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SESSION 2 ECONOMICS PART 1 – BUSINESS
Chairman: Meurig Raymond, MBE FRAgS, Deputy President, NFU
Rt Hon Sir Lockwood Smith KNZM PhD, High Commissioner for New Zealand to the United Kingdom
Jim Rogers, author of Street Smarts: Adventures on the Road and in the Markets
MEURIG RAYMOND: Thank you very much. I’m delighted to chair the second session this morning. We move from politics to economics. This is the business section. We are very fortunate this morning to welcome two very distinguished internationally renowned speakers, the Rt Hon Sir Lockwood Smith and Mr Jim Rogers. Both speakers will present a global perspective around farming and food and the message that we heard this morning from our President, food security.
First of all, it gives me great pleasure to welcome the Rt Hon Sir Lockwood Smith, the High Commissioner for New Zealand to the United Kingdom. Sir Lockwood Smith served as a member of the New Zealand Parliament before pursuing a career in the Diplomatic Service. He served as a senior Minister in various portfolios, including education, agriculture and international trade. In 2008 Sir Lockwood Smith was elected as Speaker of the House of Representatives in New Zealand.
Sir Lockwood Smith has been an active livestock farmer for most of his life and he was saying to me last night that when he returns to New Zealand in the near future he will spend at least five days weaning off his calves from his prize suckler herd, photographing and weighing these calves in five fairly intensive days.
So, first of all, it gives me great pleasure to call on Sir Lockwood Smith to give his presentation. Thank you. [Applause]
1984 was a significant year in New Zealand. We hadn’t quite reached that Orwellian world of dystopia, but, not to put too fine a point on it, we weren’t in great shape either.
To add to our economic troubles, we had a wine lake. The New Zealand wine industry was focused on the local market and protected by a 40% tariff. By 1984, New Zealand was drowning in its own wine. There was a limit to how much 3½ million basically beer drinkers could consume. The industry was in crisis.
It was the year I entered parliament. My party, the National party - that’s the party of the centre right, had just been thrown out of office. The new Labour Government wiped those wine tariffs in one year. They provided a bit of transitional assistance to help replace things like Muller Thurgau with varieties such as Sauvignon Blanc, Chardonnay and Pinot Noir, but they forced the industry to face the international marketplace and global competition.
The results have been spectacular. Steady annual export growth has seen wine become our third largest export to Australia, New Zealand’s biggest trading partner and highly successful wine producer itself. Wine is also now our second largest goods export to both the UK and the EU. Believe it or not, New Zealand now commands the highest average price of all wines on the UK market.
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To reach the highest average price in the UK, and for export volumes to grow to our second highest goods export to Europe, in less than 30 years, shows what having to compete in the international marketplace can achieve.
It forced the wine industry to focus on innovation. Significant investment in R & D saw New Zealand spearheading new developments in canopy management, stainless steel fermentation and screw caps on bottles.
When I was elected to the New Zealand Parliament, 30 years ago, I was a farmer. The previous decade hadn’t been easy for New Zealand. After Britain joined the EEC in 1973, quotas and high tariffs meant that further growth in our traditional market was not possible. In other high-value markets, such as the United States and Japan, we faced tariffs ranging from 100 to 300%.
Creating new markets in the developing world was tough. I experienced this managing the New Zealand Dairy Board’s marketing activities around southern and eastern Asia. I launched Anchor brand milk powder on the Philippines market.
Conventional wisdom in the 1970’s was that, under such circumstances, governments should support local industries. And the New Zealand government did. By 1983 agricultural subsidies, as measured by the OECD Producer Support Estimate, hit 34%. Farmers’ decisions followed the subsidies and sheep numbers rose to 70 million. We might have had only 3 ½ million people, but we had 70 million sheep.
Even land-use reflected the subsidies with soil erosion becoming a serious problem as unsuitable land was cleared for ever more sheep.
It was not just agriculture. Manufacturing was protected as well with a combination of tariffs and import licensing. By 1984, the New Zealand economy was going down the plughole. Protectionism had led to misallocation of resources on a massive scale, and dependence on government involvement had stifled innovation as well as our entrepreneurial spirit.
Production had become so dislocated from the international marketplace that, not only did we have a wine lake, we even had to destroy tons of frozen sheep meat. We were learning the hard way just how damaging protectionism could be and how limiting its associated focus on the local market was.
In 1985, the new Labour government swept away not just wine tariffs, but all primary industry subsidies and protectionism in one fell swoop. Price supports, tax concessions, capital subsidies, input subsidies, free government inspections and advisory services, all went virtually overnight.
Farmers reacted. A short time later, ‘Roar from the Hills’, was the headline as one major daily reported on the biggest protest ever seen outside the New Zealand Parliament.
To its credit, the Labour government pressed on. When the National government, of which I was a member, was re-elected in 1990, we carried on the job, sweeping away protectionism across the economy.
The effects have been dramatic. Already, I’ve mentioned the impact on growth and quality in our wine industry, but in the sheep industry it was no less spectacular.
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In 30 years our sheep numbers have halved, yet we still produce a similar quantity of meat. The improvement in productivity has been spectacular. If one takes 1990 /91 as the base year, when the residual effects of subsidies were entirely gone, and compares it with 2012/13, lambing percentages have increased 23%, lamb carcass weights by 27%, and weight of lamb sold in kilograms per ewe, has increased a massive 89%.
Milk solids per dairy cow have also increased 31%.
In the past 15 years, New Zealand’s food and beverage exports have grown at a compound annual rate of 8.3% per year. For processed foods, that compound average growth rate has been 15% a year for the last decade, and for nutraceuticals and innovative food products, the growth has been 18% a year. Beverages, led by wine, have achieved annual export growth of 24% in the 15 years to 2010.
