New Zealand then is quite exceptional amongst the so-called 'developed countries' to be so dependent on agriculture (12% of GDP and 70% of New Zealand's merchandise export earnings Ministry for Primary Industries).
This dependence on agriculture creates constraints, threats and opportunities.
Constraints come in the fact that there is only so much you can do to increase productivity - animals can only be made to produce so much milk - you can only dump so many tons of superphosophate
onto pasture before you encounter 'negative feedback' - and there are only so many ways of adding value to the basic commodities of meat, milk, grapes and fruit.
For example, recent increases in dairy productivity have been accompanied by increasing farm debt levels and despite improvement leverage rates remain high with two-thirds of agricultural debt
being carried by the dairy sector (see OECD NZ Agri Risk p.14).
This may be particularly so when protective tariffs and agricultural subsidies in Europe and North America limit growth in high-income export markets.
Biosecurity (see my page The Time Machine) in New Zealand is tight and vigilant but it will
always be a source of potential vulnerability. The 'New Zealand' brand is generally well regarded but the botulism in milk scare last year led to a temporary ban on dried milk imports
It is estimated that an outbreak of Foot and Mouth Disease in New Zealand would cost the country NZ$16bn in lost exports and related costs in two years (see OECD NZ Agri Risk p.13.)
'Biosecurity New Zealand', a department in the now reorganised Ministry for Primary Industries (it was the Ministry of Agriculture and Forestry prior to 2012) accounts for 80% of the MAF
budget (NZ$360m 2011) (see OECD NZ Agri Risk p. 46).
Judith Collins, National Party MP and Minister of Justice, was earlier this year (2014) involved in allegations of conflicts of interest in allegedly helping out her husband's firm whilst on an
official visit to China (stuff.co.nz).
Whether or not there was merit in the allegations small countries with tightly interlinked political and business elites and highly concentrated industries are vulnerable to insider deals and
special pleading that gets particularly dangerous when one of your major trading partners is mired in corruption (Wikipedia: Corruption in China).
Strengths come from having a strong focus and infrastructure to support agriculture and a dynamic sector that has had to change rapidly in the face of issues like UK accession to the then
European Economic Community, the sudden removal of state subsidies in the mid-1980s and rapidly developing Asian, North American and European food and produce markets.
Relative proximity to Asian markets and a developed knowledge of them has allowed New Zealand's agriculture to benefit from rapid consumer growth - albeit from a low level - in these markets.
Farmer resilience was proven in the aftermath of the Rogernomics shocks but many farmers did go to the wall and bitterness remains at the way the sector was treated.
Diversification with the growth of fruit, wine, venison and aquaculture exports has been important but the sheer size and exposure of the dairy sector to export market shocks is a potential
In the mid 2000's beef and lamb/mutton exports were worth about NZ$4bn; fruit, wine, venison, vegetables, flower, seeds and aquaculture about NZ$2.5bn leaving about NZ$8.3bn from a total of
NZ$14.8bn accounted for dairy products (see Wikipedia: New Zealand Agriculture).
Milk solids alone account for 30% of New Zealand's exports (see OECD NZ Agri Risk p.8.).
Currency fluctuations and shipping costs are other areas of potential risk particularly for time-sensitive exports in the face of consolidation of shipping in international shipping (see
OECD NZ Agri Risk p.11.)
Farmers themselves ranked product price, weather and accident and health risks as the highest they face in the 2011 OECD study of agricultural risk in New Zealand (see OECD NZ Agri Risk p.17).
Last year New Zealand's dairy farmers had a bumper year and it is amazing to see huge milk drying plants being constructed in different places in the country (see my pages on Bluff and Glenavy in the South Island).
But falls in the global milk price in August 2014, the stockpiling of dried milk by China and the climbing value of the NZ dollar suggest that New Zealand may struggle to control its own destiny
in the increasingly globalised economy.
In this it is not different from other small, medium and even large economies. It's just that the extent of wiggle room diminishes with size. Particularly when one sector is so important for
national economic performance.
Structural weaknesses and over-reliance on milk exports?
But not all see these developments as sustainable. New Zealand is increasingly reliant on dairy exports - they made up one third of all exports in 2013 at NZ$13.4bn - and the Chinese market.
