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Treasury Secretary Gabriel Makhlouf warns about making false choices between environmental sustainability, development, prosperity and responsible management

Treasury Secretary Gabriel Makhlouf warns about making false choices between environmental sustainability, development, prosperity and responsible management

By Gabriel Makhlouf*

We live in a remarkable country, one that’s rich in natural beauty and wealthy in natural resources.

New Zealand has plentiful, fresh water; clean air; fertile soil and a climate wellsuited to growing things. We have long coastlines and significant aquaculture resources; sizeable mineral and petroleum reserves; and extraordinary bio-diversity.

The World Bank estimates that New Zealand ranks eighth out of 120 countries and second out of the 34 OECD countries in natural capital per capita, which helps explain why three-quarters of our merchandise exports are from the primary sector.

While primary sector exports may have dipped over the past year, steady growth is expected in the four years ahead.

Of course a big part of those exports come from the dairy industry, and I know there’s concern about the direction dairy prices have been heading recently. The Treasury’s base forecast in last month’s Budget is for dairy prices to recover towards the long-term levels forecast by the OECD-FAO of around US$3,900 per metric ton towards the end of 2016 as supply and demand become more balanced. But like dairy farmers everywhere in New Zealand the Treasury is closely watching the fortnightly auctions and monitoring developments.

We are fortunate to make our living off the land in a land worth living in. But we cannot be complacent if we want things to stay that way. We’re not pristine, and we can do better. New Zealanders have to make well-informed choices about how we conserve, use and manage our natural resources for the greatest overall benefit to society now and into the future.

Today I want to talk about choice.

I want to challenge some false ‘choices’; expose a few choices that we are denied by the systems we have created; and highlight the fact that more informed public debate can deliver us a system with more choice in it.

For a long time discussions over natural resources have been dominated by false dichotomies.

A key example is the supposed ‘choice’ between sustainability and prosperity. It’s nonsense to believe you have to pick one or the other and can’t achieve both.

A more prosperous economy creates higher incomes and jobs for New Zealanders. Higher incomes are linked to better outcomes across a range of economic, social, and indeed environmental measures that matter for living standards. And the Treasury knows that economic performance is not just about prosperity today; it’s also about prosperity tomorrow and the future prosperity of our children.

Sustainable growth depends upon good management of our environment and natural resources, and the productivity with which we use these resources. Sustainability and prosperity are interconnected in the Treasury’s wider view of wellbeing and are encapsulated in our Living Standards Framework.

This identifies five ‘dimensions’ which we seek to advance when developing policy: sustainability; equity; social infrastructure; risk management; and of course economic growth. When wellbeing is understood in this broader sense, the assumption that there’s immutable conflict between prosperity and sustainability just doesn’t stack up.

Norway is a good example of a country that has grown wealthy from its natural resources – in its case oil and gas – while playing a pioneering role in environmental protection and sustainable development. As the OECD notes, the Norwegians have simplified their regulatory procedures related to environmental permits and reduced the administrative burdens people face. Enforcement is risk based and better targeted.

Closer to home, many Māori-led businesses are demonstrating how prosperity and sustainability work together by embracing the concept of kaitiakitanga. They take a very longterm view and manage their assets in a way that meets their aspirations for people, the land, rivers and the sea. Last year a group from the Treasury visited Parininihi ki Waitotara or PKW, a company based in Taranaki who run a number of businesses in the primary sector. PKW are combining successful dairy farming with sustainable practices: protecting waterways, carefully managing nutrients, and even using solar energy to power their cowsheds.

The falseness of the ‘choice’ between prosperity and sustainability is being shown up not just by countries and companies, but by consumers too.

The premium on ethical, sustainably produced, healthy goods continues to rise. Interest in working practices and supply chains means that companies have to be able to clearly demonstrate their sustainability credentials.

It’s also clear that productivity and sustainability are converging in ways not seen before.

For example, in recent years we have seen irrigation infrastructure, originally installed to boost farming productivity, helping to alleviate further pressure on struggling river and stream ecosystems.

Central Plains Water scheme in central Canterbury is currently under construction, and will from September this year relieve climatic and allocation pressures on groundwater and lowland streams around environmentally and culturally important Lake Ellesmere Te Waihora.

The Opuha dam was able to keep streams flowing in South Canterbury during this year’s drought, which would otherwise have stranded fish.