This extraordinary progress has not been solely a result of the removal of protectionism and requiring industries to face the international marketplace. Work on market access has also been vital.
By the mid-1990s, having been Minister of Education for six years, I became Minister of Agriculture, Minister for International Trade, and Deputy Minister of Finance. In 1999, I chaired the APEC trade ministers process, as well as one of the four main working groups of the World Trade Organisation(WTO), as we battled to launch at Seattle, what’s become known as the DOHA Round.
New Zealand approached trade liberalisation from many angles. We initiated a study with the Association of South East Asian Nations(ASEAN) on a Free Trade Agreement(FTA) with Australia and New Zealand. We signed China up to the WTO – I was the first trade minister in the world to do so.
We were also working on a project called P5 – the forerunner to the Trans-Pacific Partnership (TPP) - involving the United States, Chile, Australia, New Zealand and Singapore. When we couldn’t get P5 to fly, we started negotiating a new model, high quality, FTA with Singapore. It was a strategic move which has now grown into the Trans-Pacific Partnership, involving the original P5, plus Brunei, Malaysia, Viet Nam, Peru, Mexico, Canada and Japan.
Today New Zealand and Australia have a free trade agreement with all ten nations of ASEAN, and New Zealand is the only country in the world to have separate agreements with China, Hong Kong and Chinese Taipei. Interestingly, we are one of only six members of the WTO that have not engaged in negotiations for a trade agreement with the EU.
While keen to do something about that, we’re not twiddling our thumbs waiting. We are currently embarked, along with Australia, on a negotiation with ASEAN and four of their other Asian partners, Japan, South Korea, India and China. Called the Regional Comprehensive Economic Partnership, or RCEP, this will create a significant free trading block across Asia and Oceania covering 27% of global trade, and growing rapidly.
TPP and the RCEP are complementary processes, strategic building blocks towards the APEC Leaders’ vision of free and open trade across the Asia/Pacific Region by 2020. Ultimately, along with your vital Trans-Atlantic Trade and Investment Partnership, or TTIP, we hope they can help galvanise progress at the WTO. After all,
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a truly global, open agricultural market can only be negotiated there.
The WTO must remain the priority for comprehensive trade liberalisation, and it’s crucial our regional negotiations are indeed building blocks, not stumbling blocks to the multilateral system.
New Zealand has worked hard for 40 years to be part of the Asian growth story, and today the New Zealand economy is on a roll. Agriculture is leading the way supplying high quality food products to a burgeoning middle-class in Asia.
It is estimated that in the next 15 years the middle-class in emerging economies will grow from around 500 million people to approximately 3 billion. This growth will be led by China but is by no means confined to China.
That middle-class explosion, together with the free trade agreements I have just outlined across the length and breadth of the Asia/Pacific Region, will see demand for high quality food products far exceed that which New Zealand can supply.
With lamb alone, in six years, China has grown from our 11th biggest market by value to 2nd . It will undoubtedly become our largest market quite soon, having increased ten-fold in just the past six years. For beef, prior to 2012, China didn’t even register in our top 15 countries for exports, yet in 2012/13 it emerged as our third largest market by value.
While New Zealand may drive more than a third of all international trade in dairy products, we are only 3% of world production. Likewise, more than half of world trade in sheep meat may originate from New Zealand, yet we represent only 6% of global production. Already, of the increased global demand for milk protein in recent years, four times more has been filled by the United States dairy industry compared with New Zealand.
There are huge opportunities for producers of high quality agricultural products prepared to join that open international market environment.
Apart from some further efficiency and productivity improvements, New Zealand does not have a lot more land for agriculture. Our future lies in increasing sophistication of product development, and in investing globally; exporting world class agricultural technology by investing elsewhere with ‘Knowledge Based Capital’. Already, New Zealand has been one of the largest exporters of dairy products out of the United States in recent years.
You farmers here in the UK are well placed to take advantage of this increasingly open global marketplace. I’ve been on some of your farms. I’ve seen highly competent farmers and magnificent livestock.
With dairy quotas being removed from the common agricultural policy in 2015, real opportunity exists for us to work with you here in the UK and in Ireland. From the figures I’ve just highlighted, the old spectre of New Zealand production competing with yours here locally, is simply no longer a reality.
New Zealand cannot produce enough to meet the growing demand. It’s time to stop thinking of us as a competitor in your local market. Rather, it’s time to explore opportunities to work together to secure quality food supplies for a rapidly growing world, with a massively growing middle class.
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Fonterra is already focused on a number of manufacturing partnerships and investment opportunities in Europe, from the UK to the Netherlands, to Lithuania. Here in the UK, through its joint venture with First Milk, Fonterra is sourcing whey, a by-product from cheese manufacture, and processing it into quality protein products for use in other foods, drinks and nutritional supplements.
This investment has brought Fonterra’s whey processing technology to the UK. It’s an example of Knowledge Based Capital investment. It’s an example of changing dairy markets, albeit constrained at present by tariff rate quotas and price differentials in a market artificially cordoned off from the world.
Even in New Zealand the dairy market has changed. While we remain a major exporter, we are now also a significant importer, bringing in not just dairy ingredients for further processing, but finished products as well. Increasingly, this will be the pattern of open, sophisticated markets. It’s the way free global markets will work.
Because New Zealand agriculture has had to succeed in the international marketplace, facing open competition, New Zealand’s • farming productivity is higher • carbon footprint is lower • processing quality is higher and more efficient • and market access and supply chain management, in the fastest growing part of the world, is second to none.
Our technology, combined with our market access, has value beyond our shores.