According to Stephen Jen, a partner at hedge fund SLJ Macro Partners, quoted in this FT article a fall in milk prices or other external shocks could have major impacts in an economy
'has severe structural weaknesses that are very similar to those of crisis-hit southern European and southern emerging market economies.'
Jen likens the New Zealand economy to that of pre-financial crash Ireland - which has the highest agricultural land prices in the world - based on debt and credit, low savings rates and current
account deficits and an over-valued currency.
Risk Management in a globablised industry
A recent OECD study of risk management in New Zealand agriculture (see below) concludes by stating that there is little appetite in New Zealand to extend 'transfers to support the farming
business' and that public perceptions see farming as both a 'normal' and lucrative business that does not qualify for special support (p.66).
Furthermore the government sees risk mitigation as outside of its purview (with the exception of biosecurity) because the greatest risks are price and market risks that it cannot control.
Given this situation the study suggests farmers and the government can reduce risks by:
i) diversification 'to reduce farm income variability' - that is, not being dependent on one commodity for all income. This could be fostered if multiple 'industry good' bodies - like for example
Dairy New Zealand - moved away from their single-commodity focus;
ii) improving the private insurability of key risks - particularly weather-related ones;
iii) improving contract discipline, particularly in the meat industry;
iv) reducing uncertainty on future environmental regulation by supporting regional government to produce sustainable policies and providing the data needed to design, measure and monitor these
This last area is particularly interesting in as much the further intensification and extension of agriculture to feed global markets is in danger of growing environmental costs - greenhouse gas
emissions, water pollution and water shortages - and the potential impacts of climate change in New Zealand.
This is not only a matter of managing and containing these costs in the face of growing public awareness of them but also of managing New Zealand's image of being 'clean and green' - both in food
markets and, crucially, in tourist markets
(This is from Fonterra's web page for Anchor Butter:
'Fonterra harvest the natural goodness of New Zealand’s world renowned clean and green pastures for your enjoyment and well being').
The Clean and Green New Zealand Brand: Tourism and agriculture crossovers
Currently one gets the sense that agriculture and tourism are separated by the land and the space they use in New Zealand.
For example, the big tourist draw cards in the South Island (Milford Sound and the Fox and Franz Josef Glaciers) are in National Parks. And current tourist threats concern overcrowding at these
(see my Milford Road: Tourism Econmics page). Tourists merely 'drive
through' the agricultural areas to get elsewhere although, of course, even these have a big visual impact.
But there is presumably an important crossover in the way that perceptions of the New Zealand brand in international food and tourist markets overlap and reinforce or undermine each other.
I think of Germans and venison and Chinese and dried milk and Americans and beef and veal and the Brits and wine and lamb and butter.
The major tourist markets are also major consumers of New Zealand agricultural products (although the visibility of the New Zealand origin and uniqueness will clearly vary with different
Damage to the brand in one market might be quick to crossover and damage the brand in the other?
On my own visit to New Zealand I was amazed and appalled at the level of trapping and poisoning of animal pests (whether justified or not).
This just did not figure in my very simple picture of New Zealand as a remote, green, extensively farmed, healthy, determined, friendly and pristine land.
It introduced a level of complexity, disharmony, threat and ruthlessness that I had not expected. This crystalised for me in the air dropping of 1080 poison baits (again whether it is justified
or not - see my page on 1080 here).
I find some of New Zealand's tourist developments really jar with the clean green image I've imbued over the years. You get to a river and spectacular gorge and then see the signs for jet-boating
up it. Clearly, this doesn't fit with my image of New Zealand and I find it particularly ironic that some Maori social investment organisations are very active in this area of the tourist
This just doesn't seem to fit in with the 'special relationship' with the land that Maori and pakeha alike claim as a birthright and cornerstone of what it is to be a New Zealander.
Another area where that disjuncture between image/brand and reality is incredibly stark is in the treatment and labour conditions of fishermen (and women?) on chartered foreign vessels in
New Zealand waters (again an area where Maori social investment companies are involved - see my page The Scandal in EEZ).
What happened to all the blokey-ness and egalitarian back-slapping when legal niceties are being used to deny foreign workers working for New Zealand companies in New Zealand waters are not
extended the basic health and safety rights of other Kiwis?