New Zealand Agriculture Policy Review

An Expert's View about Agriculture and Animal Husbandry in New Zealand

Posted on: 25 Mar 2010

One in a series of policy notes on coutries of interest to Canada. This Policy Review focuses on agricultural policy today and how New Zealand is supporting the agricultural sector now without resorting to subsidies. It describes the policy New Zealand uses to support farmers dealing with adverse events such as climatic disasters. It also describes New Zealand's strategy for promoting competiveness in world markets.

New Zealand Agriculture Policy Review One in a series of policy notes on countries of interest to Canada. This note draws on analysis from several sources, listed on page 4. climatic disasters. It also describes New Context for Policy Reform Zealand's strategy for promoting competiveness in world markets. In 1984, New Zealand introduced important policy reforms in order to address major Figure 1: Support to producers and general services in macroeconomiic and fiscal imbalances. New agriculture, average of 2004-06 Zealand?s support to agricultural producers PSE rapidly decreased from 30 percent of the 30 value of production to about 2 percent, and 25 has remained the lowest among OECD 20 economies since that time. 15 Ge ne ral 10 Services Gene ral 5 Services PSE 0 Ne w Ze aland OECD Managing Adverse Events The New Zealand government's current policy for responding to adverse events is detailed in the ?Readiness & Recovery Plan for Natural & Climatic Disasters in Rural Areas? but this will soon be replaced by the ?On-farm Adverse Events Recovery Framework?. The aim of these programs is to promote a shared understanding of the roles of central and local governments and Source: NZMAF (2006) the primary sector in preparing for, and recovering from, adverse events. Adverse After a difficult transition, the removal of events can include floods, storms, droughts, subsidies resulted in a more diversified and volcanoes and earthquakes. On-farm competitive rural economy in New Zealand; means commercial agriculture, horticulture, total factor productivity growth has been viticulture and forestry properties. roughly 2.5 percent annually since 1984, compared to roughly 1.5 percent in the pre- Currently there are four criteria that must be reform period. met before the Government provides on- farm recovery assistance. These are that the This Policy Review focuses on agricultural event: policy today and how New Zealand is supporting the agricultural sector now 1) is rare and extreme; without resorting to subsidies. It describes 2) is economically significant regionally; the policy New Zealand uses to support 3) is beyond the community?s coping farmers dealing with adverse events such as ability; and PPeerrcceenntt ooff aaddjjuusstteedd vvaalluuee ooff pprroodduuccttiioonn Agriculture Policy Review 2 4) requires government assistance for recovery. 1) A framework which allows for an overall assessment of the adverse event. This Adverse events are categorized into three involves assessing the event in 3 areas, levels, depending on their severity: minor using 5 criteria. These criteria would (localized) events; regionally significant grade the adverse event on a 3 point events; nationally significant events: scale. This scale would help provide an Minor, Localized Events: Rural citizens are assessment of whether the event was encouraged to consider risks they face from small-scale, medium-scale or large- extreme, localized climatic and natural scale. events. They are to develop strategies to protect their families, businesses and 2) An approach that allows the government communities from those risks. Authorities to respond in accordance with the suggest setting aside reserves of money, magnitude of the event. It is proposed food and livestock feed, keeping insurance that in a small-scale event, the up to date, locating buildings away from high Government would provide no additional risk areas, and keeping stock in good health. on-farm assistance (other than general recovery measures currently available). Individuals can also get taxation relief if the farm business is forced to sell livestock. The In a medium-scale event, the Government Adverse Event Income Equalization Scheme would draw from the ?emergency recovery is a voluntary scheme which enables measures? as deemed appropriate for the farmers to reduce their current tax burden by event (i.e. one measure or a combination of carrying forward income. measures might be appropriate). The general recovery measures would continue Regionally Significant Events: Occasionally to be available. there are natural disasters which impact on rural communities (region-wide basis). In large-scale events, the Government Communities and regional organizations are would draw from both the ?emergency expected to organize a response. The recovery measures? and, after review, one central government may provide limited of the ?special recovery measures?. The assistance including labour assistance, general recovery measures would continue living expenses for families and financial to be available. support to regional organization efforts. 3) A means to balance the role of Nationally Significant Events: When natural government and the primary producer. disasters occur on a scale that will seriously The criteria should reflect the impact the national economy, the central importance of risk mitigation prior to an government may support local community event. This is important in order to and regional organization efforts. This maintain the balance of responsibilities support may be provided during and after between the government and the emergency. communities. Although the criteria would be a guide for the Government in Communities are encouraged to establish intervention, it would be equally links with key agencies, identify leaders to important that they reflected the role of represent their interests in an emergency, primary producers in managing adverse and be prepared to manage events before, events. during and following an emergency. This involves: having local response plans; 4) Flexibility with respect to the nature of training people who can put the plan into government intervention. The criteria action; knowing how to apply for government should continue to act as a guide in support; and being aware of the conditions decision-making because the that have to be satisfied to qualify for Government?s decision to intervene support. depends on a complex range of circumstances. New Zealand is currently considering new criteria for government intervention. The new approach has 4 components: New Zealand Agriculture Policy Review 3 fastest growing markets ? from both a New Zealand?s Forward Agenda geographic and a product oriented basis. Much attention was paid to markets with the In August 2006, a Government-Industry biggest potential for growth and profitability Task Force recommended an agenda (in both the product and geographic sense) designed to mitigate pressures on the as the primary focus for efforts. This allowed environment and natural resources, while markets on the demand side to be developing new products and processes and prioritized. With