But there is more that should interest us in working together. Increasingly, the focus in our economic relationships is moving beyond breaking down traditional trade barriers to dealing with “behind the border factors”, such as regulation. Incompatible regulation can be such a significant cost – even a barrier to doing business in new markets.
But this next generation of trade issues requires a new approach to economic cooperation. It’s the focus of much of our collaborative work with our partners in Asia, including APEC, the East Asia Summit, and work through the framework of the ASEAN – Australia/New Zealand Free Trade Agreement.
Even the Trans Pacific Partnership will seek to include regulatory best practice and regulatory coherence. It’s the first such formal negotiation in an FTA.
The aim is to improve the process of developing regulation and provide a platform for deepening cooperation in this area over time. It will facilitate trade; it will enhance economic integration and improve prospects for business. It reflects a growing recognition of the importance of global value chains.
It will undoubtedly be a significant issue in the negotiation of the Trans-Atlantic Trade and Investment Partnership.
In Australasia we have considerable experience of regulatory cooperation as a building block to economic integration. The Australia/NZ Single Economic Market Project builds on CER, which is widely regarded as one of the most comprehensive FTAs in the world.
While our approach to economic integration has differed from that here in the EU,
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we can both bring much to this new phase of work in improving global markets. It offers a powerful argument as to why we should be working more closely together.
New Zealand has put more than 40 years into developing our links with Asia. We are increasingly integrated into the trade and economic architecture of that region, despite very different cultural and political traditions.
At the same time, despite our cultural and political commonality, we risk becoming increasingly distant from Europe economically, and that troubles us.
The New Zealand story in Asia shows that modern free trade agreements can be even more than vehicles for economic integration into supply chains and markets, they can also enhance strategic political outcomes.
In New Zealand, the EU has a like-minded partner strategically located in the Asia Pacific region. Because of our experience with Asia, and our integration into their economies, New Zealand offers Europe a unique opportunity as a partner. That’s why it makes no sense for New Zealand to be one of only six members of the WTO with no trade agreement with Europe, and not yet negotiating one.
We might be small in European production terms, but our economic and political success with Asia is highly significant. A free trade agreement would be of benefit to Europe as it would to New Zealand. It could be the highest quality and most comprehensive agreement the EU had.
The New Zealand story demonstrates the tremendous benefits available from diversifying markets and making agricultural industries internationally competitive – making them responsive to the global marketplace.
We share a great deal of agricultural expertise with the UK. An EU/NZ Free Trade Agreement could provide the vehicle needed for the kind of strategic investment and integration of activities in supply chains and markets that couldn’t help but benefit us all. The longer we delay the more likely others will grasp the opportunities.
Throughout the three decades of change I’ve briefly described in New Zealand, I have been a hands-on beef farmer. Some of the change, as a minister, I have led. Some, as a farmer, I’ve had to adapt to. I know it’s not easy. My own farm’s productivity has had to improve dramatically: the 400 day live weights of a greater number of young beef cattle bred on my property have increased by 30%, largely through genetic improvement.
Today I have shared New Zealand’s experience with you for what it’s worth. This is in no way intended to be a lecture on what you should do. But I do leave you with this thought.
Change is inevitable. It always brings opportunities. Ignore them, and the change will shape you – grab them if you want to shape your own future.
MEURIG RAYMOND: Can I say thank you very much, Sir Lockwood Smith for that experience of New Zealand going back many, many years. I can congratulate you on your Pinot Noir from New Zealand, it is very top quality, I can assure you of that. [Laughter] I thought that would create a laugh!
Some of the comments you made about us working closer together, I think we have seen this develop in the last couple of years, whether it is in the milk sector,
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Fonterra, First Milk, working with Arla and also our Chairman of Livestock within the NFU our Livestock Board, Charles Sercombe and EBLEX were out speaking to the New Zealand Meat Board only a few months ago to see if we can have that sort of working together, that new partnership, and I think that is so important.
I was very fortunate to have travelled around New Zealand in 1995, soon after the support was taken away, but what I remember was the determination of those farmers, the way they wanted to invest into productivity, but also the understanding of the banks where I think a lot of debt was written off as well, so it made it a bit easier for those more dynamic young people. That is my memory of New Zealand in 1995.
Thank you very much for that presentation. I won’t take questions at this stage. We will have our second presentation. It gives me great pleasure to introduce Mr Jim Rogers, flown in from Singapore late last night to join us. He is an investment expert, author, commentator. After attending Yale and Oxford University, Jim cofounded the Quantum Fund, a global investment partnership. During the following ten years, this portfolio gained 4,200% and it allowed Jim to retire from investment banking at the age of 37. [Laughter]
Jim is acknowledged in the Guinness Book of World Records for motorcycling 100,000 miles across six continents and on the back of that Jim has written many books over the years analysing what he has experienced across those many continents. His latest book, Street Smarts, and it is outside the hall for anybody wishing to pick up a copy, I am told if you read it you might well be advised on where to invest in the years to come. But it does give me great pleasure to introduce Mr Jim Rogers to actually give us our presentation. [Applause]
MR JIM ROGERS: Thank you, thank you, thank you, thank you very much. I am especially delighted to be here in the UK. I went to university here, as you heard. I got my first Guinness world record here. I got married here and I’m still married to the woman, so it must have been a good influence being here in the UK.
I am delighted to be speaking with the NFU, because, in my view, one of the most exciting parts of the world economy in the next two decades is going to be agriculture, which we will discuss a little bit later. But, as you can see, I did go around the world. I went with my then fiancée, Paige Parker. She is now my wife. We went 245,000 kilometres, 116 countries and we were on the road for three years. When we set out we started in Iceland, we drove through Europe, Turkey, China, Korea, Japan, across Siberia, into Mongolia, across Russia, all around Europe, 32 countries in Africa, South-East Asia, Australia, New Zealand.
