Leading the way

If any good can come out of the current COVID-19 crisis it will be greater acknowledgement of New Zealand’s agriculture sector to the economy.

It will be interesting to see if the Government, environmental lobbies, mainstream media and the general public now take a different view of the sector. Don’t hold your breath!

Prior to COVID-19, the agriculture sector was continually under attack from various vested interests giving it bad press. The sector was regularly accused as the main villain in any environmental issue; this seems to have been largely forgotten at present.

For example, ‘Our Freshwater 2020’ report, released by the Ministry for the Environment and Statistics New Zealand in early April, barely raised any comment in the media.

Imagine all the anti-farming stories the mainstream news outlets would have run if the country weren’t consumed with COVID-19?

However, what the current crisis has shown is how vital the primary sector – agriculture, horticulture, viticulture and forestry, in that order – is to NZ’s economic recovery.

Until February, tourism was hailed as New Zealand’s largest industry in terms of foreign exchange earnings and the great white hope of our economic prosperity. It now contributes nothing to the economy and will take years to recover – if it ever does.

Agriculture has suffered setbacks over the years – droughts, floods, earthquakes, poor commodity prices, the 1980s reforms, Psa, Mycoplasma bovis and numerous other biosecurity incursions. Agriculture is a diverse sector and its key strength is that if one sector suffers a setback or is down for a period, others continue to do well.

However, there is no doubt the farming sector will also feel the economic impact of COVID. We produce high quality, safe food, but there is no guarantee commodity prices won’t take a hit. And while countries want our produce, will they be willing – or able to afford – to pay top dollar?

It will be interesting to watch as our primary sector leads the economic recovery. Hopefully, some of the negative press the farming sector has been getting in recent years will now be more balanced and acknowledge the huge contribution that agriculture makes.

Fails the sniff test

Former Prime Minister John Key said, at the start of the Level 4 Lockdown, that businesses should be concerned about their reputations.

“Companies should apply the front page of the newspaper test to understand how its actions and announcements are perceived,” he explained. “In the current climate, with anxiety on the rise, scrutiny of decisions is also on the way up.”

This should be the test that the New Zealand National Fieldays Society employs to its more than 1100 exhibitors.

Rural News has outlined how Fieldays is playing the long game when it comes to the question of refunds.  In the last week or so, it has come off the fence and offered three choices. Exhibitors can either roll over their 2020 fees as a credit for the 2021 event, use the site payments to take part in a Fieldays Online website, or accept a refund of 80% of the pre-paid fees.

It is also refusing to refund ‘Premium Reserve Fees’ – paid to secure preferred sites. Rural News has sighted correspondence on the matter, where an account manager comes up with an illogical reply: “regarding the Premium Reserve site fees – these are non-refundable as soon as they are paid.”

It is interesting to compare other organisations, who found themselves in a similar place to Fieldays: Stuff Events, the organisers of The Central Districts Field Days, had to cancel its event at one week’s notice. However, it gave all exhibitors a 100% refund in the days that followed. Likewise, the Sheepmilk NZ organisation had to cancel its national conference and refunded all monies on the day of the cancellation.

By contrast, Fieldays had 87 days to run until the event in mid-June. But is only planning to give partial refunds commencing on June 20 – a full two months after the event should have been canned and a lifetime in the cashflow of many of its exhibitors.

A survey by the Tractor and Machinery Association (TAMA) – which represents the majority of tractor and machinery importers, distributors and manufacturers – threw up some interesting responses. Some 92% of companies were not interested in Fieldays Online, 75% would not attend a Fieldays event if it’s rescheduled for later in the year and 70% want a full refund of their pre-paid site fees.

The Fieldays marketing machine tells us every year that it’s worth over $500 million to the NZ economy. Not bad, were it true, for a $12.4 million business, that operates as a charity, pays no taxes and generates a $770,000 surplus (year ending 30 Sept 2019). Perhaps it’s time for the good folks at Mystery Creek to start thinking about their reputation, if it’s not too late!

What’s the story?

It is especially more astounding given that other meat companies around New Zealand did work – at least for some period – during Easter.

