Professor Ang says the question of whether NZ is too reliant on the dairy industry has again been raised

Professor Ang says the question of whether NZ is too reliant on the dairy industry has again been raised

By Siah Hwee Ang*

New Zealand dairy is drawing the attention of Chinese consumers again.

A threat was made, in November last year, to Fonterra and industry lobby group Federated Farmers that if 1080 (formally known as sodium fluoroacetate), an agricultural pesticide, is not outlawed for its use by March 2015, there will be contamination to various formula products.

The information relating to this threat, found to have low likelihood of being executed, was publicly released in the middle of last week.

What’s happening?

At the time that this threat was made known to the public, Chinese authorities sanctioned a new regulation, literally on the same day, that all formula products into China need 1080-free certification.

In fact, Chinese authorities said that it would increase scrutiny of New Zealand milk powder imports going into China.

The NZ Infant Formula Exporters Association noted that a milk powder shipment between $1.5 million to $2 million has been stopped at Chinese borders, as this was not certified to be free of 1080.

Given that more shipments would still be at sea, there are bound to be more detained, until clearance otherwise.

Meantime, the distribution channels in China are also alerted to the situation and have currently cut back on their orders.

Analysing the situation

In comparison to the botulism scare back in 2013, this threat seems to be one of smaller magnitude.

Yet, as the event unfolds, it seems there are still lots of lessons to be learnt among the parties involved.

It’s good to hear that after testing samples of products in the last few months, and a police investigation, the threat was deemed to be low. But, this is not the same as having zero risk.

Given this, it is unclear why this threat was not made known earlier so that events, such as shipments stuck at Chinese customs, could be avoided to some degree.

No doubt the major target for this threat has been Fonterra given its size and industry leadership. Fonterra deserved to know in advance, and to work more closely with the Ministry of Primary Industries.

But what I see on major Chinese newspapers is “New Zealand” in the headings for this news.

So the implications can be beyond the dairy industry per se. A national image issue should be treated as one where the burden is to be shared among New Zealand firms, not just individual organisations.

There are implications for other players in the industry and the New Zealand image.

Smaller exporters should be kept in the loop as much as bigger players.

The good news is that this time round, the news did not last long in the media. It’s a good thing not to be on the news for the wrong reasons.

Or maybe Chinese media is accustomed to our typical crises and do not deem them newsworthy anymore? The fact that Chinese media is focusing on what is happening at the Two Sessions meetings of the Chinese People’s Political Consultative Conference (CPPCC) (the country’s top political advisory body) does divert their attention away from smaller matters.


Nonetheless, the situation does bring us back to two major questions: One, is New Zealand too reliant on its dairy industry? Two, is the dairy industry too reliant on Fonterra, and hence New Zealand is reliant on Fonterra?

These questions are not new, as they were raised with the last two major incidents—botulism scare in 2013 and Sanlu in 2008.

Nations thrive when their smaller companies branch out to become international.

As far as reputation is concerned, perceptions matter. New Zealand has a lot of advantages in agricultural products.

But we should not be taking this for granted. For one, I believe we do not spend enough time justifying to our international customers our value proposition. Incidents like this can challenge customers’ thinking on whether the premium they pay for products for from New Zealand is justifiable.

Prevention is better than cure, and mastering crisis avoidance skills is probably more productive than mastering crisis management skills.

The only consolation from “1080 Blackmail” is that New Zealand exports would become cheaper and our tourism industry should continue to do well with falling New Zealand dollars, thanks to our dairy reliance!


Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with China. You can contact him here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I think we should end the use of 1080, I mean we don't send hormone treated meat to the EU and we don't use certain chemicals on the grapes due to market demands. Why should 1080 be any different? 
 Councils and the AHB may dig their toes in over it but we all could be big losers on this one.

......and instead use what?  Or stand by and which what little forest we have left die off, pssums, rats stoats to turn into a plague?  1080 is vastly different to hormones..we don't treat our porducts with it for a starter.....Little point in me posting further, plenty of robust science out there if you care to read it.