this foundation, more expanding into new markets. Three priorities targeted SWOT-type assessments were were established to achieve economic made, focusing on benchmark firms for each growth: economic transformation and target market. In this way, leading improved productivity, new high margin prospective clients, areas of demand, and products, and new markets. Based on past leading competitors were identified. experience and a survey of future prospects, defensive ?business as usual? approaches On the supply-side, analysis was also done were considered high risk, as they amount based on the world?s leading enterprises in to supporting under-performers and different markets. This allowed attention to complacency. be focused on turnkey activities that might help position New Zealand?s agri-food A number of world class enterprises have industries and firms for the future. already emerged under New Zealand?s Government?s role is seen primarily as an sustained reforms over the past two enabler, with little attention paid to financial decades. There are success stories such as transfers. Short shrift was given to small Fonterra, Zespri, the wine industry, farms, lifestyle farms and commuter farms Greenshell Mussels and Whitestone as underlying analysis suggested that they Cheese. However, farm leaders continue to contribute little to rural employment, rural focus on developing new world class communities or the economy. enterprises and ask themselves what the key ingredients are for another global leader The focus was on how to allow winners to to emerge from within the sector and how to emerge and flourish rather than supporting put in place the conditions necessary for sectors and firms that had difficulties such an event. competing and coping. In New Zealand?s SWOT-type analysis, leading firms were Strengths Weaknesses used as benchmarks rather than countries. ? Natural environment conducive to ? Distance from markets pastoral and marine production ? Poor in-market presence Those involved in the analysis recognized ? Disease free status ? Limited understanding of ? Effective bio-security systems consumer preferences and trading that it is at the firm level where the health of ? Potential for year round conditions in emerging markets production ? Low levels of private sector R&D an industry is determined. ? Positive reputation internationally ? Low levels of capital intensity (but awareness limited) ? Few NZ owned m id-sized firms ? Well-developed science capability hungry for export led growth ? Innovative culture and tradition ? Skills supply gaps Responding to Challenges ? Small scale conducive to close ? Poor application of intellectual networking and information property protections sharing ? Tendency for ?soft-selling? and For each market, difficult choices must be ? Sustainable management of undercutting in new markets. primary resources made as to whether to pursue a ?low cost? Opportunities Threats producer approach or a ?branding? ? Continued income growth in Asia ? Declining availability of land, water approach, with associated value-added and ? Ongoing global growth in food and wild fish stocks service ? Consolidation of global retail support services. The challenges are to ? Potential to link gourmet cuisine to chains leading to uneven growing NZ tourism industry to bargaining and lower margins in expand into the emerging markets, to extend global awareness export markets ? Income rich health conscious baby ? Consolidation of global food capture a larger share of the growing boomers producing companies making NZ a ? Closer economic integration with branch office functional food market, and to align Australia ? Increasing production and rising resources with emerging market ? Growing Asian population in New quality from China and South Zealand America opportunities and the needs of food and ? Ongoing trade liberalization ? Increased flow of goods and ? Science based solutions creating people raises risk of pest and beverage firms. Integrated efforts among ?superior? foods disease incursion ? Capacity to lift productivity by ? Rising standards on residues and government and all levels in the value chain improved uptake of available demands for traceability raise costs knowledge and technique of supply are critical. ? Changing global weather patterns Source: New Zealand Food and Beverage Taskforce (2006). A ?NZ Inc: Smart Food, Cool Beverage? approach has been embraced as the best The groundwork for developing the new hope for a resilient and profitable sector. agenda provided an overview of the world?s Sector leaders recognize that there is no New Zealand Agriculture Policy Review 4 single model for success ? those that have Sources done well have used a variety of approaches and adopted different strategic pathways. Lattimore, R. 2006. Farm subsidy reform Work is ongoing in developing the tools, dividends, paper presented at the North marketing strategies, technologies and American Agri-Food Market Integration management structures that will position Consortium, Calgary, Alberta, June. New Zealand?s agri-food sector to tackle challenges, and to share costs and risks. New Zealand Food and Beverage Taskforce (2006) Smart Food, Cool Beverage: New New Zealand?s Experience ? The Zealand?s Future in the Food and Beverage Sector, Wellington, August. Takeaway New Zealand Ministry of Agriculture and New Zealand?s agri-food sector is thriving Forestry (NZMAF) (2006) Agriculture in New with levels that are the lowest in the OECD. Zealand: Past, Present, Future, ABARE There is no desire to return to the days of publishing, Canberra. extensive government support. _(2006) MAF Statement of Intent 2006/09, New Zealand does provide support to help Wellington. the agricultural sector cope with adverse events beyond the ability of the individual _(2006) Situation and Outlook for New producer. But the New Zealand approach to Zealand Agriculture and Forestry, such events is closely circumscribed Wellington. according to the scale of the event. _(2005) Contribution of the Land-based When evaluating competitors, New Zealand Primary Industries to New Zealand?s found it more useful to benchmark with Economic Growth. leading firms rather than countries; it is at the firm level where competition actually _(2005) Briefing for Incoming Ministers, takes place. The sector examines Wellington. successful firms with a view to establishing best practices and performance OECD (2007) Agricultural Policies in OECD benchmarks, and views them as potential Countries, Paris, June. competitors, clients, investors and partners when planning for the future. New Zealand farming and the rural economy are now more diversified, responsive and better positioned to deal with changing consumer and societal demands both at home and abroad. For further information regarding this paper, contact: Brad Gilmour (gilmourb@agr.gc.ca, 613-759-7404) Rajendra Gurung (gurungr@agr.gc.ca, 613-694-2451) For further information regarding this series, contact: Cameron Short, Director, Policy Analysis Division (shortc@agr.gc.ca, 613-759-7426) October 2007 Project No. 07-050-b New Zealand
Posted: 25 March 2010

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