Alistair Polson Farmer New Zealand Special Agricultural Trade Envoy

2. Alistair Polson Manurewa Farms Ltd About 2000 ha of land 21 000 stock units, including: - 20,000 sheep - 1,000 beef cattle Kiwi Fruit Orchard New Zealand Special Agricultural Trade Envoy

3. Introduction Global recession of 2009 led to fears of protectionism and 1930s-style trade war. That war never occurred. Why? WTO keeping governments honest? Global recognition of the importance of a rules-based trading system? Where does agriculture sit within that system? Is liberalisation inevitable? Importance of liberalisation � the New Zealand example What other trade issues on the horizon �

4. The Cairns Group Formed in 1986 in Cairns, Australia Coalition of 19 developed and developing countries 15% of global population 13% of world economic output, 25% of international agricultural exports �to achieve reform which will put trade in agricultural goods on the same basis as trade in other goods... so that agricultural trade can proceed on the basis of market forces�

5. The Cairns Group

6. Agricultural trade heavily distorted Average (bound) agricultural tariffs � 40.3 % (compare average goods tariffs: 7.8%) World Bank 2010 Total support to Agriculture by OECD countries: $368 billion between 2006-2008 OECD/FAO 2009 Agriculture the only sector where export subsidies are still not banned by the WTO

8. Economic theory of free markets Agricultural trade enhances national and global food security through more efficient allocation of resources (OECD 2001) Open trade lessens price volatility (DEFRA 2010) Massive global gains from removal of protectionist trade barriers (World Bank) Higher incomes and increased purchasing power for developing countries (World Bank)

9. Cost of Protectionism: (international) Massive burden of support on taxpayers and consumers Encourage overproduction � distorting international prices Subsidies prevent agricultural development Export subsidies export the cost of inefficiencies Subsidy wars drive global prices even lower In fact, more trade = more jobs Obama�s prediction � doubling exports / 2 million jobs OECD studies

10. Cost of Protectionism: (domestic) Resource allocation Negative environmental impacts Stifle innovation Benefit of support flows to initial landowners Distortions flow into land prices/rents Ultimately � protection fails French dairy farm numbers 1984 - 1990

11. The inevitability of liberalisation? Agricultural reform the biggest potential outcome from the Doha round of WTO negotiations: Increased market access Reduction of domestic support worldwide Elimination of agricultural export subsidies Voluntary liberalisation such as EC CAP reform leads to more efficient and market-oriented systems in major markets Additional erosion of protection as a result of bilateral and regional free trade agreements

12. Case Study � New Zealand

13. New Zealand Agriculture: Present Day Agricultural Exports ~$20 Billion (NZD) 17% of GDP 65% of total exports 85% of NZ agricultural Product is exported New Zealand is the world�s: - #1 Sheep meat exporter - #1 Dairy product exporter - #2 Wool exporter - #4 Beef exporter - #1 Kiwi Fruit exporter

14. New Zealand Agriculture Historically: (Subsidies and protection) During 1970s - 1980s, government support for farmers grew Price supports for sheep-meat, beef, wool, dairy Input subsidies including fertiliser and pesticides Farmers were isolated from markets Farmers became dependent on support Some farmers relied upon government support for as much as 50% of their income!! At the height of this period, for each slaughtered lamb I sold I earned about $22 � and $12 of that came from the government!

15. Negative effects of subsidies Misallocation of resources: Negative environmental impacts Subsidies capitalised into land prices Intensive farming and low productivity

16. New Zealand reforms All government support for agriculture was withdrawn from 1984 as part of general economic reform: Abolished price support, tax and lending concessions, and capital and input subsidies Recovered costs of government inspections, privatised advisory services, and transferred science to others Provided exit packages for uneconomic farms Before the reforms, many people predicted it would end in disaster � but�

17. Stock unit - changes

18. Product Diversification: Export lamb � product mix

19. Improved average lamb carcass weights

20. Dairy Productivity: Milk solids per cow

21. Diversification of land use Movement away from simple commodities-based land use Land is now also used for: Orchards Vineyards Adventure tourism Deer Farming

22. NZ Horticulture � a growth industry

24. Open markets lead to increased innovation Refrigerated meat shipments in 1882 to advanced genetics and nutrition in 2007 NZ Agritech developments include - Milking machines Electric fence systems Fruit Harvesting technology Food processing technology New fruit varieties Robotic cutting

25. The NZ agricultural sector: after reform Features of New Zealand�s farm sector today: Improved productivity Increased efficiency Product innovation Market Focused Farming now an attractive business option NZ Farmers do not want to return to protectionism and subsidies

26. NZ Agriculture today: share of GDP

27. Useful Business models: Co-operatives High concentration of co-operatives in the NZ primary sector Co-operative companies are large, sophisticated businesses run on commercial lines Benefits of co-operatives - Balance the market power of larger businesses and associated costs: input supplies, manufacturing and processing, marketing and distribution channels - Disperse the risks farmers face associated with weather, commodity prices and exchange rate volatility Co-operatives persist because they prove to be an effective business model for agricultural sectors Adapt successfully to the changing global environment

28. Role of NZ government today The New Zealand Government�s role is to establish an appropriate framework: Main policy tool is regulation General budgetary outlays only for basic research and pest/disease control Direct support only for large-scale emergencies, climatic events It is possible to provide a non-trade-distorting safety net e.g.: EC CAP reform

29. New issues in agricultural trade: customer as regulator Many markets no longer about competing on price Need to be aware of what the customer wants Food safety / Environmental concerns / animal welfare Private standards more restrictive than regulations Global halal market � $2 trillion (and growing) Perception is reality, even if false (food miles)

30. Social responsibility An open market transmits clear signals of consumers� priorities, such as: Environmental sustainability Food safety (traceability) Animal welfare

31. Eg: Sustainability and the environment Driven by consumer expectations and increasing awareness of environmental issues (both in market and at home) Environmental programmes in New Zealand Private sector and government joint initiatives Voluntary, e.g. �Dairying and Clean Streams Accord� The need for good and robust science (e.g. life cycle analysis) We need to be able to demonstrate our sustainability to avoid resistance and new barriers Government/Industry Collaboration

32. International partnership opportunities Fonterra partnership with Dairy America: largest American exporter of dairy products Dairy investment in Soprole (Chile), including technology and machinery Increased efficiency Increased exports ZESPRI - Global growing/marketing partnerships Year round fruit supply / market presence �Win-win� situations: foreign and local companies both gain

33. Global Agriculture Market Outlook Economic settings experienced sharp drop but commodity markets gradually improving World food prices increasing Massive latent demand in developing world Branding increasingly important Demand for �clean, green� quality product Increased importance of market awareness from producers

34. Conclusion Global Agriculture is still in sore need of reform Reform brings benefits both internationally and domestically Path to liberalisation inevitable but ultimately, customer demands may prove more influential than regulation Market responsiveness key to adaptation New Zealand experience shows that reform does not have to be a shock gradual, controlled transition facilitates positive change Non trade-distorting options for continued support (R&D, education, etc) Huge potential for increased profit

35. The End