Use cyanide and ground trappers.  
 I'd like to use Scala in my vineyard, with all this rain coming but its no longer available, I would also like to use Teldor at fruit set but it's not an option either.
  The problem is not with 1080 it's with the AHB, and as a a farmer I'm funding my share of the spending, it's no longer about TB, its about keeping the people in AHB in the money.
  I've experienced 1080 up close and its not pretty and it's not the only option, do you think we can just keep using it for ever and ever and we are going to kill all the possums one day?
I've got news for you, we had a positive TB steer up the road well we think it was positive, it's hard to know.They used 1080  in the whole valley and followed up with ground stations and traps. Killed all the possums, went out with a spotlight and not one. Two years later I shot 36 in an hour.
 It's about perception in the market, thats why Teldor has gone and its why 1080 needs to go.  It could end up getting very expensive for us.  China has a lot of countries linning up to sell it dairy products, the EU has a big increase in production this year ( %4-5) as will the USA.
 Leprino foods in Colorado have just finished a big cheese factory that will require over 100,000 cows to supply it and these cows produce double what our cows do.  Thats  70,000,000 more Kgs of milk solids coming out of the USA, a coutry with declining milk consumption.

Trapping   ... it could never be done on a budget such as DOCs - it would need to be enormous and still would still not do what 1080 drops can.
1080 is a stop gap. ... but until something else appears there is no option.  This is the part the opponents conveniently overlook.
Interesting you quote dairy exports - last time i looked the NZ green enviro tourism bit was a pretty good earner - and is also  leveraged off by Fonterra and very other primary exporter big time.  Without 1080 there would be nothing much left standing to look at....and an end to your pretty post card pics. 
Good luck to Leprino.  They can produce the milk, but they can't replicate our eco tourism. 

When I was young possums had a free range and we still had native forest.   Trappers follow up 1080 drops today.  Trappers can actually do a better job its not Doc who's doing the funding, it's the Animal Health board, we pay a levi on stock when killed. Dairy farmers pay more via Fonterra.
 When the fur price was high in the 70's, for a while it was hard to find a possum. Possums will always be here, the first ones will be cheap to kill but the last ones will broke the country.  Rats have an equilibrium, poison them and they recover with a population explosion.

Mate, you're not using a lot of intellectual firepower in your arguments.  Which is a nice way of saying you're talking utter rubbish.
For one thing, they're now talking of elminating pests off the main islands in NZ.  It's a huge task but it looks like it can be done.
Do you have any evidence (apart from what you saw when you were a kid) that rats live in equilibrium?
And this "When I was young possums had a free range and we still had native forest." is just one of the stupidest things I've ever heard.
Why don't you spark up the still, have 'nother jug o' moonshine and run around shooting things with your shotgun?  It'd be as useful as your comments here.

Of course they are talking of eliminating all the pests, it's a natural transistion for a Govt qango.
Have you bothered to read the report above?
 Only when rats were poisoned at lake Waikaremoana the bush stunk of dead rats but rats can breed pretty fast.
4 A female rat can mate as many as 500 times with various males during a six-hour period of receptivity—a state she experiences about 15 times per year. Thus a pair of brown rats can produce as many as 2,000 descendants in a year if left to breed unchecked. (A rat matures sexually at age three to four months.)
 I used to trap possums for money when I was young so I do know a little about the little buggers, I've killed a few.  I've also been in a TB control zone and been to lectures on possum behaviour breeding patterns, diet and migration habits.  I know 1080 won't kill all the possums.
The issue I was trying to highlight was the fact that like it or not perceptions ,matter and when I see a helicopter or a fixed wing cresco flying on 1080 I know i'm going to see it in a stream and I know it kills birds, I've also seen the bush literally change colour after a big poison run so I know possums knock the bush around.
Whatever you think, if overseas buyers don't like it and you're an export orietated country, its time for behaviour to change. 

Whatever you think, if overseas buyers don't like it and you're an export orietated country, its time for behaviour to change.
I don't think those in charge are smart enough to work that reality out.
So we will continue doing stupid/ineffective/status quo.

