Address to the Dairy NZ Dinner
E aku rangatira, tēnā koutou katoa. Ka nui te honore ki te mihi ki a koutou.
It is a pleasure to be here again to discuss challenges facing the dairy sector.
I have just been at the launch of ANZ’s Insights Report ‘Hungry for growth’ where I spoke about the key challenges of distance and scale for New Zealand’s food industry.
We are still a relatively small player on the international stage producing 1% of world beef production, 3% of diary and 6% of world sheep meat production. But our food trade accounts for around 57% of our total exports and brings in over $30 billion per year.
As you know, we have just concluded the TPP negotiations and the full text of the agreement is now available.
TPP is our biggest trade deal ever signed. It will give our exporters much better access to a market of more than 800 million customers in 11 countries across Asia and the Pacific, and help Kiwi firms do business overseas.
By 2030 the overall benefit to us is estimated to be at least $2.7 billion a year. We suspect this may be on the conservative side, given actual trade far exceeded our initial estimates following the signing of the China FTA.
- Dairy – disappointing that we couldn’t get more concessions on dairy, but the increased access to these big markets is still an improvement with estimated tariff savings of NZ$102 million per year when TPP is fully implemented.
- Products like cheese, infant formula and ice cream will have improved access into some very big consumer markets like the US, Japan and Mexico.
- Red meat – great news with tariffs on beef exports to TPP countries to be eliminated, with only the exception of Japan where tariffs reduce from 38.5 per cent to 9 per cent.
- More certainty at the border of the 11 countries with less delays for exporters through Customs, Food Safety and Biosecurity.
- Tariffs on all other New Zealand primary exports will be eliminated, including fruit and vegetables, sheep meat, forestry products, seafood, and wine.
We are working hard to build an environment that further supports innovative business.
We have strengthened capital markets, invested heavily in innovation supporting activities, and set about reducing regulatory barriers.
We have made real progress in the R&D space. Government science investment has grown by 70 per cent since 2007/08 to $1.5 billion per annum.
The Government is a major investor into primary sector research and development, with around $300 million a year in public funding.
The flagship programme is the Primary Growth Partnership, in which Government and industry are co-investing $720 million into 18 programmes.
The biggest project involving the dairy sector is “Transforming the Dairy Value Chain”. This is working on a range of measures to improve value, right through from farm environmental plans to new technology that can develop mozzarella cheese in a day rather than two months.
Some of these other projects include things like growing mussels commercially, revolutionary new fishing net designs, more efficient use of fertiliser, and new high value meat products.
Such innovation will help us achieve our ambitious goal to double the value of New Zealand’s primary industry exports by 2025.
We need to constantly think about who our consumers are, what they value, and what they are prepared to pay a premium for.
One of the biggest challenges in growing and protecting the value of what we produce is the question of sustainability.
We are a farming nation, with about 42% of our land used for agriculture or horticulture. We know that environmental performance across the sector is critical to our livelihood long term. We can’t afford not to ensure sustainability is at the forefront of our minds.
We have a good record of sustainable farming, and we produce food far more efficiently than we did 30 years ago, but we need to do more.
A study this year by Dairy NZ and Federated Farmers suggested that dairy farmers have spent $1 billion on environmental initiatives on their farms over the past five years.
This includes things like effluent management, stock exclusion, riparian planting and developing wetlands. The survey also showed farmers had spent $8 million dollars on retiring land and developing or preserving wetlands.
Dairy NZ provide invaluable advice to Kiwi farmers on a daily basis to enable them to be world class custodian-of-the-land.
The challenge for all of us is to get the positive stories out there on issues like environmental sustainability. People need to know that we are good stewards of our land and sea.
Nearly every part of the country has suffered through drought at some stage over the past few years. New Zealand is fortunate to have good rainfall, but we capture only about 2% of it. We need to keep getting better at storing our water.
As a Government we are also strong supporters of irrigation and water storage. In the last two Budgets we have put $145 million towards this, and signalled up to $400 million in total.
The Central Plains Water irrigation scheme in Canterbury, for instance, has the potential to create more than $1 billion in new economic activity.
There is potential for 420,000 hectares of irrigated land by 2025, creating thousands of new jobs and boosting exports by $4 billion a year. As local MP I can tell you that these schemes make a huge difference to towns like Ashburton.
What a year it has been! As a Government we are aware that it has been a difficult 18 months for the industry. Those of you who have farmed for a while understand these fluctuations.
The short-term outlook is for continued dairy price volatility and uncertainty as the market rebalances.
Drought down South hasn’t made things easier, and of course the major flooding around Whanganui, Rangitikei and Taranaki in June caused around $70 million of damage to the primary sector.
We have had extra funding available through the Rural Support Trusts, Rural Assistance Payments (RAPs) for those in hardship, tax flexibility options from the IRD, and about $1.3m to help the lower North Island farmers repair rural infrastructure.
In Collaboration with Dairy NZ and Beef + Lamb NZ we announced a $500,000 funding boost for rural mental health initiatives at Fieldays. As part of this, more than 100 extra workers and volunteers are being trained to help farming families across the country access the support they need.
But looking forward, the dairy sector is looking positive.
A combination of factors should contribute to a rebalancing of dairy markets:
- Firstly, New Zealand’s production of milk this season is expected to reduce, partly due to cost cutting on farm and partly due to the expected effects of El Niño;
- Secondly, China’s demand is expected to increase again later in 2015/16 as its inventories run out.
Over the past 20 years, global consumption of protein has increased at a greater rate than population growth. This trend will continue.
We are dealing with an increasing global demand for food, alongside the need to counter increased food trade with sustainable growth. With the Asian countries on our doorstep becoming increasingly wealthy, their demand for our protein and our products is only going to increase.
By 2050, Asian protein consumption is estimated to have grown by 128%.
Some forecasts predict global food demand may increase by 40-45 percent in just the next 10 years. Within a generation, China’s middle class will grow to four times the size of America’s. It will also be interesting to see what, if any, effect the removal of the single child policy will have in China.
The New Zealand brand carries a premium and creates real market advantage for our exporters. Maintaining our reputation as a sustainable food producer is vitally important to maintaining the trust and confidence of our international consumers.
Combined with our Kiwi ingenuity for innovation I expect we will continue to see value added exports alongside our staple food exports.
As a food exporting nation, the future looks bright.
Nō reira, tēnā koutou, tēnā koutou, tēnā koutou katoa.