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Opinion: Why NZ needs to focus on farming, not diversify away from it
By President of Federated Farmers Don Nicolson
One tale from Greek mythology offers lessons today for New Zealand's economic development and for agriculture.
Daedalus and Icarus is a father and son story of an old fashioned prison break. Daedalus, the father, was a pretty good handyman who built wings of wax and feathers so that they could fly to freedom.
The shame is that the wings were a little too successful. While dad flew straight and level his son, Icarus, feeling a bit too cocky, flew higher and higher until he got so close to the sun, his wings melted sending him crashing back to earth.
This is where we get the expression, "˜crashing back to earth.'
While some commentators have wrongly compared dairy farmers to Icarus, farmers are more like Daedalus. Farmers are inventive, resourceful and industrious business people.
They are part of New Zealand's biggest industry, a $25 billion industry at that.
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Icarus is the prototype Generation-Y. Thrill seeking and willing to try anything, as long as it's on their own terms and sometimes with mixed results.
The fact farming is increasingly not the top occupational choice for New Zealand's most talented young people is of concern.
After all, in how many occupations could a person control multi-million dollar assets by the age of 30?
For those with a can-do attitude and a sparkling intellect, farming is one of the few industries where that outcome is a distinct possibility. If you are ambitious, self-motivated and bright, farming is where it is at in the 21st century.
Yet we're not talking just farming here. Not just "˜hands in the soil.'
It's a little known fact that GlaxoSmithKline, or GSK, the world's largest pharmaceutical group, had its origins in Bunnythorpe, near Palmerston North. To grow, Glaxo left these shores many years ago but oh, what a loss. Last year, GSK posted sales of some $68 billion. Put another way, GSK sales last year were equivalent to 40 percent of New Zealand's Gross Domestic Product.
Fonterra is a farmer cooperative and New Zealand's largest company. It's also our only true indigenous multi-national with sales last year of $19.5 billion, admittedly over a 14 month financial year. While this current financial year won't be as rosy, its sales for 2007/08 represented most of the combined capitalisation of the top ten companies on the New Zealand sharemarket. Fonterra is that big and it is to the credit of New Zealand's farmers that they own it all.
For those whose interests don't extend to hands-on farming, there are thousands of business opportunities to support New Zealand's distinctive and unique competitive advantage; agriculture.
That means the industries that directly or indirectly support farming and farmers. Hamilton's Gallagher Group, for instance, is a home grown success story that has world-wide sales. Similarly, Ravensdown is now spreading its successful cooperative model into Australia. Not every country has a Gallagher Group or a Ravensdown, but they are the kind of companies that New Zealand needs to grow into multi-billion dollar behemoths. Diversification should not mean anything but agriculture.
Harnessing those opportunities is key to developing our next Fonterra or for that matter, a GSK.
While the anti-GE brigade might turn red, no one can deny that the American Company, Monsanto, is a major force in global agriculture. With sales similar to our Fonterra, its many operations can be summarised into two key areas, seeds and genomics as well as agricultural productivity. Doesn't that sound like something a New Zealand company ought to be doing? Monsanto is also research led. It spends around 10 percent of total sales on R&D amounting to some $1.6 billion annually. Scarily, that represents three quarters of New Zealand's total spend on R&D last year. Monsanto is a lesson in what New Zealand isn't doing locally in terms of both economic development and commitment to R&D.
Companies like the animal remedy giant Novartis and that force in rural banking, Rabobank, provide additional examples of where New Zealand's economic development should be focused. Meeting the needs of farmers locally then growing those companies into global counterparts to our one true multi-national. That's the diversification New Zealand needs. Diversification built out of what we happen to know a lot about.
For too long now, since the 1980s, New Zealanders have been told "˜we need to diversify away from agriculture.' Yet, just like Icarus, all attempts to move away from agriculture have crashed back to earth. Why? Because we have attempted to copy what other countries do rather than do what we actually do best. New Zealand ought to be running towards agriculture with arms outstretched. It's the world's biggest industry and the only one in which New Zealand is truly a global player.
