan.

He says the industry is wasting billions of scarce investment dollars on "play-farming."

In a column carried by Reuters, Dr Morgan wrote that almost all regions from the swamps of South Wairarapa and Westland to the dry parched acres of Fairlie were venturing into dairying, but some of that investment was in the wrong areas.

He said farmers were producing milk not for its own worth but to gain access to the dividends from profitable downstream products, an area where the New Zealand dairy industry had done well.

Farmers were siphoning off for themselves profits that in a corporate structure would normally be captured in the profitable sectors of dairy marketing, consumer products and dairy research-related intellectual property.

Dr Morgan, the managing director of economic service firm Infometrics, said the dairy sector had a huge potential but not in producing more milk.

He was critical of some of the farmer politicians on dairy firms, whom he described as "simpleton peasant politicians who would better serve making the tea."

The marginal value of raw milk was low and dairy farming was a form of social welfare make-work, propped up by regulatory protection.

Other New Zealanders should take an interest because the Government, through a "dumb" public policy, was allowing one sector to waste resources that others could invest profitably.

Dr Morgan said that when one of the manufacturing dairy firms retained earnings to make an investment "it gets slagged by its peasant farmer proletariat for a lower payout and ignorantly accused of being inefficient and uncompetitive."

Federated Farmers dairy leader Charlie Pedersen said Dr Morgan's apparent view that dairy farmers were "stealing" money from the economy was bizarre.

"We do not take anything from the economy, other than what we hold back to invest in our own industry," Mr Pedersen said.

"To an economist this might be called opportunity cost, but to a practical farmer it is called common sense.

"New Zealand farmers are unsubsidised, commercially driven, and all revenue is from freely traded goods. We have no guaranteed markets buying our products."

Mr Pedersen said the farmers were the most efficient in the world.

"The plain facts are that it is farmers' money to invest as they see fit and dairy farmers have been doing a very good job of managing their own businesses and industry up to this point."

He said they had built their industry into the most successful business in the nation, and the 14,500 dairy farmers contributed 20 per cent of export revenue and provided thousands of off-farm jobs.

- NZPA