Keith Woodford says population policy lies at the heart of future New Zealand

In recent weeks I have been writing articles about New Zealand’s economic conundrum, with this being a complex mix comprising stagflation, lack of economic growth and low productivity. To a large extent, it has been a dismal story of how New Zealand has been sinking lower and lower in global rankings, and with per capita incomes in decline in recent years.

I finished my last article by asking a key question about population. Do we need more people to underpin future economic growth? Or does ongoing population growth itself lie at the heart of our economic problems?

I did not attempt to answer the population question in that article. I knew that it required an article of its own. I also knew it was dangerous territory.

Perusal of mainstream media soon told me that population is a question most journalists and politicians shy away from. However, the accepted perspective seems to be, at least within the mainstream media, that New Zealand needs more people. 

Neither of the two main political parties, these being National and Labour, appears to want to stimulate too much debate. Their market research probably undoubtedly tells them that it is indeed dangerous territory. 

Nevertheless, in the case of National, key donors from the business sector are undoubtedly lobbying in private that more immigration is needed to stimulate demand in the economy. Immigration Minister Erica Stanford even got sucked into saying in Parliament this week that we needed more immigration because we weren’t producing enough babies. 

Prime Minster Luxon has also made his pro-immigration stance clear. 

In the case of Labour, the situation is somewhat more complex. Potential linkage of immigration and unemployment is a touchy subject. However, there is also a belief by some within Labour that immigration might produce more jobs than it fulfils, at least in the short term. 

If there is a party against large scale immigration it has to be NZ First. But the argument as presented has often had a populist element to it. I am not comfortable with that.

In times gone by it would also have been logical for the Greens to be anti-large-scale-immigration, based on ecological principles and shrinking planetary resources. However, the Greens have become a leftist socialist party that seems to have lost its way in relation to mainstream environmental issues.

In summary, the perspective I therefore come to is that the population debate in New Zealand is deficient. In other words, it lacks depth and balance.  In dealing with that inadequacy, I attempt in the paragraphs that follow to present what seems to be currently a minority perspective, that large scale immigration is a misguided pathway. 

New Zealand’s economy is built on natural resources. More than 80 percent of physical exports are from primary industries. The biggest service industry is tourism, with this too being very much based on landscapes.

It is difficult to see how any of these foreign exchange earning industries need more people. Indeed, our primary industries use less labour each year, with these industries standing out in terms of labour productivity.

The major constraint facing further development of primary industries is that all of the land that is available for either plant or animal industries is already used. If a primary industry is to further expand, then there is an opportunity cost of another primary industry that has to diminish its use of land.

To the limited extent that changing land-use is occurring, then in the North Island it is largely kiwifruit replacing dairy. Historically, it has been pastoral land converted to forestry.

In the South Island, according to my colleagues, there will be 26 new dairy farms this coming spring on what were predominantly cropping farms. 

Economists interpret ‘land’ broadly to include water resources. Once again, most of the available water is already used, either in its original form as rainwater or via irrigation. 

It is difficult to see any big new irrigation schemes in the future. The waters of the big South Island rivers from the Waimakariri south to the Waitaki are already fully used either for plant growth or hydro-electric power.

Increasing yields of crops and pastures will still occur, but gains will be increasingly hard won.

In recent years it has come as a surprise to pasture agronomists that our pastures seem to have reached a production plateau. To the limited extent that per hectare production of animal products is increasing, then it is largely due to livestock production efficiencies deriving from breed improvements rather than increases in available pasture feed. 

In contrast to pasture production, improved yields of crops are still occurring but each increase is harder won than the preceding one. Kiwifruit has been the outstanding example.

In the case of ‘SunGold’ kiwifruit, New Zealand has 13 more years of exclusive plant-variety rights protection though to 2039. Thereafter anyone will be able to grow it.

‘RubyRed’ is the new kiwifruit variety now coming though into production. The current challenge with RubyRed is short shelf-life and hence a short season.  This may be partly solved with a second variety within the RubyRed category now being planted that will mature somewhat later in the season.  

Another challenge with red kiwifruit is that other countries also have their own red kiwifruit varieties. It is yet to be proven where New Zealand’s variety will sit in terms of quality within the broader red kiwifruit category.

With tourism, the challenge for now and the future is crowding out at quality sites.

The overall message in regard to foreign-exchange earning industries is that to a large extent they do not require an increase in the New Zealand population. Small increases in output per hectare may occur independent of population issues, but these could easily be balanced by loss of quality land for urban development. 

The problem with an increasing population is that the exports per person will decline. 

Indeed, the ratio of exports relative to the total economy. as measured by GDP, has been declining for 25 years. In 2000, exports were 36 percent of the economy. In 2024 they were 25 percent of the economy. 

Why does that matter?

The answer  is very simple. Exports are how we pay for imports. And there are an awful lot of imports. The only other way to pay for imports is by borrowing foreign exchange.

Actually, here in New Zealand we have been very good at borrowing. Hence, we have to not only pay for imports, but we also have to pay interest on the money we have borrowed in past years.

Eventually the chickens do return to roost. Or using a term that economist often use, ‘there is no free lunch’.

So where does population fit into this?

That too very simple. The greater our population then the more imports are required. Hence the earnings from exports have to be spread across more people.  

Earlier in this article I stated that the New Zealand economy was underpinned by its primary industries. The other side of that coin is that there are few goods manufactured in New Zealand. Apart from primary industries, we are largely a service economy, selling food, clothing and manufactured imports  to each other, providing Uber transport and various administrative services. 

Cars, computers, clothing, petrol, diesel, fertiliser and medicines all have to be imported. Even a lot of food items are imported.

The reason we import all these articles is not because we are in some way intellectually or physically deficient. It is simply that a small island in the southern reaches of the South Pacific is not the place to be producing all of these other items. Lack of scale, the tyranny of distance and a lack of most minerals are against us.

The’ bottom line’ in relation to there being no ‘free lunch’ is that if our population continues to grow relative to our ability to produce exports then we have to reduce our purchases per person of all the imports that are fundamental to our way of life.

Of course it is not realistic for us to stop all migration. Some of us, including me, believe that immigration has brought valuable diversity to our society. 

Also, there are clearly sectors such as health care where we have truly muddled up the production of our own doctors, nurses and related health workers. I personally rely very much on those services!

There is a lot more I could say about population issues. For example, I have not touched on the issues of an aging population. I will leave that to another day apart from making the point that those problems relate not to the boomers, but to the times ahead when Millenium cohorts reach retirement. These are considerably larger cohorts than the boomer cohorts, with this being, ironically, a direct outcome arising from immigration policies of the last 15 – 20 years.

To draw a curtain for now on a big topic, the big message of this article is that population policy is fundamental to the future New Zealand. We need a debate that is more sophisticated than what it has been.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.