The small Eiffelton scheme in mid-Canterbury pumps groundwater into ecologically important streams that would also have stopped flowing last summer without it. This leads me to the second false ‘choice’ I want to shed light on – between high technology and our primary industries.

Through companies specialising in precision agriculture, such as Varigate, Agroptics and others, New Zealand’s world-leading tech is both increasing productivity and serving environmental outcomes.

By mapping soil characteristics, tailoring the use of irrigation, fertiliser and other inputs to match, and ensuring accurate spatial delivery, the use of inputs can be reduced. This results in savings of energy, time and inputs, while pasture and crop yields increase and less nutrients are lost to the environment, leading to better water quality in our rivers and groundwater.

Progress in GIS technology and nutrient management data is enabling farmers to understand their farms in new ways. This is delivering environmental improvements and driving the best increases in productivity in the whole economy.

Another false ‘choice’ is between protection and use of natural resources.

As a country, we protect around a third of our land area for conservation, but the mountains and forests making up most of this area are used as a playground by our people. They’re also a workplace for some of the 166,000 people employed in tourism industry; an industry that relies on us continuing to protect our outstanding natural beauty.

Instead of accepting these false ‘choices’ we have an opportunity to focus on ensuring our system gives us the freedom to make the choices we actually want.

One example is in the space of bio-technology.

I am not going to get into the question of genetic modification specifically.

What I will say is that when new technologies come along - both GM and non-GM – our current system denies us the choice over whether we want them. Meanwhile, our international competitors do have this option.

There is, for example, a new variety of high-yielding eucalyptus tree which has just been approved for cultivation in Brazil. Using this variety, growers can get a 15 percent increase in wood for the same area, processors can get a 20 percent reduction in the cost of wood production, and the environment benefits from a 12 percent increase in the amount of carbon dioxide stored per hectare.

High-yielding wood is at the core of our pulp and paper industry.

However our current regime for regulating new organisms is highly restrictive in practice, which means we do not have the flexibility to choose whether this is something we would want in New Zealand.

I’ve heard it said that our current regulatory regime would deny us the choice to adopt many new plants and species that today offer us huge advantages: kiwifruit, rye grass, and even the ubiquitous pinus radiata.

Another example of a choice we are currently denied is found in our approach to risk.

This is particularly important when we consider the potential to sustainably use the resources contained in our precious marine environments.

I am not going to stand here and tell you that New Zealand does not take enough risk. That is for the country, through elected representatives, to decide.

The point I want to make is that we often deny ourselves the choice over how much risk we want to take. When systems adopt rigid approaches to risk, for example, rather than genuinely enabling adaptive management approaches, we limit our ability to explore and assess the potential risks of our actions.

Another restriction on our choice comes when we have inefficient systems. In these instances we deny ourselves the chance to decide, clearly and efficiently, how we want to manage our resources.

From an economist’s point of view, a resource management system like ours is intended to reduce the costs of allocating resources, account for factors which market forces don’t value, and manage collective action problems - including intergenerational fairness.

Our current system could be better on all of these fronts.

As we saw with the establishment of the Kaikoura marine protected areas, the transaction costs of making decisions on how to manage our resources can be extremely high.

Many of our resource management systems come in for regular criticism, although it’s often directed at how the decisions are made rather than the decisions themselves.

And our limited framework for valuing natural capital and ecosystem services often prevents us from understanding how much they are really worth to us. It also means weighing public benefits against the gains to be made from resource use is hard for decision makers.

But it’s not all doom and gloom.

We are starting to reclaim some of these choices.

A number of Government departments are working together to assess the feasibility and benefits of more systemically gathering natural capital information to feed into decision-making. Appropriately considering the impacts on natural capital, such as clean water, soil or habitat for threatened species, will allow us to make better, more balanced decisions.

The Government’s resource management reforms aim to provide greater certainty for communities to plan for, and meet, their area’s needs in a way that reduces costs and delays, while maintaining the environmental standards that are important to them.

Freshwater policy is another area where we are reclaiming choice.

Here, communities are able to debate the value of public goods; public discussion is exposing and trading-off risks; and collaboration through the Land and Water Forum continues to help create a management system which is responsive to the goals of users.

But there is a price for moves to systems such as this, which give us the choices we really want.

The quality of information and the level of public debate must be raised. This is something for which all parties must share responsibility.

