Former PM David Lange and his Finance Minister Roger Douglas believed agriculture was a sunset industry
Just in case any New Zealanders don’t understand why the agriculture sector is so important to our country’s future they should take a quick look at the latest terms of trade figures.
The terms of trade refer to the value of the country’s exports relative to that of its imports.
These show that strong dairy prices and rocketing wool prices helped lift the country’s terms of trade to a 37-year high in the June quarter – up 2.3 per cent in the three month period.
Export volumes were also at their highest levels since 1990 when the statistics. That means 2.3 per cent more imports could be paid for by a fixed amount of exports than in the March quarter.
The key gains in export prices were dairy up 4.5 per cent; meat up almost 3 per cent; wool up more than 12 per cent.
In fact, wool prices have risen more than 58 per cent in the past year to their best levels since 1989. The annual rise in wool prices is the biggest since the mid-1970s.
It was more than 20 years ago that former Prime Minister David Lange infamously boasted that agriculture was a sunset industry, but these latest figures show that farming is New Zealand’s sunrise.
The latest quarterly terms of trade data coincides with a season in which Fonterra is paying its farmer shareholders a record $8 to $8.10 before retentions for the milk and share of other earnings. Global commodity prices have been soaring on demand and reached a record high in May, based on the ANZ Commodity Price index, which has edged lower in the past two months.
“We have a positive medium-term outlook for the terms of trade and see it remaining high relative to history,” said Philip Borkin, economist at Goldman Sachs. Borkin says there are signs the rural sector is starting to spend and invest more rather than simply paying down debt, which should yield “positive growth multipliers” for the wider economy.
David Lange’s prediction about the demise of agriculture proved about as accurate as his desire to hold on to the top job. While the great orator went on to become a big, fat, quitter – agriculture has continued to prop up New Zealand’s economy.
Figure s show that in 1999, exports from the entire agricultural sector (excluding fisheries) generated $13.1 billion of export revenue or 60 per cent of all NZ’s exports. Fast forward to 2008, and exports from the entire agricultural sector (excluding fisheries) generated $23.4 billion in revenue or 61 per cent of all the country’s exports.
These figures – and the latest terms of trade – show that agriculture really does underpin the New Zealand economy.