Income growth, export values, and the major issues that have the potential to affect sector productivity and economic growth — sustainable development, research and innovation and international engagement — are covered here.
income growth
Healthy returns to farmers from lamb and dairy products are expected from 2006-07 to 2009-10, but beef and wool prices are forecast to decline. Reflecting this, MAF expects the dairy industry to continue to expand, but at a slower rate than in the past few years. The expansion will be at the expense of beef, deer and, to a lesser extent, sheep operations in areas that are suitable for dairy farming.
Gross revenue in the agriculture sector is projected to reach NZ$19.0 billion (in constant 2004-05 prices) by 2009-10. Dairy revenue is projected to make up 35 per cent of total agricultural gross revenue in 2009-10, a slight increase from 34 per cent in 2005-06. Horticultural revenue is expected to grow as wine production increases. Improving revenue from agricultural services reflects the expanding use of contractors on farms and orchards.
export values
The performance of New Zealand’s pastoral, horticultural and forestry exports will be mixed, reflecting differences in production and market conditions. From 2006-07 to 2009-10, forestry and dairy exports are projected to contribute the most to the growth in export revenue, expanding by NZ$1.0 billion and NZ$1.1 billion (in constant prices) respectively. Horticultural exports are forecast to grow by NZ$651 million by 2009-10 —driven largely by revenue from wine exports expanding by NZ$358 million over this period. Growth in meat exports is forecast to be more modest at NZ$158 million between 2005-06 and 2009-10, while export revenue from wool is projected to shrink.
sustainable development
Agriculture and forestry cover over 80 per cent of the land available for farming in New Zealand and use around 77 per cent of New Zealand’s abstracted water. Sector land use has a major impact on the sustainability of New Zealand’s soil and water resources, and its biodiversity. In the long run, no one benefits from unsustainable farming and other practices that degrade the environment and the services and resources it provides.
Agriculture sector revenue and expenditure – New Zealand April–March years, in constant 2004-05 prices a
2004
2005
2006
2007
2008
2009
-5
e
-6
e
-7
f
-8
z
-9
z
-10
z
$m
$m
$m
$m
$m
$m
$m
Dairy
5 412
5 753
6 024
5 750
6 156
6 695
Cattle
2 165
2 126
2 321
2 245
2 160
2 029
Sheep meat
1 819
1 820
1 774
1 704
1 774
1 792
Wool
586
557
631
561
520
489
Deer
190
214
231
211
195
190
Poultry/eggs
140
144
148
148
148
147
Pigs
172
187
187
187
187
183
Other farming
230
227
243
243
251
256
Sales of live animals
789
782
808
779
780
761
Value of livestock change
–14
0
–1
4
14
0
Fruit
1 378
1 247
1 449
1 618
1 717
1 794
Vegetables
838
798
807
807
811
817
Other horticulture
272
279
278
284
290
295
Crops and seeds
367
348
346
349
352
351
Agricultural services
2 202
2 268
2 392
2 582
2 867
2 904
Non-farm income
203
236
246
254
272
273
Total gross revenue
16 750
16 985
17 884
17 725
18 493
18 976
Intermediate consumption
9 193
9 359
9 866
9 742
10 176
10 449
Contribution to GDP
7 557
7 626
8 017
7 984
8 317
8 527
Wages
1 840
1 895
1 871
1 857
1 856
1 855
Depreciation
1 222
1 192
1 265
1 263
1 308
1 345
Indirect taxes
457
423
417
414
413
412
Subsidies(+)
21
20
20
19
19
18
Operating surplus
4 058
4 137
4 484
4 469
4 758
4 933
Interest paid
570
633
564
494
461
437
Interest received
334
370
330
289
269
255
Agriculture sector income
3 821
3 874
4 249
4 264
4 567
4 752
a Estimates, forecasts and projections are usually compiled in current prices. However, in this table all estimates, forecasts and projections have been expressed in 2005-06 prices using the producers price index – outputs of agriculture (PPIQ.SUA) – Statistics New Zealand and adjusted by the consumer price index assumptions from the New Zealand Treasury. e Estimate. f Forecast. z Projection.
Source: Ministry of Agriculture and Forestry.
Land and water resources have significant environmental, social and cultural as well as economic value, and rural land plays a key role in recreational activities. The growth potential of the agriculture and horticulture sectors is influenced by the availability of, and competition for, land and access to water and the effects of sector activity on the biophysical and, to some extent, the social environment.
Sustainable development requires a focus on delivering optimal socioeconomic benefits to people in current and future generations through the interrelationships between people, natural resources and the biophysical environment, while sustaining the life giving capability and functioning of that environment. Sustainable development addresses people’s wider needs and aspirations, and policies therefore should seek to harmonise different aspirations, and aim to move toward full social pricing of natural resources (rather than seeing them as ‘free goods’).