This came at a time when farmers around the country are experiencing long wait times to get livestock killed, as the meat processing sector grapples with drought in many parts of New Zealand and a delay in killing capability due to the Covid-19 social distancing requirements now in place at plants.

Reports that the Alliance Group – the country’s biggest meat processing company – did not operate during the Easter holiday period defies belief.

This has been further exacerbated by several winter grazing contracts being cancelled in Southland – and other parts of the country – leaving farmers with nowhere for their animals to winter and now needing livestock to be killed.

With the huge backlog of stock to be why did the Alliance Group chose not to work over Easter? It has left many farmers – and others in the sector – questioning the company’s logic.

Alliance Group chief executive David Surveyor has claimed the company did not process over Easter to give workers ‘time with their families’ over the holidays.

No one will deny that meat workers deserve quality family time. However, this year is an exceptional period in the country’s history – with Coivd-19 reducing killing capacity and the pressure on farmers due to the reasons outlined above. And those workers would have been duly compensated with appropriate holiday penalty rates.

Surely Alliance Group could have clearly explained the situation to its workers – many of whom live in areas impacted by drought – and got them onside?

It’s action – or more correctly lack of action – over Easter begs many questions:

  • Did the company not want – or afford – to pay the penalty rates its workers would rightly deserve for working over a holiday period?
  • Does the company not have a good enough relationship with its workforce and/or unions to get agreement to work over Easter?
  • Were Alliance’s management and board unaware of the dire situation on farms around the country?

Alliance farmer suppliers deserve proper answers. The co-op has dropped the ball badly and needs to front up quick smart.

Cloud in silver lining

The latest MPI report on the state of NZ agriculture points to another good year ahead – with export revenue from the primary sector expected to rise by 3.3% in the year ending June 2020.

Published late last year, the Situation Outlook for Primary Industries (SOPI) report paints a generally rosy picture for the farming and horticulture sectors. It forecasts the primary industry’s total export revenue will hit $47.9 billion for the coming year.

This revenue increase will come from an 8.4% increase in dairy export earnings – meaning it will earn $19.6 billion dollars. Meat and wool will reach $10.4 billion – up 2.5%. Meanwhile, current sector darling, horticulture’s revenue will increase by 4.7% to reach a total of $6.4 billion.

This is both impressive and vitally important for the future well-being (to use the current Government’s own twee terminology) of New Zealand’s economic future.

However, this same rosy report points to a worrying cloud on the sector’s horizon – dangerously high levels of debt in dairy farming. While it expects dairy export revenue to rise and a combination of factors leading to high farm gate milk prices and robust profitability for the coming season.

However, the report devotes an entire section on the debt issue. Headed: ‘financial vulnerability in the dairy sector’; and notes that while the use of debt to fund business and industry growth can play an important role in economic success. But says it appears that with this expansion, the risk level has in the dairy sector has increased significantly. 

It also highlights that more than a quarter of NZ’s dairy farmers have debt to equity ratios of more than 70% — with some having as little as 4% equity in their properties. The report notes that over the last two decades, dairy farm debt has increased by 267% since 2003 – resulting in total dairy sector debt now standing at $41.4 billon.

MPI, quite rightly, warns that with such high debt levels owners of these farms may not be able to meet the challenges and changes which lie in store for the sector. It warns of problems in the future for those farming operations that are heavily indebted to meet the suite of environmental requirements that are already in place or have been signalled by the government.

The outlook for red meat exports is especially buoyant on the back of ASF impacting Asian pig production

Action needed now!

HOUSTON – OR more correctly Wellington – we have a problem.

And that problem is a shortage of workers right across New Zealand’s primary sector.

The latest example is the apple sector (story page 7), which is facing a potential $80 million loss in the coming season because of a looming labour shortage.

Apples and Pears NZ chief executive Alan Pollard told Rural News that the main reason for this is the Government’s decision not to allow the numbers of overseas workers required under the RSE (recognised seasonal employer) scheme to meet the needs.