"For one thing, they're now talking of elminating pests off the main islands in NZ."
well some one was certainly talking rubbish and it wasnt Andrew.

you really think humam endeavour is capable of holding back rat and mouse pest population, if there wasnt other natural equilising pressures?  Do you have any idea how fast they breed? 'bout you get on your ugly horse and go ride it somewhere else.   your ad hominem and fake (and completely failed) attempt at intellectualism would be appreciated elsewhere.

How did they control possums before 1080?  What is a possums preffered habitat, is it the Heaphy track, or the farm track?  Maybe all the interested parties (forestry, farming, tourism) can cough up a few coins to create a bounty on possums like they used to have.

Colorado eco tourism looks bigger than ours.

Diversification of revenue streams is a basic business principle that NZ, as a small country, needs to adopt (and quickly). We do dairy well, but there are other areas of business that also speak loudly to the value proposition of NZ Inc. The creative sector is one of these. While film has taken the lead on this in recent times, the growth in our games industry and exports of education resources (including online learning), have massive growth potential. 
The government's Business Growth Agenda is nearing the end of its programme of work. Now is the time to look for sectors beyond dairy where NZ can leverage other forms of natural resources like our talented creative people and creative businesses for future economic growth.

I agree but its a bit late once we've already  borrowed the 60 billion in Ag.

You're not wrong Paula but who exactly is supposed to start these businesses?  If there was these great opportunities out there surely the entreprenuers amoungst us would be all over it... 

Not enough wealth in the rest of the country, too many king pins, and these days the hurdles are just too high and too frequent to care to try   ... just look at that oldDragons Den problem, just about every product or services was "I want to take business to china" and nothing was backed.   Same now, look at the crowdfunding stuff ... how much is kiwi?  how much is foreign students funding college/university projects?

...I'd say we did do dairy well, when prices were low and we relied on the old grass fed sytem, lower stocking rates, less debt repayments (lower land prices) and so on.  With higher prices leading to higher land prices, higher stocking rates, supp feed and so on, our model is not a great deal different than elsewhere.  Factor in trasport and we don't look so flash at all anymore.

when prices were low we could rely on our low overheads and low compliance costs to carry us through (and way back, favourable loans and rates from government and rural bank).

Compliance costs are through the roof, and ACC just upped the ante considerably, far too risky for the return.

small country means small compliance costs (ie low overheads).  Even the fundamentals can't beat the maths.

there has not been any talks on where NZ as a country should go. It seems it is all down to the invisible hand at the moment.
NZ, as a country and due to its constraints, should be aiming at to be
1. a luxury tourists spot
2. a luxury retirement village
3. a safe haven for capital
4. an eco-friendly farm 
5. an incubator of smart ppls that can contribute and exert influence at global stage

We have poor climate for tourism.
We have history of national poverty.  so not much in the way of returns for local investment.
We *could* sell to large tourism multinationals, and get the crumbs they leave us - or completely commercialise what is left of the Maori cultural (sure they won't mind /sarcasm).
You aren't going to get rich on backpacker/YMCA tourism, and just what are people coming to see?  Old buildings (our old buildings are the newest in the world)? Green farmlets?
There isn't the open money and government support to be able to theme park things of much scale - things like Lord of the Rings, with it's international history and movie fame to draw interest - and when they many Kiwi's have abysmal taste (see Wellington Airport Lounge...)    Or general standards are so low it's embarassing (see Auckland council paying for grown up to do basic presentation skills.... remember all those people passed their job interview process...)
eco-friendly farms are unsustainable especially with NZ labour and compliance costs.
incubator teams have characteristically gone off shore where funding, customers, and favourable economic & government climates exist.

Quite right Xingmowang. Ireland solved their problem of being a backward agricultural nation by adopting a business friendly culture, specifically by reducing corporation tax to 14%. New Zealand will never try such a thing as it might work, thus changing (wrecking?) the country forever. We like it just the way it is (was?). We don't want it to go anywhere.

