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Farmers will be focusing on the Budget, but the Budget may not focus on rural priorities. However the Government will be relying on rural export revenues to pay for its urban 'catching up' priorities

Farmers will be focusing on the Budget, but the Budget may not focus on rural priorities. However the Government will be relying on rural export revenues to pay for its urban 'catching up' priorities

Unless something unexpected comes out of left field, the news this week is going to be dominated by the Budget on Thursday, May 20. Judging by the “Budget Policy Statement published back in February when it come to the primary sector there are unlikely to be too many (if any surprises).

Most banks and economic commentators are picking a more fiscally restrained approach this year as we (hopefully) are starting to see some light at the end of the tunnel.

The fact that meat, dairy and horticultural having reasonably good seasons and are in fact in many cases back to where they were at mid-year 2019 for red meat and going back a lot further for dairy illustrates this.

As mentioned earlier this month venison was dragging the chain. However, after highlighting further falls in the venison schedule things have turned around and while prices are still far from being anything other than sick, they have improved. If anything, it indicates that restaurants and food service internationally is on the improve and is turning around the venison market. So, most farmers should be happy to keep to the shadows when it comes to the Budget as in recent years government policy has generally added more cost and stress when it comes to farming.

The COVID-19 responses, housing and poverty are likely to be the main focus of the Budget although the opportunity to do more around climate change may be taken. This year agriculture should be out of the frame and it may be transport's turn to be put under scrutiny. The reshaping of the national health programme shows the government is prepared to make far reaching changes. It also does not have New Zealand First to prevent it making the changes it wants to achieve, so no excuses now.

The call for a more constrained approach appears, at least before the Budget is revealed, to be quite a different approach to Australia’s. With government gross debt already considerably higher than New Zealand’s  as a percentage of GDP (see graph below), Australia is increasing borrowing, be it at a lower rate, and predicting to be approaching 50% in the medium term. This is driven by cash deficits being between -5% to -2.7% in the next 5 years and down to -1.3% “in the medium term”. This is presumably about 10 years out.

 Among the measures the Australian government has taken are:

  • Reducing taxes for lower and mid -income earners
  • Providing incentives for businesses to invest and create jobs
  • Providing targeted assistance to tourism, aviation and other targeted industries.
  • As well as continuing to spend on infrastructure

The Australian primary sector did not receive any great specific attention but there was a commitment to help make water sources more resilient for irrigation to combat drought and provide rural communities with reliable water. The other major spend seems to be on bio-security controls on the border.

New Zealand tends to take the conservative route with budgets partly because of the nervousness governments have about disruptions to our export returns and the impact that potentially can have on the economy. However, the primary sector has shown that they have come through better than most, and as a result, New Zealand has weathered the COVID-19 storm better than most.

If, as it looks likely, New Zealand does adopt a more conservative approach than Australia and reduce spending considerably from last year to try and have a fiscally balanced budget it may come back to bite the Government. There are probably still at least 12 months of reduced retail spending within the economy and borders closed to much of the world. Plus plenty of public areas from housing to health to education that require further catching up. So, whether given these a fiscally neutral budget can be achieved seems doubtful without inflicting the risk of further hardships. A comparison with Australian against New Zealand in a couple of years could be revealing.

Livestock farmers must be feeling on the outer at the moment with the Minister of Primary Industries Damien O’Conner pouring could water on letting any further temporary labour in to provide staffing relief. This is despite horticulture, fishing, construction among other sectors that have had recognition that more temporary staffing is required. Dairying in particular will be feeling somewhat bruised given O’Conner comments that he didn’t believe dairying had done enough to encourage Kiwi’s to join the industry and therefore didn’t deserve access to additional labour. This obviously implies that fishing etc. have.

On the topic of meat prices if anyone is prepared to provide interest.co.nz discreet access to weekly meat schedule updates I’m sure it would be appreciated by many. We would welcome a conversation.

P2 Steer

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27 Comments

In 1986 agriculture lost it's position as a top contributor to New Zealand GDP it was replaced by owner occupied property operations.