By the way, when we were in New Zealand, Lockwood, my wife sheared a sheep and she fell in love. She thought New Zealand is the most wonderful country in the world and said, “What we should do is come here and buy a vineyard and we could raise sheep and the sheep can run around the vineyard and we would be in hog heaven”. We didn’t do it, but it sounds like we should have, listening to Lockwood. [Laughter]
After New Zealand we didn’t stay and buy a vineyard and raise sheep. We went on to South America, Central America, up to Alaska, back down to the southern part of the US and back to New York. That was three years on the road, it was 116 countries, it was 245,000 kilometres so, as you can imagine, we were a bit tired when we got home. [Laughter] We decided we would stop and rest for a while.
One result of resting for a while is we now have a baby girl. I had never had a child before. I used to think children were a horrible waste of time [Laughter],
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money, energy. I felt so sorry for all of you saps who had children. I want you to know, I was totally wrong, I was 100% wrong. This little girl is so much fun for me, I cannot get enough of her, 24 hours a day, seven days a week. You know, if there is anybody in the room who hasn’t done it, I urge you to get home and get on with it. [Laughter] [Applause] Take a day off if you have to. [Laughter] Well, maybe you shouldn’t. These are very difficult times, but go home for lunch, I mean, you know, have a lunch hour. It’s a lot of fun.
Lest you think I am just standing up giving you vacuous --- Everything I tell you today I am doing with my own life, my own money, my own everything, so when I tell you to go home and have children, we did it, we went home for lunch! So now we have another one, we have two little girls. [Laughter] So take my advice, because I’m doing it myself.
What I’m going to do now is I’m going to show you a quick video. I’m going to show you two minutes of what it is like to go around the world. I cannot show you all of my travels around the world in two minutes obviously, but I do want to give you just a little taste of what it is like. A survey done recently said that the no 1 dream which people have in the world – not everybody’s no 1 dream, obviously, but the one that comes out on top in the surveys – is to chuck it all, get in the car or the motorcycle and take off around the world. So I hope that in the next few years when farming does become extremely profitable again that all of you are going to get yourself a new spouse, or take the old spouse [Laughter], nothing wrong with the old spouse, I assure you, take a spouse and head off around the world.
[Video played] It starts with us in Iceland, toasting each other, wondering if we are going to make it alive. Off to the Great Wall. We did get married on the trip, actually in Henley-on-Thames. There we are cutting our cake. And this is our honeymoon! [Laughter] One of the many camels we ran into out there on the road. We went through 15 war zones. These guys were not friendly at first, but if you look in the upper right-hand corner you will see a familiar face. One of the many markets we visited. This is one of many, many bad roads. A sad time, we went to an AIDS orphanage down in South Africa. We went to see King Tut. Whenever we could we stopped at schools, because I am very keen on education. Everybody always wanted to have their pictures made, as you can imagine. We were pretty disruptive.
Myanmar, which used to be called Burma. One of the many roadside stands where we ate and drank. Iguazu Falls down in South America. This is the bane of my existence. This is bureaucracy, red tape, regulations. This, on the other hand, is the black market. This is a much higher class of people. [Laughter] When we got back to the US we kept going. We headed up to Alaska in the dead of winter and when we got back to the US to New York our first stop was the World Trade Centre. That had blown up while we were gone.
Now, I’m going to talk very briefly about some of the things we learned on the trip, but then I’m going to come to you all, which is more important, in my view, but the first thing we really must understand, and Lockwood touched on a little bit, is the rise of China. It is the most important thing happening in the 21st century. The 19th century was the century of the UK, the 20th century was the century of the US, the 21st century is going to be the century of China, whether we like it or not. There is not much we can do about it.
They call themselves Communists, obviously, in China, but I will tell you that they are among the best capitalists in the world, as we speak here in 2014. I know people who say that they are the best capitalists in the world as we speak here today. In
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China they save and invest over 35% of their income. In the United States, for instance, we save and invest 2% of our income. In China when they come to work they don’t say, “How many days’ holiday do I get?” They say, “How many days can I come to work?” They know how we live in the developed world, they want to live that way too and they are rapidly growing and catching up with us, as you all know.
Lockwood talked about what a dramatic influence it has had in New Zealand. It is not just New Zealand, it is all over the world. What is happening is a dramatic change and it is going to continue. It is not just a flash in the pan. It is going to continue for at least this century. Don’t get me wrong that I think that there won’t be problems, there will be certainly be problems as China rises. Every country or family or company or individual that rises has setbacks along the way. In the 19th century as America was rising to power and glory, we had 15 depressions, with a D, we had a horrible civil war, we had very few human rights, we had very little rule of law, we had massacres in the streets periodically. You could buy and sell Congressmen. You can still buy and sell Congressmen in America [Laughter] but in those days they were cheap, I assure you, they were a lot cheaper in those days than they are now. So this change which is taking place will have problems along the way, but you must understand what is happening, because it is not going to change just New Zealand, it is going to change all of us.
When I was introduced you mentioned that I live in Singapore now. Seven years ago my wife and I sold our house in New York and moved to Asia, because I want my little girls to grow up speaking Mandarin and knowing Asia. I think that that is the best skill that I can give them to prepare them for the 21st century. They both speak, by the way, fluent Mandarin, they speak it like natives, and the first little girl, who is ten, recently won, actually two years in a row has won, the Mandarin Speaking Contest for Singapore. If you saw a movie with a blue-eyed, blonde girl being the best Mandarin speaker in a Chinese nation, you would probably walk out, I would too, but it happened. It is happening, it is real and I am hoping to prepare both of them for the 21st century, so again, I’m not just standing up here babbling --- I may be babbling away, but at least I’m living what I am telling you about and suggesting.