Well maybe.  Ireland was on the edge of the EU and if you "manufacture" inside the EU there is no limitations on where and how much you can sell. ireland also had good and cheap road links intot he EU, if a bit extended.   If you look at ireland actually I think its still is predominantly agri-cultural. No real manufacturing has moved in on the scale needed to change that. It looks more like the tax dodging private jet corporations domicile there and then storage, eg large corporations like EMC and Apple use it as a large Warehouse.

This paints a too simplistic a picture.
Ireland 'enjoyed' billions in Irish pounds and later Euros after it had joined the EU in 1972. They flogged off their territorial waters to Spanish and Portugese fishing companies for the privilege.
Irish waters were heavily over fished, and the fishing industry collapsed. Towns dependent on this industry died. Sound familiar?
Corporation tax in Ireland is 12.5%, not 14%. Some parts of Ireland are even completely corporate tax-free, to entice US companies to build their offices/warehouses there (e.g. Limerick, also known as stab-city).
Same as NZ, Irish butter and Irish lamb are now more expensive when bought in the country - the best stuff is marked for export, and priced accordingly. (sound familiar?)
Ireland experienced a housing boom, fuelled by low interest rates and cheap credit (sound familiar?)
Ireland's main money maker was agriculture. It tried to wean itself off this by investing in housing. The only difference with NZ is that it has been successful in attracting tech companies, and this has been a nice little side-earner. Unfortunately for NZ the reason (apart from the low corporate tax) why these tech companies settled in Ireland, is due to its proximity to a large market (Europe), and having a skilled and cheap labour force.
NZ is only close to the Asian market, and guess what? Asia can do it cheaper than we can....

Just got some nice NZ pinot in the supermarket , California for $5.99. No wonder they are paying NZ growers so little.

Yep, I worked a year on a vineyard, got $14 an hour for the pleasure.
It's hard on your physique, hard on your skin, hardon the wallet.
But I make a point of only buying NZ wine (when in NZ)

It's even worse if you own the vineyard.

Just bought some Australian long life milk in the supermarket.
(Not usual tiple for me, I must admit)
Also saw Chinese beer at $5.99 for six. (Probably not my taste, but someone will buy it).
How come it is much cheaper than our own NZ produced brands?.
Will have to check NZ Pinot...not sure how much we are being charged on that one, but it is I believe far more than USA quoted price AJ....
Taxes I assume.....And that may make an Ass of u and Me. (more like Me...but I digress)
Seems a tad uneven to me...all around. Home made...maybe not the best.

Home mean maybe not the cheapest...could still be the best?
I don't look for cheap. I look for good value. And I prefer localy made food/drink/clothes etc.
Quality lasts longer, anyway. Only buying cheap stuff is false economy

Excellent, thank you DFTBA for the gory details re Ireland. I know my thought process is overly simplistic, it's my way of trying to get to the heart of the matter. I think I was trying to make two points (never a good idea, but there you go).
The first point is that neither central government or kiwis or local government think of businesses as the country's customers. In a sense there is a strong anti business sentiment - witness the uproar every time someone suggests a mining project, for instance. In a very real sense the country's businesses are the country's customers, in the sense that we supply them with people, materials and facilities. This leads to a different thought process, such as Xinmowang suggested. It leads us to think what sort of customers we want to attract- what do they look like. My suggestion that a lower corporate tax rate might attract the right sort (Google was in my thoughts) and the resulting competition for employees might be a good thing for all concerned. The obvious jobs to be attracted here first are the more portable ones from Australia working for companies that are present in both NZ and Aussie. In essence you create excess demand for NZ employees and hopefully better paid jobs is the outcome.
The second point is I think we are perhaps overly cautious about change as we like things just as they are, thank you very much.