Government doubtless has a role here. The work to develop a Māori Land Service is one example.

Here the Crown is providing the information and support that Māori landowners need to assess the different choices available to them from their land. This in turn exposes the true value to Māori of systems which allow us to choose how our resources are managed.

However, businesses and industry sectors must play also play a part in setting the conditions for a more informed debate.

On the issue of climate change, for example, the agriculture sector has the opportunity to contribute to the public debate about New Zealand’s future emissions targets, and options for meeting these targets.

It is important that we focus on what the science tells us.

As the IPCC told us last year, carbon dioxide emissions fundamentally drive long-term global warming. Methane has a larger impact initially, but its effect is only short lived. This clearly has little impact on most other developed countries whose emissions consist mainly of carbon dioxide, but it makes a huge difference for New Zealand because of our high agricultural emissions.

New Zealand has invested heavily in finding ways to mitigate the effects of biological emissions, though commercialisation is still some way away.

So science clearly plays an important role in helping us work out how we can have the greatest impact in reducing emissions. And it has an important part to play in informing the public, in helping us avoid false dichotomies and giving us greater choices to enable living standards to continue to rise for generations to come. And as part of this, the business community has the opportunity to explain how its actions contribute to increases in all areas of wellbeing.

I, for one, look forward to working together to make these challenging, but ultimately vital, choices about the future of our natural resources, the prosperity of our country and the living standards of New Zealanders.


Gabriel Makhlouf is the Secretary to the Treasury. This is a speech he gave at Mystery Creek in Hamilton today.

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I don't know anything about Mr Makhlouf, but his article makes a lot of sense.

My understanding is that prior to working for Treasury Mr Makhlouf was Gordon Brown's spin doctor. I suspect he is keeping his hand in with his previous profession.

Makhlouf was Principal Private Secretary to the Chancellor of the Exchequer, one Gordon Brown, who played a major role in practically bankrupting the UK in the 2000's. And now he is making pronouncements on 'sustainability' here in NZ. It has been a long time since association with failure led to the curtailment of one's career in the higher echelons of government it seems....

We produce 18 billion liters of milk a year, the USA 100 and the EU 140. USA milk production this year is predicted to be up %2.5, the EU could be higher.

In the USA milk consumption is falling , all that extra milk from the EU and USA gets exported.

We are going to have to produce less. The others are not blinking.

page 4, this in an area about to get an extra 28,000 cows.

Don't worry treasury tells us we can have our cake and eat it too, I'm calling bull.

There you have it in black-and-white from Gabriel

Milk will be USD $3900 per metric tonne by 2016

Subtext? go farmers go - spend up large - go for it

How else to justify future proofing privatisation of Landcorp? NZ's largest farmer?

Landcorp got a giant subsidy from Fonterra shareholders last year, when they signed up to a $7 payout. They are committed to huge forestry to dairy conversions ,which will be problematic putting it nicely.

We have a major problem in the dairy industry which is being papered over as a short term cyclical market, that will revert back to $8 a kg any time soon ( clock ticks).

> Anyone using logic, reason, historical precedent, facts, and utilizing
> basic mathematics is declared a doomer in today’s world. The sheep
> would rather follow assertive idiots than an introspective wise
> person. We are awash in assertive idiots in control of Congress,
> government agencies, Wall Street, mainstream media, and the corporate
> world. The psychopathic lemmings will meet their demise in due time.
> It will be obvious after the fact.
> “It has been more profitable for us to bind together in the wrong
> direction than to be alone in the right one. Those who have followed
> the assertive idiot rather than the introspective wise person have
> passed us some of their genes. This is apparent from a social
> pathology: psychopaths rally followers.” – Nassim Nicholas Taleb, The
> Black Swan: The Impact of the Highly Improbable

Aj, Landcorp had to take that $7 payout last year as they got their fingers burnt taking $7 the year before when payout went to $8.40. ;-)

may indicate elements to do with the financing/s of the folk in dinner suits

its not all 100% price

see here and other headlines such as:
Six Growth Drivers for U.S. Dairy in Southeast Asia
Marketing director Jane Lim of Wee Hoe Cheng, a 65-year-old company that distributes food ingredients throughout Southeast Asia from its base in Singapore, said she was so moved by the stories and pictures of four U.S. dairy farmers that, “I felt my heart go out to them and their families as if I were on their farms."

and, then it is....
It appears Fonterra’s product was more competitively priced at $2,150/tonne, which was $100/tonne lower than the price agreed for EU SMP.

