The dairy boom has had something of a dream run, and Leitissimo, a Kiwi-owned, Brazil-based dairy company is proof of that. But is our economy too reliant on our farmers? Jacqueline Rowarth would argue otherwise
Farmers occupy a strange place in the developed world. The importance of what they do in terms of producing food and in providing the basis of the export economy is recognised, but they are also blamed for their impact upon the environment and increases in food prices.
The weight of opprobrium is falling on our dairy farmers; water quality and the price of milk on a day-to-day basis overshadow the contribution made to New Zealand, as well as to the kiwi lifestyle long-term.
Milk supports our lifestyle. New Zealand is one of the most urbanised countries in the world (approximately 87 percent of the population lives in towns and cities) and the lifestyle of the urban dweller depends on the money circulating within the country that is generated by the agri-industry.
The New Zealand Institute of Economic Research has calculated that New Zealand’s milking herd of 4.4 million dairy cows (approximately one for each Kiwi) earns $10.4 billion in exports. As prices increase, there is more money in it for us: each $1 increase in dairy payout is another $270 for every person.
New Zealand is the biggest milk trader in the world. Over 95 percent of all dairy products are exported, and although we produce only 2 percent of the global milk supply, our milk accounts for approximately 35 percent of the global export market.
At least some of New Zealand’s dominance is because Fonterra is large enough (over 90 percent of the New Zealand dairy industry) to ensure consistent supply of high quality product to supermarkets in other countries. It's also the size of Fonterra that enables it to command a decent price—a reward to farmers for that consistent supply of quality product.
Investigations into whether Fonterra is "inflating the price to the farmer" are extraordinary in the knowledge that production costs have increased far more due to fuel and power (including the Emissions Trading Scheme costs), labour and GST than the payout to the farmer. It also overlooks the fact that milk (and food in general) is cheap.
Of course this statement appears to contradict the impact on the wallet each shopping expedition, but the suggestion that "food should be cheaper in New Zealand because we grow it" overlooks inflation (in 1999 in today’s money, two litres of milk cost $3.87, and now the price is $3.60), salary and wage increases (food costs make up a smaller proportion of household income than in 2007), customer preference (year-round availability of good quality and cheap food), and market size (the domestic base is small). It also overlooks trade agreements (free trade means accepting food from other countries; more than 40 percent of food consumed in New Zealand is imported).
New Zealand has high standards in terms of food quality and environment. Legislation surrounding the use of chemicals such as pesticides, fertilisers and growth promoting compounds, which assist in optimising growth rates of the desired product, is increasing. There are also more regulations around human (minimum wage, holidays and ACC) and animal welfare. All of these protection mechanisms assist in underpinning exports to elite markets, but increase the cost of food production in New Zealand.
Acknowledging that the bulk of purchases are made on cost and perceived value, many developed countries subsidise domestic product in an effort to protect local farmers from cheap imports. Subsidies are also used, for example in Europe, to support the implementation of new technologies.
New Zealand, however, doesn’t do subsidies in primary production; those were removed in the 1980s. The benefit is that productivity in agriculture has increased: our farmers and growers are efficient and the high-quality, trusted food they produce is in demand. Legislation and restrictions actually help New Zealand tick the boxes in what customers say they want.
Of course customers, whether domestic or overseas, want a good environment. Overseas research has ranked New Zealand highly in environmental quality (the worst ranking being in protection of marine resources).
Domestically we acknowledge that there are "hot spots" and with good returns from exports, these are being addressed—implementation of new technologies is expensive but it is happening. Feed pads, where animals can be given silage or supplements in inclement conditions, protect the soil and pasture from treading damage. They cost upwards of $100,000 to install. Herd homes, which do the same job and also have a roof, are a quarter of a million plus. Both allow effluent to be captured efficiently, reducing likelihood of environmental contamination.
Fonterra is enabling the implementation use of new technologies by farmers because of its commanding position in the international market. Zespri plays a similar role for kiwifruit. Every other sector is a muddle of internal competition that enables overseas supermarkets to play the New Zealand market. The producer suffers, and that means the country does as well.
The country’s future is in New Zealand Food Inc. and everybody has a part to play in explaining realities. Ninety per cent of people cite "word of mouth" as their most trusted source of information. The word for New Zealand must be that farmers are doing their best to produce food without impacting upon the environment, and by doing so efficiently, the cost of food is staying remarkably low.
We will be able to access premium markets and maintain the export income stream that gives us a first-world lifestyle only by spreading the word that New Zealand food is sustainably produced and high quality. New Zealand Food Inc. involves us all.
Jacqueline Rowarth is Professor of Pastoral Agriculture, Massey University