Anti mining is not the same as anti business.
At pesent, I think anti mining can be more thought of as pro-environment. I mean, more than half the gold mined in the world at present, ends up as jewellery. It's not used for industrial purposes, at all.
The likes of Google work where they want, really. And use shell companies to sluice their profits through, to avoid paying the amount of tax they owe.
It's that what makes people anti-business, the (pereceived or real) impression that businesses are propped up by tax dollars, strip the environment, pollute at will, and then dodge their tax liabilities, too.
With regards to environmental protection - very few businesses behaved ethically (it would, ofcourse, have cost them money, and lost them their competitive advantage) - I'd like to point out that the reason why there are so many environmental laws, is that no business can be relied upon to do the right thing for the greater good.
And if you want to argue that that's not what businesses are in the market for, maybe that's somehting we have to change.
If, as a business, you can't survive if you pay your taxes, pay your staff a liveable wage, conduct business in an ethical manner (to the spirit as well as the letter of the law) , and mitigate any adverse impact you have on the environment (like recycling your old wares), then you're not really a 'business' at all. You're just another conduit for government welfare, because the tax payer picks up the tab in the end.

I also wanted to point out that, contrary to your assertion, Ireland has not 'sorted itself out'.
Like New zealand, it is a young nation (old in history, but young in independence) and is going through a lot of growing pains.

So would your preference be that we have even more Government intervention than what we have now Xingmowang? It seems to me that you are advocating a Nationalist approach!!!

Yes we do dairy well. It's a reality, as is the unfortunate fact that we haven't found the other things that could do so well. So lets give dairy some encouragement.
We could also encourage our smaller companies when they find something that works. But when that does happen, it soon gets purchased by a foreign company, and many of them then disappear offshore completely.

Dairy has had massive government 'encouragement' for the past 50-60 years. The usual government 'picking winners' we expect.
All of which has come at the expense/cross subsidy of other sectors.

Colin, The Dairy had massive goverment encouragement up to about 35yrs ago, from about 80 years back.

This was done to bootstrap the economy out of the Great Depression.  Land was give plus up to 10 cows, sometimes a loan, but often straight up. 
 In return the burnt bush low quality areas had to be cleared and fenced by the farmer and their family.
 Sadly 10 cows even then wasn't enough to raise a family on so many of those early subsidises were just con games to get "gumboot developers" without paying them, and to stimulate export trade and commercial type B2B sales.  That "labour equity" is what supplied goods for sale, goods for sale meant factor and office jobs for others...which meant money for support and entertainment businesses.

Later on in the World War ending in 45, the British had placed all the farms under government oversight to make sure food production was maximised at any (farmers) cost.  To ensure that farmers would grow what they were told and could afford supplies the Government of the day paid them to do so.   At war's end a different party got into government but the majority of the population and the incoming socialist government decided to keep control over the farmers, and also to keep up subsides.   The "Labor Farmer" party in the US wasn't so successful even with their "Pay a farmer a fair price AND Pay a working man a fair wage" policies.
 But NZ copied everyone else just like they used to.   Likewise Primea was also given out again. And subsides were paid so the farmers could get food and products moving into markets, and so useful services could be afforded.

Those schemes ended in NZ 35 years ago because of market distortion.  It was more profitable to farm subsidises rather than farm land.  And far more profitable to administrate, than to deal with finding and delivering perishable goods to market.
Farmland has been consistantly amalgamating every since, as inflation makes it less feasiable to support a family off farm development wages. (ok if you're already on the ladder).

Same as when the rural bank was effectly mainstreamed and removed.  It became more economical to buy houses in residental areas than take real risk on farm (unless you already had a core farm)

Easy solution: Market possum meat in Asia as an aphrodisiac enhancement food. The population of possum will disappear in about 10 years, and in the same token save the population of rhino in Africa.

Aphrodisiac enhancement food.
Any chance it will be available on the local market.
Oh ,by the way,it's not for me  ít's for a friend.

A more likely outcome is that you would see the development of possum farming, which would be an excellent solution if your objective was to conserve possums but rather less desirable given that the objective is to get rid of them

sell licenses for the farms but keep hunting low cost and easy access.

Prof Ang.  News wasn't given earlier because there was no threat.  Something the panicing people and emotion-harvesting media like to forget.