The majority of bank credit creation in the UK [and NZ] is not even used for transactions that contribute to and are part of GDP, but instead is used for asset transactions. They are not part of GDP, since national income accountants require a ‘value added’ for inclusion in GDP, not just the shifting of ownership rights from one person to another. When bank credit for asset transactions rises, asset prices are driven up, because the loans do not transfer existing purchasing power, but instead constitute an increase in net purchasing power: money is being created and injected into asset markets. When a larger effective demand for assets is exerted, while in the short-term the amount of available assets is largely fixed, the price of assets must rise.

Such asset inflation can go on for several years without major observable problems. However, as soon as the credit creation for non-GDP transactions stops or even slows, it is ‘game over’ for the asset bubble: asset prices will not rise any further. The first speculators, requiring rising asset prices, go bankrupt, and banks are left with non-performing loans. As a result they will tend to reduce lending against such asset collateral further, resulting in further drops in asset prices, which in turn create more bankruptcies. When asset-based lending had become a major part of bank portfolios and when banks had already driven up asset prices by several hundred percent due to their excessive asset-based credit creation, then it is inevitable what will follow: bank equity is usually less than 10%, and thus asset prices need to fall only by a little more than that – which is not difficult, after rises of several hundred percent – and the banking system is bankrupt: losses from non-performing loans have to be made up from equity (if no other funds are available, which is usually the case in such situations).

Thus a full-blown banking crisis must follow after a bank-credit driven asset bubble. One does not need to be a central banker to know this very well. (Why, then, did the ECB allow 20% or more bank credit growth in Ireland, Portugal, Spain and Greece, for several years? Such high credit growth is clearly in excess of nominal GDP growth and hence it is clear that it must be creating unsustainable asset bubbles that result in banking crises – as the Quantity Theory of Credit has postulated since its inception in 1992; Werner, 1992, 1997; 2012, 2013).Link

On this basis, NZIER calculates that between 1991 and 2017, the average combined direct contribution of dairy farming and dairy manufacturing was 3.09 percent of GDP. Link

Farming - forget about it. Ask any Aucklander.
Auckland is the powerhouse of the NZ economy. Selling lattes and houses to each other is where it’s at. Feeding your large children and filling your needed oversized Remuera tractor with fuel to transport them to and from school raises all the country’s tax.

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Unfortunately Wellington based labour Polies have no idea of what labour requirements are in the rural sectors
Given they have no work experiance or management of business experiance. What we have at present is a union backed government hell bent on redistribution of any small profits that business can make. The facts are that the rise in Wages and the lack of staff capable of the productivity required will drive some labour intensive industries under.

I keep reading articles crying about the lack of ability to bring in foreign workers for primary industries and find it very hard to be sympathetic. In my own industry dairy farmers have spent years keeping wages low and not training. Sure there are individuals that have but as a industry, fail. Many of the jobs offered on farmsource were still scrapping the bottom, particularly the contract milking, and as I've pointed out before some even advertising for less than minimum wage.
The last whine I saw on stuff was interesting in that I sympathised with the individuals involved but the owner owned 6 farms and couldn't get a kiwi manager to run all six for $100k. I'm not surprised as he found that's a big bloody job worth more than $100k. But really why 6 farms, sell 5 to individuals cause there's a heap of sharemilkers wanting to move on and surely you can make enough of one for a more than decent lifestyle.
Some of the farmers are sounding destinctly landlordish.
Perhaps it's really the business plans that broken rather than anything else.

"sell 5 to individuals cause there's a heap of sharemilkers wanting to move on and surely you can make enough of one for a more than decent lifestyle." Absolutely agree. There are too many building their own personal fiefdoms at the expense of allowing young guys and gals the satisfaction of rising to ownership. The corporate entities buying up farmland are just as bad.

Totally agree with both of the above comments. No one needs 6 dairy farms. It's just ego driven BS . Nothing personal to the family involved but VLD is a bit of a warning to these people . How do you unwind it all in the end.

Remember many of these corporate identities will be registered charities. No tax paid so in a good year they make enough to go on and mop up the next available property. All the while paying peanuts to their milkers. Surrounded by non tax paying entities here in the central plateau. No level playing field at all.