1 Comments
I thought we needed to
I thought we needed to find ways to add value locally - regardless of whether the export is in the agriculture sector or others.
After all, in how many occupations could a person control multi-million dollar assets by the age of 30?
Probably none, which is unsurprisingly the same number of other occupations in which you can borrow multi-millions of dollars by the age of 30!
Well that was a load
Well that was a load of humbug wasn't it! Did he once mention the billions in rural debt? It's not NZ "running towards agriculture with arms outstretched" Don, it's the IRD with very sticky fingers, followed by a host of cash hungry councils desperate to get their hands on other peoples money, as much as they can grab.
We should not diversify AWAY
We should not diversify AWAY from agriculture in NZ - that would be DUMB.
We should seek to maintain and strengthen this sector, BUT not at the expense of developing a broader and deeper export sector - that too would be DUMB.
The discussion will be DUMB if it maintains the divisiness associated with the word 'diversify' and an either/or premise, rather than a premise to enable market led development of ag. AND other sectors - especially as other sectors have much to offer in terms of improving export performance, where the limiting resource is primarily intelligence and knowledge, and they do not require the levels of revenue subsidisation afforded by the absence of effective asset taxation in NZ.
See video of Prof. Paul Callaghan's Royal Society lecture here:
"˜Beyond the Farm and the Theme Park'
http://www.hotscience.co.nz/video_detail.php?videoid=169
Les Rudd
Invited Member
NZMEA
"Bollard told the committee the
"Bollard told the committee the Reserve Bank was monitoring the situation, but banks and farmers had increased lending and borrowing significantly over the past two years in the face of warnings" (Herald) What was that last bit again? "in the face of warnings"
Funny that! It's exactly what happened in the stupid property bubble.
Clearly the warnings were ignored. Now we have a large % of the rural sector buried under a manure pile of debt. The banks own the properties. The silly govt and the foolish RBNZ think more cheap credit will solve the problems. It won't. All that's happening is the banks are charging those farmers who carry very low levels of debt, a bloody sight more, so that the fools and gamblers don't walk, leaving the greedy banks to milk the cows and wear the losses.
Desperate spin? <blockquote> Fonterra is
Desperate spin?
Not quite. Fonterra has a little under $18 billion of assets, and a little over $14 billion of liabilities. That leaves farmer's equity in Fonterra at less than $4billion.
Farmers own Fonterra's intangibles and some of their milk powder inventory. The rest including all the plant and equipment you see around the country is owed to someone else.
While I am pleased to
While I am pleased to see the farmers rep. supporting an industry that I belonged to 20 years ago, I have since my exit from the industry ,seen a tripling +, in land prices,similar rise in costs of topdressing , and general outputs,a rise in bought in feed to "buy" production,and because of the increase in the price of land and production,a huge increase in interest payments.All okay in a world where next year would bring a further increase in land prices,and commodity prices, that would make both debtor and lender feel at peace about their equity and security.All false of course,just like our monetary system,which rewards this over extension of the individuals and banking money system.Two years ago banks were going out to clients encouraging them to buy up neighbours places,and support units,so driving up prices of all classes of land.Whose to blame? Seems to me we all are,for accepting a fundamentally flawed money system.
I agree with Wally about being buried in a pile of debt,but figure that the banks wont wear the losses ,we will.Especially now with the guarantees that we have given the banks,and so the debtors.
"It’s a little known fact
"It's a little known fact that GlaxoSmithKline, or GSK, the world's largest pharmaceutical group, had its origins in Bunnythorpe, near Palmerston North."