And yes NZ is too dependent on Dairy, as they will find out when the quotas come off in Europe, and the Chinese factories get up to speed.

But NZ also used to do butter, wool, mutton and whale oil very well...... not so much of an earner now.

still not see this economic growth that many are talking about, certainly not outside Auckland, Wellington.   Talking to some with ties in Napier and Hastings and things looking very harsh.  Wine and fruit just not getting the processing and bureaucratic returns of Ak/Wn

The Asian shop I was in this morning was empty. They say it is a temporary fix, they are in.
So was the next one that I visited. They were all recent immigrants, new to New Zealand.
I hope the people employed who were all standing around get paid. There were quite a few.
I hope their suppliers also get paid.
I hope their mortgages get paid, both business and homes.
They may think that that is the way to do business in New Zealand.
Hope for Capital gains. Not sell product. they may have been sold a pup.
Some hopes.
Seems to be a trend the World is counting on. Borrow large, reap what ye sow.

I suspect many standing around are family and claiming unemployment and all other lollies going. One paye number between the lot not uncommon - just ask your local tax inspector.

not uncommon in some Asian businesses, Indian too.
They have a job to do, few of them are undisciplined enough to demand outside their role, so they just carry on or wait.

Well, how reliant is the NZ economy on dairy?  Surely there are some figures which could be included in an article like this?  for example, what proportion of GDP, what proportion of export earnings, what proportion of total employment, what proportion of total tax paid does the dairy industry account for in NZ, etc etc.  And some context, like how does this compare with similar figures for Australian mining, Norwegian oil, British financial services etc 

Well as long as we keep selling off our companies to foreigners. Try to find biscuits made in NZ by an NZ company, even our most iconic brands Molenburg and Vogels are owned by foreigners, totally, Wilmar actually, the world's largest palm oil processor. So that's all of the Edmonds brands and Meadow Fresh, yet they still get around in trucks with messages on them that implicate they are NZ products and to disguise the fact they are foreign owned and foreign owned by a corporation that deals one of the most controversial products at the moment.
Yes, we could succeed in a lot more than just dairying, but we just keep letting great brands out of our hands, and it won't be long before a huge chunk of a dairy farming is gone to foreigners as well. Mark my words, we just let things out of our hands too readily.
As for the 1080 I wonder if that stuff did come from overseas, would have had to have been finally posted from within NZ as I expect it is known where it came from. I wonder if the actual aim of this was to highlight, especially to the people of China, that NZ biffs great amounts of poison around the land, with the aim that yet again, our milk product exports are jeopardised yet again. 
I think it could possibly be a case of industrial terrorism.
It could also have been a disgruntled hunter. 
Those are my two guesses for what it was

just like to point out it's not "our" stuff.
Too many NZ companies just find that constantly fighting city hall against continual compliance and interference and wage increases and financial risk and taxation just isn't worth the fight....and even if the local guys were winning (like we had with the clothing industry) the politicians will trade the whole market away in an eyeblink for a theoretical FTA for a temporary political gain.

And  then when people look at trying to start something... Well remember what happened just recently with that boutique cheese producer in Eketahuna/Masterton?   All the regulations were written for Fonterra/Open Country Dairy scale and model of operation.  Who can be bothered.  Sell it to a mega corp and walk away, not like the country is our problem to look after... we don't even get a real say anymore.

....I believe people are slowly starting to adapt to avoid some of this regulatory nonsense.  UBER (I'm not a taxi) being one.  Another example is a guy in Aussie producing camel milk.  Too expensive to comply, so sells it labelled 'not fit for human consumption'. He can't produce enough of the stuff.  Plenty of scope to have feedback sites (like trademe, uber etc) so people can see the track history and have a much greater idea what they are buying than any gummit tick box wil tell em. 
Craft cheese for pets anyone?

Or baiting your mousetrap? Back to cowboy's point about city hall and how regulations stymie the little guy, that's been going since just about forever, ask the little guys in the fishing industry

You had better come up with something to resolve the Auckland and Chch housing issues......animal shelters.....not fit for human habitation;-))