Henry , you may have to get out there and get your hands dirty yet. I thought our competition in North Africa was from India?

best to ring up the Americans - in Wellington

as they see it in China

here have the lot

there seems no reason for certain shareholders to be the last to know..

Can someone please explain - Why is there such a large difference between, USDA dairy prices, Oceania series, and GlobalDairyTrade auction prices

I think its because the USA has such a huge internal market, which remains unaffected by global events or at least is slower to react.

USDA capture contract and other sales - as above

A lot of the economic models seem to assume some kind of relationship between the Global Diary Auction prices and the New Zealand dollar. There isn't. Sure there is a kind of superficial 20% correlation (which is a level engineers should be laughing at as related) but that is the effect of the general world influencing both the dollar and diary prices - 19% of that correlation goes away (leaving 1%) if you do the interval on interval correlations that you are actually supposed to do with time series data to see true correlations.
So any model that builds that assumption in is wrong before it gets out the gate.

And besides - he also gets his logic regarding false dichotomies (i.e., choice between) mixed up - with this sentence;

This leads me to the second false ‘choice’ I want to shed light on – between high technology and our primary industries.

But he is not presenting a dichotomy here: a choice between high technology and agriculture.. quite the opposite. What he is saying is that we can have our growing primary industry sector by deploying better/improved/more innovative technology. The cake and eat it too argument (not a dichotomy at all!).

What his entire argument boils down to is a 'weak sustainability' view that suggests manufactured capital of equal value can take the place of natural capital. And that technology and human ingenuity will (somehow) exceed the limits imposed by nature.

Whereas a 'strong sustainability' view suggests that the existing stock of natural capital must be maintained and enhanced because the functions it performs cannot be duplicated by manufactured capital.

So Treasury supports a weak sustainability view - why doesn't he just say that! These are stock standard academic definitions of sustainability and I'm sure he well understands that. Instead he tries to employ an analytical framework somewhere between Popper and Derrida - and trips himself up in the attempt.

spin doctor
1. (Government, Politics & Diplomacy) a person who provides a favourable slant to an item of news, potentially unpopular policy, etc, esp on behalf of a political personality or party

There is a bigger danger of this 'weak sustainability' worldview. Take Gerry Brownlee's statement on the opening of Pike River mine (a reflection of the notion that technology will overcome the limits that nature imposes on us);

"The successful development of this project required a carefully crafted marriage of good mining practice and environmental good management."

Although I'm no geologist, from what I've read, it is likely that the only way to have safely extracted that coal seam was to opencast mine the site - as was touted by Solid Energy on having purchased the assets following the tragedy;

Point is - the choice between environment and social equity/economy in my opinion needed to be made explicit - instead we tried to (as the above author does) deploy technology (i.e., good mining practice) as a means to overcome environmental limits (the location of the seam underground) and environmental degradation (blowing off the top of the hill to get at it) by thinking we could underground mine it safely.

But then it [technology] didn't/couldn't overcome those environmental limits.

I am not convinced Pike River was good mining practice. From this layman's point of view it looks like they tried to severely limit costs in order to make such a mining technique profitable.

"Point is - the choice between environment and social equity/economy in my opinion needed to be made explicit" I agree here totally, in fact this is rinse and repeat stuff. From my point of view this is simply not being done across the board. Especially so by the Greens who seem to think we can grow forever with a green economy. Really i don't know which political party is being the most dis-honest.

Clearly Pike River was bloody awful mining practice. I mean, who ever heard of methane in a coal mine?

Lets not forget that Gabriel Makhlouf's boss is Bill English.

Together they make a good propaganda team.

All you have to do is arm yourself with facts, math and science. Many however like to be coddled in soft fluffy wool by pieces like this.

Thanks for the clarification Kate, this is indeed not what the tone of the article is, at first glance (I admit, I only read it diagonally).
I thought it was too good to be true, that somebody connected with this government was championing sustainability.....

Glad to be able to expose/explain it.

One of the real problems with the dominant institutional interpretation of sustainability is that it has been captured by governments the world over - and they use it (the word) to justify decisions that are neither environmentally sustainable nor socially just.

