- 1 - 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. [email protected] - 2 - 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. [email protected] - 3 - 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, [email protected] - 4 - 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.