The environmental impact of industry activity on resources such as water quality is at the forefront of sustainable development. Current government policies aim to develop a more robust sustainable development framework to guide policy development, to help mediate competing claims for natural resources, and to achieve greater accord between socioeconomic and environmental objectives.
Some examples of current sustainable development issues are presented in the following sections.
water allocation and management
Enhanced allocation and management frameworks for New Zealand’s freshwater resources are critical issues for New Zealand agriculture. As agricultural systems continue to intensify across the country, driven largely by economic factors, significant public pressure will be placed on agriculture to reduce its impacts on water quality. The improvement of water quality outcomes has the greatest potential to significantly increase compliance costs for existing enterprises. Water allocation issues are also a rising concern within the sectors and across the economy. Limited to a few regions, the impacts are not as pressing as for water quality, and public concern is not currently as intense. However, the issues remain important to sustainable development in the future.
The New Zealand Ministry for the Environment and Ministry of Agriculture and Forestry are developing policies for better allocation and management of the nation’s freshwater resources.
Key issues include:
the respective roles of regulation and voluntary agreements and partnerships
the management of diffuse discharges on water quality and
frameworks for deciding between conflicting demands for water.
climate change
Climate change has implications for the frequency and severity of adverse events such as droughts and floods and will have an impact on production patterns, crops, prices and quality. Agriculture accounts for an estimated 49 per cent of national greenhouse gas emissions, made up of methane and nitrous oxide, which contribute to global warming.
A work program has been initiated that encompasses investigating mitigation of greenhouse gases and adaptation to climate change. The program includes work on voluntary reporting of greenhouse gas emissions, economic instruments for fostering the efficient use of nitrogen, the role of demonstration farms to transfer and exploit technologies, and the potential underpinning research needed to identify appropriate technologies.
The agriculture sector has developed and committed itself to a research strategy with a target of a 20 per cent reduction in emissions from ‘business as usual’ production by 2012 through the application of technology. The strategy is implemented through the Pastoral Greenhouse Gas Research Consortium that receives around NZ$1.8 million of government funding annually through the Foundation for Research, Science and Technology.
Accurate and robust measurements that meet the ‘Good Practice Guidance’ of the United Nations Framework Convention on Climate Change are important elements to enable New Zealand to meet its commitments, determine its liabilities and allow it to trade carbon credits internationally. There is considerable interest in the potential of new technologies to mitigate on-farm greenhouse gas emissions.
Options to reduce nitrous oxide emissions include:
reducing the nitrogen throughput of the animal and therefore lower nitrogen in pastures
improving the drainage of wet soils (high emissions occur from wet soils)
applying a nitrification inhibitor to the soil or fertiliser and
limiting nitrogen fertiliser use.
research and innovation
Research and innovation play an important role in lifting economic growth through increased productivity and enhanced information about how to improve the sustainability of production systems. New Zealand policy aims to increase activity in this area and encourage its subsequent dissemination and uptake. The challenge is to establish a science system that delivers the best use of public funding, encourages private sector research and development and promotes technology transfer and commercialisation.
the science system
The Foundation for Research, Science and Technology is the government’s primary agency for allocating funds for public good science and technology. The agency allocates around half of the government’s investment in ‘research, science and technology’ in accordance with government priorities. Recipients of funding from the foundation include tertiary education organisations, private and industry research organisations and Crown research institutes. The latter specialise in agrifood and horticulture research, forest research, land, water, and other geologic and environmental research.
Government work programs provide future strategies to enhance the contribution of research, science and technology to growth and encourage research partnerships with industries. Major actions include setting clearer directions for research, creating a more stable funding system, and accelerating the commercialisation of research. Food and beverage research, biotechnology, biosecurity and environmental research also require major national investment.
the agrifood sector
New Zealand has also recognised the importance of research and innovation in the agrifood sectors through considerable investment in food and beverage research (the bulk of which is in the dairy industry, followed by meat and horticulture), and food plant and animal production and biotechnology (notably innovative foods and human nutrition).
Alignment between private and public research and development is required to lift the contribution of innovation as a key driver of the sustainable economic growth of the food and beverage sector. The Food and Beverage Innovation Working Group builds such research partnerships, to encourage technology learning and application and to promote research commercialisation. Collaborative research endeavors focus on sustainable on-farm productivity, ameliorating the impacts of industry activity on the environment, and technology transfer in the pastoral industries.