Unfortunately, the apple sector’s woes follow a long line of other primary industries struggling for workers – dairy farming, kiwifruit, strawberry, meat processing and rural contracting to name but a few.

Meanwhile, as these crops fail to get harvested and planted, impacting severely on our largest export-earning sector, the Government seems to be twiddling its thumbs. Of course there are no easy answers. However, a good first step would be to immediately raise the numbers of RSE workers allowed into NZ and relax the restrictions on immigrant workers for the primary sector.

Claims about giving NZers’ jobs first are all well and good. However, it is fancifully unrealistic in an already tight labour market where locals are either unwilling or unable to do this much needed work.

As Alan Pollard rightly points out, the lack of labour is a risk for the industry.

“If we are unable to pick the fruit on our trees and sell it in these new developing markets, our competitors will do that and we will never get into these markets again,” he said.

The Government must be much more proactive in fighting back against the demonisation of the primary sector as the source of all the country’s environmental woes. Allowing this narrative to gain traction only makes it harder to attract people to work in the agricultural and horticultural industries.

It may be too late to do anything to change the situation for the coming season, but action needs to be taken to change it for the seasons to come.

Meanwhile, the Government and the primary sector also need to work together to implement long term solutions, such as more training, ensuring better work conditions and promoting the exciting, rewarding, long-term career opportunities in the primary industries.

Take us with you

ACCORDING TO a newly released Rabobank report, New Zealand farm businesses need to get ready for the full cost of environmental policies coming down the track as they make future investment decisions.

The report says with the country’s agricultural sector facing increasingly tougher environmental constraints, its decisions on investment and land use will need to take account of how these constraints impact on their farming businesses.

Rabobank says that despite the significant investments made bymany New Zealand farmers over the past decade to improve performance of theirfarming operations, the increasingly tougher environmental reforms relating to water qualityand climate change will progressively require farmers to account for a greater range ofenvironmental impacts resulting from their farming operations.

The report says this will create a “new economic cost for farming systems that are unable to operate within those constraints”.

This latest Rabobank study, along with the raft of changes proposed by the Government – to carbon, water and environmental regulations – is no doubt behind the low morale now seen in farming. Last week’s rally in Wellington, organised by lobby group 50 Shades of Green, can be viewed as a culmination of rural sector uncertainty and an opportunity for the sector to clearly voice its concerns.

It seems incredible that in times when – on the whole – commodity prices are strong, interest rates low and even climatic conditions favourable there should be so much angst and concern in rural NZ. However, that is the current reality and it can be fairly and squarely sheeted home to policy changes being proposed by the Government and policymakers.

The policy-change pattern to date appears to be for the Government to propose radical and unworkable reforms which scare the bejesus out of the sector, then to refuse or seriously limit any proper engagement, to shout down any criticism and to stay quiet for months then suddenly release seriously dialled-backed proposals. This is hardly the model for quality policymaking and getting sector buy-in.

History has shown that NZ’s rural sector is excellent at adapting to change and excelling. As the Rabobank report says: “New Zealand farmers are used to, and adept at, adjusting to changes outside their control….”

But for farmers to be able to do this, politicians and policymakers have to be far more transparent, honest and open with the farming sector on what is proposed and when. Like farmers, they also need to be prepared to listen, change and adapt to ensure the best outcome for everyone.

Realism or rhetoric?

Will the inclusions of livestock emmisions in the ZCB be the downfall of NZ farming?

IN THEORY everyone is happy with the deal struck between the Government and the agricultural sector over emissions.

PM Jacinda Ardern and Climate Change Minister James Shaw waxed lyrical about how their agreement with the ag sector was a ‘world first’. A ‘win-win’, said Tim Mackle of DairyNZ. Another example of New Zealand showing “leadership based on sound science and practical solutions” claimed Beef + Lamb NZ chair Andrew Morrison.

But is everyone absolutely happy? The Government has inserted into the legislation a clause that says if the sector doesn’t do what it wants it will use this to drag the sector kicking and maybe screaming into the ETS. The Government is putting the acid on the ag sector.