So let’s get to how it is affecting you and how it is going to affect you. Lockwood mentioned that there are going to be, I think he said, 500 million in the middle class now in Asia and in a few years there will be 3 billion with a B and he is probably right, but that is going to have a dramatic influence on the world. Some of you know that agriculture worldwide anyway has been a terrible business for 30 years. I hate saying it, but it has not been a very good place to make a living. Not many people have been wanting to become farmers and many people have left the business, but that has led to the statistic or the fact that in the last ten years the world has consumed more agricultural products than we have produced. Naturally, if you consume more than you produce for ten years, it has got to come from somewhere and so inventories are now near historic lows.
But the situation is a lot worse than that or better, depending on how you look at it. The average age of farmers in America is 58. In Japan it is 66. In Canada it is the oldest in recorded history. In Australia it is 58. The highest rate of suicide in the UK, according to the BBC, is in agriculture, because it has been a terrible business. Millions of Indian farmers have committed suicide in the last 10/15 years, because it has not been a good place to be.
Just to give you one example or one other statistic, in 1998 I started a commodities index fund, but actually one of the components is actually agriculture. That is the green line. I don’t know if you can see it. The red line is treasury bonds which has
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done very well, the blue line is stocks and the green line is agriculture. I hate to say it, but, as you can see, agricultural prices in the last 16 years are down 18½%. But for some agricultural products it is a lot worse than that. If you look at sugar, it is astonishing. Sugar today is down over 75% from its all-time high. I know you don’t raise much sugar here in the UK, but it is astonishing how bad some agricultural prices have been. Sugar is down over 75% in the last 38 years. There is very little that you can think of that is down 75% since 1974. In fact, I think afterwards you are going to serve coffee. I would urge all of you to get some sugar and put it in your pocket. I’ve gotten mine. Thank you, NFU. [Laughter] Thank you, because I’ll take home to my daughters and it will be the beginning of their dowry or whatever.
So this has not been a great place to be. Just to give you another statistic, you probably cannot see this, I’m sure, it’s a lot of indexes around the world. It is 75 indexes around the world and you will be here in the right-hand, lower right-hand corner. That’s agriculture. You can see it has done virtually nothing. It has been among the worst performing indexes in the whole world over the past 16 years. So you have been at the wrong place in the wrong time. I don’t have to tell you that, I think you know it. Some of you have probably done well, but that’s because you are obviously good farmers or you would not still be in the business.
But I am here to tell you that all of this is about to change. Agriculture is now going to be a terribly exciting place to work and to live. The City of London is going to be in decline. Wall Street is going to be in decline for a long time. I tell stockbrokers all the time that they will soon be driving taxis and if they were smart they would learn how to drive tractors because the farmers are going to be driving the Lamborghinis in the future. [Laughter] [Applause] The stockbrokers better get with it so they can work for the rich farmers who are going to be driving Lamborghinis and living high on the hog.
I was recently at Oxford and I made a speech there and I told them all just to forget getting an MBA, it’s a waste of time, they should all become farmers. Of course, none of them listened to me, they all want to get MBAs and start a hedge fund. But throughout history we have had long periods when the financial types were in charge, followed by long periods when the producers of real goods – farmers, miners, lumberjacks – were in charge, followed again with long periods when the financial types were in charge again.
Well, we have had our 30 or so years with the financial types. When I was at Oxford in the 1960s nobody wanted to go to the City of London. They all thought I was nuts because I was so interested in finance. Well, along came the 80s, the 90s and the last 30 years or so and finance did very well, but that has finished, that is over. In your field and in others like you it has been terrible, but that is going to change, because if it does not change we are not going to have any food at any price. I don’t know the average age of your membership here, but they tell me in England or the UK that the average age of farmers is very old as well, and I certainly know it is in most parts of the world.
So the farmers around the world are retiring, dying out and leaving the business. In the meantime there are no young people, very few young people, coming into the business. In America last year more students studied public relations than studied agriculture. The agricultural schools are drying up, they can’t get students. Last year America graduated 200,000 MBAs and that does not include all the others who got undergraduate degrees in business and finance. We graduated 10,000 farmers, 10,000 agriculture students.
So you can see that the world is facing a crisis. Not for you a crisis. For
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you it is going to be good times, because prices have to go up or we are not going to have any food at any price. This is going to be fantastic for you and anybody to do with agriculture. Of course, it is also going to cause huge problems, because as food prices go up, a lot of people are going to be unhappy and upset and it will lead to social unrest, fall of governments etc. Most governments need to fall, in my view, because they are not very competent. [Laughter] Except New Zealand, of course. Except the National Party of New Zealand. That is a very competent government when they are in power! [Laughter]
So you are at the right place at the right time now. It is all about to change. You are going to get criticised when it happens. I already get criticism from journalists and some politicians and they say, “You’re an evil speculator”, “You’re going to make prices go up”. I say, “I’m not going to make them go up. The conditions are going to make them go up, because we’re running out of inventory and we’re running out of farmers”. I said to a journalist just the other day, “If you really think it’s bad for the farmers to do better after 30 years, I suggest you go and speak to the widows and orphans in India and ask them how bad it is that farm prices are low”. I also just suggested, “If you don’t want farm prices to go up, Mr Journalist, I hope that you will go into the fields and work 12 hours a day in the hot sun for nothing so that all of us can sit in London or Paris or Singapore and drink cheap champagne and cheap pâté. We will toast you every night while you’re out there in the fields working for nothing”. So far not a single journalist has taken me up on the idea that they should go into the fields and work for nothing, like you all have been doing for 30 years. They all want you to continue to work for nothing so that they can have a good life and cheap food and clothes and tyres and everything else.