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I’m a city slicker so have limited understanding of farming. What I can say with confidence is that without the income generated by farming/agriculture our country is stuffed. We need to stop attacking this sector of our economy.

It's not attacking farming - it's implementing standards to save our freshwater ecosystems from collapse. Most of the angst I read about is directed at corporate dairying and feedlots.

I don't know how many university student essays I have read this year, where students reflect on the fact that the rivers they swam in in their youth are no longer swimmable - and these students are generally younger than 30 years old. In far less than a generation we have 'lost' so, so much ability to enjoy and be proud of our freshwater resources. Not to mention our once popular urban swimming spots (beaches, harbours and rivers).

We're (urban and rural) are all in it together.

No Kate, the angst is directed at 'dairy farming' therefore it is farmers per se that are targeted. Occasionally Canterbury may be singled out. Hence the mental health issues among farmers at levels not seen before, over the last few years. What are the rivers - given that some of them are very long that are totally unswimmable anywhere along their length. I am aware of certain spots at certain times of the year may be, but not whole rivers.

Yes, I agree dairy farming and Canterbury is often the flagship of environmental awfulness. I wonder there whether the bulk of dairy landholdings (area-wise) are in corporate ownership? Ngāi Tahu; Pamu;... you can draw up the list better than me.

The river swimming holes written about by students were country-wide - everywhere. I marked some 60 essays on 'Toku Papakāinga' (My Home) topic. Many students spoke about taking their young children to these special places of their youth and them not being able to swim safely. Your surprise that this is the case in so many areas outside Canterbury is interesting as I know you follow freshwater issues closely. It's a very good idea for future article from me - compiling a list of rivers/swim spots and quoting some of the words of explanation/anguish they have for the loss of amenity that is their children's reality.

Busy presently but when I see your posts in future it will remind me when things settle down.

LAWA has a list of unswimmable rivers on their website,there are so many that they would be better posting the shorter list of swimmable rivers.

Yes, I agree.

.. this only tells us that your students are smart enough to know what they need to write for a good grade from you.

Farming appears to me as having descended into a break even exercise with reliance on capital gains..... sure farmers provide export revenue, but it would be nice if they paid some tax.

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Where are your facts for the above comments?
In particular the tax comment
Farm land values today are no higher than in 2008, compare that to housing,
So where is the capital gain ?

Foresters got the big subsidy boost under the last Labour-coalition government.

I suspect (hope!) there will be announcements this time around for rural landowners in the form of PES (payment-for-ecosystem-services) schemes. A kind of retire pasture, establish wetlands or native bush approach. Win-win all around.

Can't see that happening with this government Kate.

I'm ever hopeful!!!!!

PES is a bigger 'hobby-horse' of mine than #rentcontrolsnow... believe it or not.

Lots of great work by lobbyists on the latter:

https://www.rentersunited.org.nz/rentcontrolsnow/

https://drive.google.com/file/d/19eZenoJ9A6qj3HJj8EerRI1p2rq4B45n/view

There must be for any meaningful transition to occur. Our existing resource management law is useful when assessing the effects of new development but horrible at rolling back legally established activities that carry social and economic benefits. Likewise the RMA is very poor at legally providing for enhancement of natural resources rather than the status quo. Only an incentive based system can bring about the necessary land-use change that we expect in Southland, Canterbury and other problem areas.

I don't see where you are getting "Foresters got the big subsidy boost" from Kate. In fact farmers have been the big winners with fencing and planting subsidies. They are already available to any landowner who applies.

Cow and a sheep in the picture, did anyone spot the "Dog" ?

Hm .. I only see a weasel ?

New Zealand runs consistent current account deficits and so our external balance does not provide for any additional spending. In fact the government should be financing this deficit by running a budget deficit of its own just as 'sectoral balances' illustrates.

On the topic of meat prices. If you were to get the info you seek. Feel free to share here. Recently I was informed the south island prime schedule was around $4.50, while north islanders could achieve $5.30. So NI plants wrre trucking stock as far as the Waikato from the SI. Still achieving a $60 profit compared to procuring local.