Red meat sector battles on
It's a bloody tough year for sheep farmers, but the worst may be over, and the future looks optimistic.
OPINION: Agricultural debt has reached almost $63 billion dollars, up from $12 billion in 2000.
Not generally mentioned in the same news item is that over the same time period, business debt has increased to $122 billion from $41 billion and household debt (mortgage and personal debt) has increased to $297 billion from $70 billion.
New Zealanders have been investing on farm, in business and in their homes to improve the futures, just as the Government has done during the COVID-19 response.
It could be argued that 20 years ago agricultural businesses were not investing enough in growth. The dairy and kiwifruit boom provided the opportunity for change, and some landowners were able to take the opportunity.
The result is that productivity across agriculture has exceeded most other sectors since the Global Financial Crisis (GFC).
The economy has benefitted; exports from the primary sector topped $46 billion in the year to June 2019 (up from $32 billion in 2012).
However, in the same way that housing and businesses suffered during the GFC, the collapse in dairy prices in 2014-2016 brought the dangers of business leverage to the fore.
In its last Situation and Outlook for the Primary Industries (SOPI December 2019) MPI focused on the financial vulnerability of the dairy sector, whilst acknowledging that debt has been used to fund growth.
To achieve further growth post-COVID, more investment is required, but in research, development and education as well as on farm.
A report for the Productivity Commission identifies the primary sector as one of only two that have real potential for growth in the future. Using the Netherlands as a model, ex-Treasury economist Dr David Skilling urged improved investment in R&D, and better linkages with universities and research institutions.
Few would disagree with the report’s message.
The problem is the limited amount of money available from government and industry in R&D and education. The result is people collaborating while in competition, and slow progress while everybody works out what role they will have, while competing for the lead.
Dr Skilling says that New Zealand’s R&D investment needs to be increased from 1.4% of GDP to nearer 3.0%, to match other high-performing small advanced economies. Professor Sir Peter Gluckman has suggested that in small biological economies, such as New Zealand’s, the Government needs to invest proportionately more than the 0.8% of GDP which stimulates business investment.
The focus of the current government investment in the primary sector, announced in July, does not seem to be the cutting-edge research that Dr Skilling advocates. He wants the investments in research institutions and universities to support sustained growth. He also recommends substantially increased investment in skills and innovation in the sectors which will make a difference. The Primary Sector is key.
Dr Skilling is only one of the analysts identifying the primary sector as the saviour for the economy.
History is repeating itself.
Dr John Singleton’s Economic History of New Zealand reports that post World War 1 in an era of high export prices, New Zealand farmers borrowed and invested heavily, with land exchanging hands at very high prices. Recovery from the slump that followed reflected not only devaluation of currency and stabilisation in commodity prices, but also the continuing increase in pastoral output and productivity.
Farmer investment paid off and supported the New Zealand economy, just as it has over the past few years.
To do even better in the future will require the science and education system to be funded to allow innovation to flourish – and farmers to adopt and adapt, investing as appropriate.
• Dr Jacqueline Rowarth was Professor of Pastoral Agriculture at Massey University and then Professor of Agribusiness at University of Waikato. She is now a farmer-elected director for DairyNZ and Ravensdown. The analysis and comments are her own. This email address is being protected from spambots. You need JavaScript enabled to view it.