But, unfortunately for them, that is going to change and your day is on the horizon. So you’ve done the right thing. I urge you to make sure at least one of your children or all of your children, if you can, stay on the farm, because that is where the opportunities are going to be in the next 20 or 30 years.
So I think on that happy note I should stop, because it is better to go out on a high note than a low note, so I’ll leave you there. [Applause]
MEURIG RAYMOND: Can I thank you, Jim, very much for that presentation. You obviously connected with the audience. [Laughter] Messages like young farmers should become farmers now, it is going to be an exciting place and all farmers are going to be driving around in Lamborghinis, that sort of feeds in very well to the ambitions of our audience.
I will take a slight difference of opinion with you on the average age of farmers in the UK when I look out from this top table and I see the dynamic young people that we have entering the industry in the UK at the moment. I think it puts us in a good place and the enthusiasm for young people to actually come into the food and farming sector is greater now than it has been for many, many years, so I think we are in a pretty good place in the UK. But you have just highlighted again food security and through that presentation there are some big messages there for policy-makers, so thank you very much, Jim.
Can we move on then to question time. Time is pressing. I have at least half a dozen questions that have been put forward, so could I, first of all, ask Mr James Small and Mr David Mills to go to the microphones, please. Both these questions are on lamb exports and they are for Sir Lockwood Smith. So it’s David and James. James first then, please.
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JAMES SMALL: Thank you very much. Actually, can I just mention, Jim Rogers, that was very entertaining, thank you. A great speech and I look forward to the successes of agriculture to come.
I think we have to recognise that New Zealand lamb is an excellent product and probably nearly as good as British. [Laughter] In the wool sector, the campaign for wool sees a joined up approach between the UK, New Zealand and Australia to promote wool. Could this ever happen with lamb? We are surely stronger working together to establish demand in the emerging markets.
MEURIG RAYMOND: Thank you, James. David Mills, please.
DAVID MILLS: Thank you for the knighthood, by the way! Two excellent presentations, thank you very much. New Zealand has successfully carved out access to many lamb export markets, including the UK. I would, however, suggest that the New Zealand product is undersold by your marketeers within the UK. It is used by our retailers to drag down the price of the domestic product, a situation that is not sustainable or acceptable for products in New Zealand or the UK.
Could you give us your views on how we can achieve a more sustainable situation for all of our lamb producers. [Applause]
MEURIG RAYMOND: Thank you, David.
SIR LOCKWOOD SMITH: Thank you both, gentlemen. I think both questions are very much inter-related. Obviously, we don’t want to see our lamb being played off one against the other by any retailers seeking to take advantage of that and there is no need for that. Our supply seasons are complementary. I think we do have to recognise that in a global marketplace, which is where New Zealand operates, international prices fluctuate and we cannot change that, you know. That is the reality of a global marketplace and we have got to try and make sure that that’s not used by powerful marketing chains to compromise any of us.
But I think New Zealand farmers want to see just as higher prices as you people do, so there is absolutely no incentive on us in any way to see lower prices. I think, as Jim has already alluded to, we are going to see higher prices. As I alluded to in my speech, China is about to become our biggest market for lamb. It is going to pass the UK and will stretch miles ahead of the UK, so I think we can work together. I think I hinted at that in my speech very strongly, but what is needed for us to really work together is it to be possible for two-way investment to flow and the barrier, the impediment to investment in agriculture in the UK, sadly, remains the Common Agricultural Policy and some of the nonsense regulations around that and that is going to be a bit stifling, but it is not impossible with that, as we are seeing with Fonterra’s investment already.
So I would argue that we should work together, we are working on it together with the NFU at the moment to make sure that we can take every opportunity to work together in the future.
On wool, I think wool was used, as an example, the Campaign for Wool, as an example of how we could do something similar in lamb. Wool is a frustrating product. It is a wonderful, wonderful product, yet all of us, I think, are struggling with wool internationally at the moment and we really do need to think about how we place wool as a competitor against synthetic products, but it is a wonderful product.
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Some sectors in the New Zealand wool industry have done really well. The fine, the low micron sector have done really, really well, but for the mid micron and stronger wools we have still got a way to go on that.
MEURIG RAYMOND: Thank you, Sir Lockwood. Can I now ask Ali Capper, please, to put your question to Jim Rogers. While Ali is making her way to the microphone, can I then ask, Jim, we hear so much in the press over the last number of years how speculators were to blame for the sort of food price spike. How does the futures market help benefit consumers and farmers going forward?
Before you answer, can I ask Ali to put her question as well. Ali, please.
ALI CAPPER: If you were going to invest in British farming, which three sectors show the most promise?
MR JIM ROGERS: You’re asking me? I’m at the NFU. You’re asking me which is the best sector? [Laughter]
You heard me talk about sugar, but that’s not going to work in the UK, I assure you.
MEURIG RAYMOND: We have got some fairly efficient sugar beet growers out there.
MR JIM ROGERS: Okay. Then I am wrong. Then perhaps sugar would be one of the ones that I would suggest! [Laughter] Sugar has been a disaster worldwide for most people and that is in the process of changing, for many reasons, partly with burning sugar as fuel now in many parts of the world, so sugar is going to be much, much better.