Hmm, sadly seems to be producing more and more right wing spin and PR articles with less and less thought/investigation on the substance.

Ah, but is it right wing spin, I mean it is clearly spin, but for whose benefit? From Gordon Brown's right hand man. Let's not forget Gordon Brown was the right hand man to one of the greatest tyrants in modern British history, one Tony Blair. The man who engaged in a war of aggression on false information against the clearly expressed will of the people. I am very worried by these recent arrivals from that den of iniquity called London. They are a cunning and dangerous lot.

I'm not so sure I'd rank Blair that high, good old Maggie wasnt called the iron lady for nothing (rest her soul). TB honest? hmmm, LOL yep, about as honest as Chaney etc.

This is just a copy of the speech given by Makhlouf at Field Days - so not investigative reporting - and I was glad that ran it - as the wider public exposure provides a chance to discuss it.

Not everything on this website should be viewed against an investigative reporting standard by the website itself. That's not what the site is generally about.

he does eventually...its in the "drill baby drill" sentence.


The Seeds Of Death

NZ is a GM free zone
Like NZ was a nuclear free zone

Foreign Non-NZ'er Makhlouf questions the benefits of remaining GM-Free

When you have an hour watch "the seeds of death"

The GM free movement is gathering momentum in the USA. Wonder what Monsanto's next move will be.

I expect that Monsanto will do a full rebranding.....haven't they just bought/trying to buy their Swiss rival Syngenta??

Well they were making losses last year,

this year, not much profit

Seems no one wants their seeds. You have got to wonder how much less they would sell if people actually had a choice,maybe not good shares to own.

Well they are trying to use the TPPA etc to force their products onto others. After that fails I hope, chapter 12?

"A key example is the supposed ‘choice’ between sustainability and prosperity. It’s nonsense to believe you have to pick one or the other and can’t achieve both."

No it isnt. Definitions,

"the state of being prosperous.
synonyms: success, profitability, affluence, wealth, opulence, luxury, the good life, milk and honey, (good) fortune, ease, plenty, comfort, security, well-being"

"sustainability is the endurance of systems and processes. "

You use Norway, yet they are using their one time resource, oil up, ie by the time the BBs are all dead there will be no substantial oil left to extract.

On top of that our entire industrial society is cheap fossil fuel dependant, we are at peak oil (give or take a few years) and after taht there will be less and less until it is all gone.

primary ouput, maybe look at how much fossil energy we use to produce the quality of food we do. Without fossil fuel out primary output will be mostly organic based that points at a 60%+ drop in output.

" 12 percent increase in the amount of carbon dioxide stored per hectare." until it is harvested and then mostly? pulped, for paper or turned into bio-fuel pellets and um, well burned. So it looks like a cycle, ie not removed. so zero gain.

On top of that EROEI, energy return on energy invested, our modern society needs 8 to 1 or more, no biofuel I am aware of gets past 1.5 to 1. So even if you have 100% improvement at 3 to 1 you are still well short.

"Potentially, we believe this [development] can displace the whole fossil fuel industry. " LOL...ok.

"And our limited framework for valuing natural capital and ecosystem services often prevents us from understanding how much they are really worth to us"

um, "drill baby drill!" is far shorter and catchier.

Really you appear to be clueless about which you speak, oh wait you are from Treasury, so yes. nuff said.

Spin, baby Spin!

Yea, irrigation saved the South Island rivers, it must be true I just read it on the net.

Thankfully, the medium of space photography provides the clearer view.

If you hover above the South Island, the brilliant blue of our alpine lakes is breathtaking. But one Canterbury lake stands out instead as diseased, an unnatural bright green colour.

This is the toxic pond that is Canterbury's Lake Ellesmere/Te Waihora, New Zealand's fifth largest lake in area. In the region's lacustrine stakes, Lake Ellesmere has become an embarrassment, a very poor relation indeed to the picture-perfect pin-ups of Lake Tekapo and Lake Pukaki.

The quality of the water in the brackish, shallow lake has been declining for a decade or more now. During that time, the intensity of dairy farming in the region, including in the part of the Selwyn region that drains into Te Waihora, has increased.

Some environmental groups believe the lake has become so polluted it is now effectively dead. Certainly runoff from its catchment has seriously compromised the water quality, contaminating it with phosphorus, nitrates and other chemically loaded sediments. Read more