The environmental group EDS says farmers need to perform and is quite sceptical of the arrangement. Greenpeace was typically cataclysmic and hysterical, labelling the Government as “sell-outs”.

Meanwhile, DairyNZ’s Tim Mackle doesn’t think the Government ‘backstop’ (an unfortunate choice of word) is necessary. What the backstop signals is that for all the rhetoric about a good deal, the Government fundamentally doesn’t trust the ag sector. If it did trust it why put it in?

The word ‘backstop’ is simply another word for ‘threat’. One senses that it is also the Government appealing to green voters and telling them ‘we will control farmers – don’t worry’. Yes, folks the election campaign has begun and the agri sector will likely be caught up in the scramble for votes.

All the flag waving and lovey-dovey rhetoric at Parliament the other day is nice, and hopefully it will work out. But this deal has the appearance of an arranged marriage, rather than one born out of unrequited love. Yes, farmers and horticulturalists have managed to get time to sort out their ag emissions. However the ‘backstop’ deadline built into the deal will unlikely do much to lift morale in the sector.

Ahead of it are water, land use and biodiversity issues that are still unresolved. Hopefully the farm sector groups – Beef + Lamb NZ, DairyNZ, Fed Farmers, Hort NZ and all – which have done a good job on agricultural emissions can make similar progress with the Government and bureaucrats on these thorny issues.

However, one suspects the proposed draconian and overly rushed freshwater regulations are where the Government really will hurt the farming sector.

So despite all the spin, uncertainty and a lack of confidence remain. 

Don’t blame the messenger!

IT APPEARS the only people surprised by the plummeting levels of rural confidence across the country are the Government and Agriculture Minister Damien O’Connor.

For months we have seen an endless stream of reports – from Rabobank, BNZ, ANZ, NZIER – all depicting a growing lack of confidence and concern in rural New Zealand.

Only last month, an open letter was written to the Government by an agricultural consultancy head, Chris Garland, outlining why farmer morale is at an all-time low. Garland, of Baker Ag, called for more consideration for the rural sector’s lot in the face of ever more onerous regulation.

“This Government’s approach to environmental policy is undermining the mental health and wellbeing of the pastoral sector,” he explained. “Government has contributed strongly toward turning the NZ public against farming, which has had a severe impact on farmers’ self esteem and on their ability to cope with a rapidly changing policy environment.”

Showing just how out of touch O’Connor is with the current feeling in the rural heartland, his response to the letter was a ridiculous tweet blaming the rural media and farm advisors for the current rural malaise.

“If farm advisors and rural media weren’t so keen to repeat negative political rhetoric farmers might feel appreciated,” he claimed.

Really, minister? Your answer is to blame the rural media but you need to take a closer look in the mirror.

O’Connor and his Government should be basking in the glory of strong commodity prices and a positive outlook for the primary sector. Instead the Government is confronted with a rural sector that is as worried and despondent as during the reforms of the Rogernomics era in the mid-1980s.

Why is this?

In the latest Rabobank survey, farmers overwhelmingly cited Government policy and intervention as the key reason they expect the agri economy to deteriorate during the next 12 months. The bank described this as: “a level never seen before in the history of this survey”.

The two main Government policies causing the most worry in rural NZ are the impending Zero Carbon Bill and how agricultural emissions will be treated, and the proposed amendments to NZ’s freshwater regulations.

Both have been greeted with dismay by many in the rural sector. The turnout and mood at the farmer meetings held NZ-wide for freshwater ‘consultation’ – despite the unhelpful timing of these meetings – attest to this.

Instead of lashing out at the rural media and others in the sector for relaying exactly how farmers are now feeling, Damien O’Connor should take ownership of his Government’s actions and polices as the real reason for the waning levels of confidence down on the farm.

Fake news

THAT OLD saying ‘lies, damned lies and statistics’ should be rephrased: ‘lies, damned lies and environmental lobby-commissioned research’.

This follows last week’s laughable report claiming the Government’s freshwater proposals will have a “limited impact” on New Zealand’s economy.