But I would look at grain. I know there are many cattle farmers and lamb farmers, sheep farmers here etc, but I would look at the row crops. That is where the inventories are very, very low and that’s where I would look if I were you, but only if you know what you are doing. While I’m very bullish on things like sugar, I’m not going to become a sugar farmer. I would be hopeless at it. I would go bankrupt probably the first year, so I certainly commend all of you who have been able to survive in bad times, because if you can survive bad times, you are really going to make a lot of money going forward in the future.
As far as speculators are concerned, yes, everybody finds somebody to blame when things go wrong and evil speculators are very easy to blame, but I wish it were that easy. I wish that I or other people could make prices go up. Throughout the 80s and 90s agricultural prices were a disaster. No matter how many people invested in agricultural prices, it didn’t do any good. Prices still stayed low, because the suppliers were so great.
Now the suppliers and inventories are working off and, yes, prices are going to go higher, politicians are going to blame it on speculators, but it is really supply and demand. Maybe you can artificially manipulate a market for a while, but not for long, because if prices go too high new supply comes into the markets. But, let me tell you, I assure you politicians are going to do everything they can to limit price rises. They always have throughout history all over the world.
In the late 19th century when the price of wheat was going through the roof, German politicians, in their wisdom, passed a law making it illegal for wheat to trade
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on an exchange. They stopped it. Wheat promptly doubled in the next year or two, because obviously then there was no visibility and there were shortages and the people who had the wheat could charge anything they wanted to. Fortunately, in that case, after three years German politicians came to their senses and made it legal to trade wheat on an exchange again, because then there is more visibility etc.
But in America in the late 1950s onion prices went through the roof, so American politicians, in their wisdom, passed a law saying that it is illegal --- I am not making this up. It is so funny it is just embarrassing, but American politicians passed a law making it illegal for onions to trade on an exchange. The same thing happened. Shortly after that happened, prices went through the roof, but it is still to this day the only product which is illegal, other than marijuana or something like that! [Laughter] The only thing that is illegal to trade on a futures exchange in America is onions to this day, 60 years later. It is still illegal. By the way, onions have gone up more this decade than any other food item. As you know, in India they consume huge amounts of onions and so the price of onions has been going absolutely through the roof.
Again, you ask about speculators or exchanges. If you did not have this ability, if you did not have a marketplace where supply and demand could come together and a proper price be set, we would all be in terrible shape. As I said before, if you did not know the price of wheat and you had wheat, you could charge anything, because the buyer would not know and he was desperate to have wheat.
On the other hand, when prices are down and there is too much wheat, you know, the buyers can come in and say, “You want to sell your wheat, we’ll give you nothing for it, you take it or leave it” and if you don’t know the price, you are pretty much stuck. So either way somebody gets damaged when you don’t have visible futures markets.
Yes, there are speculators and investors, but if you didn’t have the speculators and the investors, everything would be just either going straight up or straight down, so you need those poor evil speculators to help smooth things out. But we are all going to get a lot of blame when prices go up, so be prepared for it. In the Philippines not long ago Philippine politicians in their wisdom put a cap on the price of rice and said it is evil speculators, so rice cannot sell above a certain price. Well, Philippine citizens ate lots of rice, because it was so cheap compared to anything else, but at the same time Philippine farmers, not being dunces, said, “We’re not going to raise rice. We can’t make any money raising rice with a set price”, so needless to say, fortunately, in that case the Philippine politicians came to their senses and removed the price controls.
But when prices start going up in the next few years, I assure you, all over the world, politicians are going to blame it on you and blame it on me. They are going to put in price controls which will make the shortages worse, but then hopefully they will remove the price controls so that you all can get extremely rich, which you should after 30 years of struggle.
MEURIG RAYMOND: Thank you.
SIR LOCKWOOD SMITH: Can I just add, as somebody who has given 30 years of my life to politics, I agree with him, absolutely. [Laughter] I agree with him, ladies and gentlemen. The best thing you do is keep politicians out of your industry if you want a great industry, believe me, because I’ve been on both sides. [Applause]
MEURIG RAYMOND: Thank you for that, Jim. I could never regard you as evil or poor, so I think you are underselling yourself. I’ve got two other questions here.
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One is from Bob Beddington who wants to ask a question on marketing UK agriculture and Mr John Hall, please. If we have time, if anybody wishes to ask a question, please make yourself known.
BOB BEBBINGTON: If you were put in charge of UK Agriculture, how would you best see it marketed going forward?
MR JIM ROGERS: Well, I would go to Brussels and eliminate a lot of the regulation. [Applause]
I am in favour of the Common Market, the Common Market is good. I am not in favour of Brussels at all. It is a little bit absurd that people who, as far as I can see, have never had a job or never done anything, much less worked on a farm, are sitting there telling you and everybody else how they should run their lives and their businesses. The Common Market is great for all of us and for the world. Brussels is a disaster. I hope that Brussels goes away in the future. [Laughter] That’s the first thing. That’s what I would do. Until you get rid of Brussels or at least the absurd regulations and controls, you’re in a bond, you really can’t do a whole lot, because they’ll come over here and slap you down or put you in jail, because you’re not doing it their way.
MEURIG RAYMOND: A big statement. Mr John Hall and there is a person who wishes to ask a question as well, so, please, go on.
JOHN HALL: Thank you, Mr Chairman. We have just heard two speakers saying keep politicians out of farming and speculators out of farming. First of all, is that possible? But, secondly, there is another kind of powerhouse within agriculture and that is the big conglomerate. I’ll give Cargills as an example. They don’t produce, they trade and they control a hell of a lot of agriculture. Is it possible to have an agricultural industry without the big businesses making money out of it, without speculators making money out of it and without politicians trying to control it? Is it possible?
MEURIG RAYMOND: Thank you. Can we have the second question as well, please.