Another example of the collaboration between public and private sectors in agricultural research and development is the Sustainable Farming Fund. Established in 2000 and administered by MAF, the fund aims to improve the financial and environmental performance of the land based sectors and deliver benefits to rural communities across New Zealand. The fund has been effective in many areas, providing financial grants to many producer-led projects and securing further funding from potential stakeholders.
industry research and development
A common source of funding for industry research and development in New Zealand is the ‘commodity levy fund’, through which industry organisations collect levy funds from producers for industry good activities that are underprovided by the market. These cover a wide range of commodities in the horticultural and pastoral industries, such as milk solids, meat and wool, horticulture and arable funds. A proportion of each levy is spent on research and development, while the rest is spent on quality control, education and extension, and promotion. The advantage of commodity levies is that it allows farmers to have their say in how they should be levied and how the levies are used.
employment
The agriculture sector is a major employer in New Zealand. In 2004-05 there were over
100 000 full time equivalents employed in agricultural production at the farm gate, consisting of full time, part time employers and employees and unpaid relatives assisting.
Labor skills and shortages influence the sector’s growth. The seasonality of the sector makes it difficult to attract and coordinate labor needs, while technically sophisticated agribusinesses demand high skill levels that the market cannot always supply. The agriculture and horticulture sectors are working with government to address labor and skill needs, engage more effectively with the research and education communities to promote career prospects and identify the best mix of technology and labor skills.
international engagement
New Zealand, along with the rest of the global community, has a compelling interest in a fair and rules based system of international trade. New Zealand agriculture faces high international trade barriers, including quotas, tariffs and technical barriers to trade. Key international markets, such as those for dairy products, are adversely affected by the trade distorting effects of export subsidies and domestic producer support. New Zealand’s top priorities therefore lie in multilateral trade liberalisation through the World Trade Organisation, enhancing bilateral trade, overcoming trade barriers and in maintaining and actively defending our current market access status.
Multilateral trade negotiations have the potential to result in substantial gains for New Zealand as the focus is on reductions and phasing out all forms of export subsidies, substantial improvements to market access and reductions in trade distorting domestic support. The Doha Round negotiations have been complex. An end date for the elimination of export subsidies has been tentatively agreed (2013) but its detailed scheduling and implementation will depend on agreement also being reached in areas of export credits, food aid and export monopolies.
Integral to the rules based trading system that the New Zealand agricultural industry depends on is the Sanitary and Phytosanitary (SPS) Agreement governing trade in animal and plant products. The fundamental principles of the SPS agreement include: national sovereignty, necessity, and scientific basis, and nondiscrimination between countries and between imported and domestically produced goods. Along with the bodies recognised by the World Trade Organisation, MAF is progressing the development of international standards aligned with the SPS principles. It is of utmost importance to New Zealand that the international standards be reciprocal, science and risk based, proportionate to the specific risks involved, transparent, timely, and facilitate safe trade in plant and animal products.
Achieving agreement on trade liberalisation at the multilateral level requires agreement among all members of the World Trade Organisation. While agreement is sought, a growing number of countries, including New Zealand, are pursuing trade liberalisation at the bilateral or regional level.
New Zealand is currently pursuing trade liberalisation through free trade agreements and other bilateral agreements with several countries, including China, Thailand, Malaysia, Singapore, Brunei and Chile. These agreements aim to promote trade liberalisation and facilitation, high quality benchmarks on trade rules and economic and technical cooperation. New Zealand’s top negotiating priority is an agreement with China, whose rapidly growing economy strongly complements New Zealand’s. China is an increasing influence on world commodity prices, including key New Zealand export commodities such as dairy products and wool.
Sustainable development is increasingly important in an international context and is reflected in the negotiation of multilateral environmental agreements that place obligations on countries to address global and domestic environmental issues. Consumers are increasingly demanding that products are produced on a sustainable and ethical basis and require evidence of this as a condition of market access and consumer acceptability. It is therefore imperative that New Zealand continues to develop and implement its domestic policies in a manner that delivers high quality agricultural and horticultural products that meet the aspirations of the New Zealand public and the expectations of international consumers.
Environmental, sustainable development, ethical and philosophical concerns can create competitive advantages for New Zealand, for example, through consumer demand for high animal welfare standards. MAF has a critical role in upholding high animal welfare standards that reflect the ethical expectations of New Zealand society as well as those of some overseas customers.
As trade distorting barriers and subsidies are addressed in a multilateral and bilateral context, protectionist interests are placing increased emphasis on nontariff barriers to trade, such as environmental, health and product quality specifications and standards. Issues such as rules of origin, labeling and geographic indicators, have some risks for New Zealand but, if well managed, present excellent opportunities.