Really! I think you'll find that the firm actually started in 1715 in London, quite a while before the "glaxo" bit was amalgamated in 1873.
http://www.gsk.com/about/history.htm
This is sad Here we
This is sad
Here we are on the fringe watching the psycotic corporates (Monsanto being the cheerleader) explode under the weight of their own misdeeds and this yokel thinks we should aspire to be more like them
Greed, greed and more greed (mixed with stupidity)
Neven
PeterR, Thanks for pointing out
PeterR,
Thanks for pointing out this nice (or rather inconvenient?) little detail about our farmer's wealth...
Neven,
You summed up precisely why I think we badly need a depression of mega proportions and for at least a decade or more, to deal with the amount of corporate (and government!) greed and carelessness that developed over the last few decades!
Well put Neven. We need
Well put Neven.
We need to strive for added value products (in all industries), not just produce and price take blindly. Monsanto policy to set 10% of operations to R&D should be taken away from this (business and personal alike).
Perhaps Don Nicolson (or more
Perhaps Don Nicolson (or more likely his spin doctor) is doing us a favour here. He is illustrating for all to see the thinking and leadership that is behind NZ agriculture.
It is not much about about farming or producing food. Rather it is all about wealth (undefined) generation - at least it was when I stopped in at the Young Farmers conference yesterday.
Full marks, Don. Wealth creation
Full marks, Don. Wealth creation is the name of the game, and Ag has a track record here, despite the gloomers and the financial stats cherry-pickers. After all, many farms (gasp!) don't actually have debt.....just like many home-owners don't.
So don't be too hard on Ag cheerleading, chaps and chapesses. If these guys go John Galt on us, we'll all feel it right smartish....
Ales, you're right, I keep
Ales, you're right, I keep forgetting the banks just stick the losses onto others. Another reason to run like hell when offered credit.
waymad. I agree wealth generation
waymad.
I agree wealth generation sounds good, but unless you define wealth then in agriculture it doesn't mean profit but capital gains on land. Is a farmer today with $5 million (GV) of farm assets and $3 million of debt wealthy, struggling to pay their interest, or both?
"The fact farming is increasingly
"The fact farming is increasingly not the top occupational choice for New Zealand's most talented young people is of concern."
Maybe this would help:
Capital gains tax to aid young farmers
http://www.ruralnews.co.nz/Default.asp?task=article&subtask=show&item=14...
by Gerry Eckhoff, a Roxburgh farmer.
Neven, You are so right.
Neven, You are so right. As you say, for this turkey to talk Monsanto up shows this boy needs to go home and grub some more thistles. Monsanto who's long term aim is to control the worlds food chain, would be one of the worlds most evil companies. Anybody that thinks otherwise needs to do some research. If Don is the best Federated farmers can put up, that's amazing. Cheers
It is our current model
It is our current model of agriculture that is inherently flawed and will always be so. The criteria for determining the best model should become sustainability. Monocropping is unsustainable and leads to self deterioration, therefore finite. Polycropping is self sustaining and leads to self perpetuation, therefore infinite. Polycropping retains and encourages biodiversity and eliminates the need for manufactured growth enhancers. It is the self sustaining concept of the 'forest' scaled down. The concept is known as a Kin's Domain, look it up, it is the ONLY option to create a self sustaining national and world society.
well i think its about
well i think its about time govt started giving direct financial assistance to the farming sector .The removal of them just gave the wealthy farmers (fedFarmers) the ability to buy up the smaller operators.No other western country carries on in this vindictive way and its time we moved on from the socialist agenda of the eighties.We seem y
to able to find money for the world cup, americas cup ,all of the pacific a million beneficeries and yet not a bean for farmers in the worst drought in nz history.Time national stepped up to help its own
"NZ needs to focus on
"NZ needs to focus on farming, not diversify away from it"
People need to eat...and farming agriculture is still the backbone of this country..So it is common sense "NZ needs to focus on farming, not diversify away from it"
The "Daedalus and Icarus" is a good comparison....
Farming is not about wealth creation, for it to work it is about sustainability and profit.