Forest & Bird, Greenpeace and Fish & Game commissioned an NZIER report which claims the dairy industry is “only about 3% of GDP”.  It goes on, “… it’s not the bedrock of the NZ economy. So that led us to conclude, at the national level, the effects would likely be minor”.

We question the motivation for releasing such a report. What are these environmental groups trying to achieve? Is this is another attempt to belittle the agriculture sector and push ongoing anti-farming agenda?

It’s fake news.

As economist Cameron Bagrie says, the report is quite ridiculous. He rightly points outs that the dairy industry is a massive export earner.

“If you look at the numbers for dairy exports, it’s grown on average about 8% per year, volumes have grown around 6% and that’s about double the rate of GDP,” he told The Country radio show.

“If the dairy sector is not going to be… there’ll be a $15 billion to $20b export hole. That’s more money we will need to make by 2030.”

Ironically, on the same day as the dubious NZIER report was released, MPI’s Situation Outlook update for September reported that NZ’s primary export earnings were up 8.7% to $46.4b for the year ending June 2017. And it predicts that dairy’s export earnings alone for the coming year will grow by 8.7% to $18.1b – a $1.47b increase on the previous year.

This makes an embarrassing joke of the claim by Forest & Bird, Greenpeace and Fish & Game that… “Due to the relatively small size of the dairy industry, the impacts of the Government reforms are unlikely to be major at the national level”.

Meanwhile, a look at an economic report by Local Government NZ has starkly highlighted alarming social consequences for regional economies from the Government’s proposals. The LGNZ report questions the Government’s economic assessment and predicts dire straits for the regions. Perhaps highly paid, out-of-touch executives at these increasingly discredited environmental lobbies can easily and arrogantly dismiss such economic impacts. But rural and regional fishers, hunters and bird watchers – who work on farms, in meat and milk processing plants and in the small and large business servicing the agricultural sector – will be less likely to do so if milk volumes fall by over 10% and stock numbers processed drop by two thirds due to the new freshwater rules.

Butt out, Jones

Politician Shane Jones says his position as Associate Minister of SOEs, including Landcorp (Pāmu), gives him the right to have a crack at the quality of Fonterra’s farmer governance.

He would do well to look in his own backyard, or ministerial portfolios, for evidence of underperformance before attacking a privately owned company.

Landcorp just posted a net loss after tax of $11 million, quite a turnaround from the $34m net profit last year. Jones is noticeably quiet about this, preferring to draw attention to his favourite whipping horse, Fonterra.

Landcorp says the loss was due largely to a $22 million “fair value loss” on the valuation of livestock and forestry assets at June 30, 2019.  The comparable result for 2017-18 included a $25m “fair value gain” on biological assets.

Chairman Warren Parker and chief executive Steven Carden said net profit suffered from the impact of the valuation write-downs. Revenue was impacted by lower milk production due to drought.

“Like other New Zealand farmers, Pāmu saw relatively high dairy and red meat prices through 2018-19 which were offset by weather extremes lowering production volumes,” said Parker. 

“Most notably, summer and autumn rainfall was significantly below average across the North Island and parts of the South Island.”

Total revenue was down 2.4% to $241m (2017-18: $247m)  because of lower milk, livestock and carbon credit revenues. Carbon credit revenue of $3m from a recent allocation of carbon units is less than half of that received last year ($8m). 

Somewhat ironically, the company has declared a special dividend of $5m, largely due to a one off gain made on the sale of the company’s shares in Westland Dairy Cooperative. Jones has also attacked the quality of governance and recent sale of Westland.

Pamu’s poor result on behalf of its owner, the taxpayer, deserves an explanation from the ministers responsible, especially given the ongoing poor return on capital of this state owned asset. 

Don’t expect one from Jones. Much easier to use Landcorp’s shareholding in Fonterra as an excuse to continue his attack on a farmer owned, private asset and use his power to issue veiled threats about forcing changes to DIRA.

Fonterra is being held to account by its shareholders.

And if accountability is the call, how about running the rule over outcomes from the Provincial Growth Fund — Jones’ personal $3b slush fund?