LEYLAND BRANFIELD: My question is quite simple. One night in the middle of lambing I took a break and I saw Mr Rogers on the television being interviewed by Stephen Sackur. He said that the currencies were doomed, the next currency was gold and, fortunately, at the County Show I happened to meet up with a bullion dealer. Gold did 25% in that next two years.
My question, Mr Rogers, the 18 year old inside of me wants to go farming. Will you lend me some money? [Applause]
MEURIG RAYMOND: Thank you. Do you want to pick that one up first then, Jim?
MR JIM ROGERS: Yes. To John’s question about big companies, there are big companies in every field. In automobiles there are big companies. Sainsbury’s is here. There are big companies in everything. Frequently, we are better off. Had you rather not have Sainsbury’s? Would you rather have nothing but individual stores all over the UK? You get better prices, better selection, better products because Sainsbury’s exists. I am not a shareholder of Sainsbury’s or an employee or anything else, but I am just telling you that often large companies bring many things to a market which the market would not have otherwise.
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Cargills does not produce products, as you point out, and neither do some of the other big companies, but they need you and they are going to know very much in the future how much they need you, because as prices go higher and higher -- I think you use the word dominance, or something like that – whatever dominance they have had is going to be much less in the future, because as shortages develop and as prices go higher and higher they are not going to be nearly as in control as you think they are. I don’t think they are that much in control, but let’s say they are. That is going to diminish.
Can we have a market without politicians? In my dreams, yes, in your dreams, yes, but unfortunately, as I say, when prices start going higher, everybody is going to scream and blame it on you and the politicians are going to do everything they can to control you and make you get prices down. It is not going to work, it is going to make things worse, but unfortunately, as Lockwood knows, we are stuck with them and they get in the way, they do more harm than good, but they don’t know that, because, listen, that’s why they’re politicians. [Laughter] [Applause]
They can’t get a real job. [Laughter] I mean, Lockwood has a real job, but most of them, you know. In America they did a survey to figure out who became successful as politicians and they learned that the most people who became politicians were the ones who when they were in school were very good at playground. They were the ones who were great in the playground, but they couldn’t do anything else and so they became politicians and we are stuck with them. [Laughter]
MEURIG RAYMOND: I hope the Minister has gone!
MR JIM ROGERS: I just want to answer Leyland’s question too.
MEURIG RAYMOND: Yes, please.
MR JIM ROGERS: Leyland, I’m afraid I don’t have any extra money, it’s all invested in agriculture, so I’m waiting for prices to go up. I do have some gold, I happen to have some gold here in my pocket, just to show you that I’m not just talking about it. I’m not buying gold at the moment, I’m not buying silver at the moment. I think there will be another chance to buy gold and silver at some time in the next year or two and if I’m right and if it goes down again I hope I’m smart enough to buy a lot of gold or a lot of silver, although I do think agricultural prices will go up much more than even gold and silver in the next decade.
MEURIG RAYMOND: Thank you. Lockwood.
SIR LOCKWOOD SMITH: If I could start with the question asked about the big companies and speculators and that sort of thing, basically the reality of the modern global marketplace is you have these value chains that involve a whole range of players, some of them are small and some are big, and it has to be that way. It works that way. In an open market what works best will be what dominates.
The trick for us is to get focused on those global value chains and make sure we extract the maximum value out of them that we can back to our businesses and you’ve got to get smart about that. In New Zealand our diary industry has been a lot more successful at extracting value out of the marketplace than our meat industry has and we need to learn some lessons about that. Strategic investment, where to invest to get maximum value out of those global value changes is so important.
Where I agree absolutely with Jim here is that politicians are a problem. The political process can be a real problem. After 29 years in politics, I am not
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particularly proud of my profession. But what we have got to try and do though is encourage them to do the right thing. As Jim said, the EU is hugely important. The Common Market really matters. Brussels is a bureaucratic nightmare. I have worked with it for years and years and years and it comes out with these stupid things like your three crop requirement, you know, just crazy stuff.
So we have got to try and minimise this political involvement and for you guys the UK has been working on this for some years, trying to get the Common Agricultural Policy down to a point where it no longer hampers your business and that is just so important that you continue to do that.
Jim’s point is so right. The future is great and we have just got to make sure politicians don’t muck it up for you.
MEURIG RAYMOND: Thank you. Time has caught up with us. Can I thank Sir Lockwood Smith and Jim for a fascinating presentation on economics. The dynamics that you talk about, feeding the world, food security, feeding the 3 billion middle classes that is going to appear in Asia in the next number of years, those are big challenges for all of us. It is going to need innovation, productivity increase, investment in research and development, all the sort of messages that our President, Peter Kendall, sort of drove out this morning.
I think one of the strong messages that I picked up this morning was that politicians should allow us as farmers to get on and produce for the marketplace, deregulate and let us do what we are good at. Those are the sort of messages I have picked up from this session.
I’m a bit concerned. My sons are in the audience and, Jim, when you talk about farmers running around in Lamborghinis, I think their expectations from life has probably increased, so I might have some problems when I go home.
On behalf of all of us can I say a very big thank you for a fascinating session. Show your appreciation in the normal way. [Applause]
Before you dash off for your lunch, and lunch is in Hall 3, there is a reminder to anyone who used the public car parks that if you have not already paid and displayed a car parking ticket or used the telephone service to register your car, you will need to return to your vehicle to purchase a ticket, as council wardens will otherwise issue parking fines. I was asked to actually present that message to those people who haven’t got parking tickets.
So can I suggest we all go for lunch and can we be back here by 2.15, please, in our seats for our next session. Thank you very much for this morning’s attendance.
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