It is profit that enables a farmer to to improve buildings, add fertiliser and stimulate local economies...NOT paper wealth thru capital gains.
Wealth is a ego thing...like a dumb Hot Rodder having the biggest carburetter and lots of chrome, and a car that runs like a slug on the road and over heats....its just bragging rights.....or a tool to to over leverage without any concern for the recession times.
Farming goes in cycles, when farms are growing in capital gains the 'queen st' farmers come out, max out stock levels, squeeze everything they can for short term profits, which results in erosion, and unsustainability, then the 'city boys' (Icarus) get burnt and disappear, leaving Daedalus to rebuild.
We saw the ECC close off our butter exports, and to counter Moyle (Min of Ag) created a slush pool to see farms thru tough cycles, and still be in good positions when tings recover.
Then Icarus sees this nice little gold mine, and with no thought to sustainability, just quick opportunism, scrapes the whole thing....and once again farmers ....our main exporter income earner, struggles again...small rural supporting towns end up with with tumble weed rolling down the main street.
The cycle has been rolling over about every 14 yrs for generations now.
The Farmer Daedalus who is the back bone of this country is not interested in his wealth on the balance sheet...he is interested in sustainable profits over his life time, that supports the local communities
It is Icarus, the high flyer, short sighted egotistacal "Im worth x millions of dollars.." that is the biggest enemy of the farmer and NZ.
Daedalus and Icarus?...lets also look at the tourtise and hare, a stich in time...look after the pennies...
Oh thats right our 'high flyers' have never heard of these concepts
Don You make an interesting
Don
You make an interesting comment about a lack of new farmers coming into the industry.
"The fact farming is increasingly not the top occupational choice for New Zealand's most talented young people is of concern. After all, in how many occupations could a person control multi-million dollar assets by the age of 30?"
What are farm owners (and Fed Farmers) doing about farm affordability? The reason many young people don't want to become farmers is they know they can never afford to own a farm of their own any more unless they inherit it or settle for partial ownership. You make the point about a 30 year old controlling assets. But are they owning them?
I doubt it, given the average age of dairy farmers in particular is closer to 60 than to 50, let alone 30.
Also you make the point about a lack of ambition and willingness to build R&D and marketing businesses on top of the pure farming part of the industry? Why then do farmers frustrate any attempts to bring in outside capital and management expertise to grow Fonterra into a Nestle or Fonterra?
cheers
Bernard
Don You are spot on
Don
You are spot on in part, "NZ needs to focus on farming not diversify away from it." but the word "not" should be substituted by "and" - we cannot live off the farm and the theme park: much, much more is needed and many of your members know and tell me that is the case.
Take a look at this post:
http://www.interest.co.nz/ratesblog/index.php/2009/08/07/nz-exporters-an...
Happy to talk at any point.
We've just got to make
We've just got to make the best of what we've got, and agriculture is it for N.Z. Full stop. Until something else comes close there's no point in moaning. Just get on with it. Get in behind and support farmers - some wonderful innovative industry has come from industries that provide services to farmers.
As for farm ownership, well it is still possible if you are committed to that goal - actually we are evidence of that. There's just a slightly different pathway these days, i.e., with equity partnerships especially. You have to be shrewd though - there is no doubt that some of the most wealthy farmers are the most mean spirited. Do your homework on your bosses - choose carefully and network. It's not what you know but who you know. There is no farming without good people. You have to know your own worth and be highly organised. You have to get the best people on 'your team' - accountant, banker, mentor, farm owner, etc.
And not everyone wants to own a farm at the end of the day. Often the goal can be to go hard to get a mortgage free house in town. This isn't promoted enough as a positive for the dairy industry. Those working in town jobs can work away at a Mon-Fri 9-5 job until retirement to pay off their house - when they could fast track and use the dairy industry to get this in say 5-10 yrs (depending on the house value).
If it's so easy, or you have some great ideas for transforming the industry, then come on board. We'd love to have you! Time to walk the talk.