Transcript Slide 1

Global Agriculture and Trade Issues
A Cairns Group Perspective
March 2010
Alistair Polson
Farmer
New Zealand Special Agricultural Trade Envoy
Alistair Polson
• Manurewa Farms Ltd
• About 2000 ha of land
• 21 000 stock units, including:
- 20,000 sheep
- 1,000 beef cattle
- Kiwi Fruit Orchard
• New Zealand Special
Agricultural Trade Envoy
Introduction
• Global recession of 2009 led to fears of protectionism and
1930s-style trade war.
• That war never occurred. Why?
• WTO keeping governments honest?
• Global recognition of the importance of a rules-based
trading system?
• Where does agriculture sit within that system?
• Is liberalisation inevitable?
• Importance of liberalisation – the New Zealand example
• What other trade issues on the horizon …
The Cairns Group
• Formed in 1986 in Cairns, Australia
• Coalition of 19 developed and developing countries
• 15% of global population
• 13% of world economic output,
• 25% of international agricultural exports
• “to achieve reform which will put trade in agricultural
goods on the same basis as trade in other goods...
so that agricultural trade can proceed on the basis of
market forces”
The Cairns Group
Agricultural trade heavily distorted
• Average (bound) agricultural tariffs – 40.3 %
(compare average goods tariffs: 7.8%)
World Bank 2010
• Total support to Agriculture by OECD countries:
$368 billion between 2006-2008
OECD/FAO 2009
• Agriculture the only sector where export
subsidies are still not banned by the WTO
OECD Producer Support Index – by country
Economic theory of free markets
• Agricultural trade enhances national and global food
security through more efficient allocation of resources
(OECD 2001)
• Open trade lessens price volatility
(DEFRA 2010)
• Massive global gains from removal of protectionist
trade barriers
(World Bank)
• Higher incomes and increased purchasing power for
developing countries
(World Bank)
Cost of Protectionism: (international)
• Massive burden of support on taxpayers and consumers
• Encourage overproduction – distorting international prices
• Subsidies prevent agricultural development
• Export subsidies export the cost of inefficiencies
• Subsidy wars drive global prices even lower
• In fact, more trade = more jobs
• Obama’s prediction – doubling exports / 2 million jobs
• OECD studies
Cost of Protectionism: (domestic)
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Resource allocation
Negative environmental impacts
Stifle innovation
Benefit of support flows to initial landowners
Distortions flow into land prices/rents
Ultimately – protection fails
• French dairy farm numbers 1984 - 1990
The inevitability of liberalisation?
• Agricultural reform the biggest potential outcome
from the Doha round of WTO negotiations:
• Increased market access
• Reduction of domestic support worldwide
• Elimination of agricultural export subsidies
• Voluntary liberalisation such as EC CAP reform
leads to more efficient and market-oriented systems
in major markets
• Additional erosion of protection as a result of bilateral
and regional free trade agreements
Case Study – New Zealand
New Zealand Agriculture: Present Day
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Agricultural Exports ~$20 Billion (NZD)
17% of GDP
65% of total exports
85% of NZ agricultural Product is
exported
• New Zealand is the world’s:
- #1 Sheep meat exporter
- #1 Dairy product exporter
- #2 Wool exporter
- #4 Beef exporter
- #1 Kiwi Fruit exporter
New Zealand Agriculture Historically:
(Subsidies and protection)
• During 1970s - 1980s, government support for
farmers grew
• Price supports for sheep-meat, beef, wool, dairy
• Input subsidies including fertiliser and pesticides
• Farmers were isolated from markets
• Farmers became dependent on support
• Some farmers relied upon government support for as
much as 50% of their income!!
• At the height of this period, for each slaughtered lamb
I sold I earned about $22 – and $12 of that came from
the government!
Negative effects of subsidies
• Misallocation of resources:
• Negative environmental impacts
• Subsidies capitalised into land prices
• Intensive farming and low productivity
New Zealand reforms
• All government support for agriculture was withdrawn
from 1984 as part of general economic reform:
• Abolished price support, tax and lending concessions,
and capital and input subsidies
• Recovered costs of government inspections, privatised
advisory services, and transferred science to others
• Provided exit packages for uneconomic farms
Before the reforms, many people predicted it
would end in disaster – but…
Stock unit - changes
Product Diversification:
Export lamb – product mix
Improved average lamb carcass weights
Dairy Productivity: Milk solids per cow
300
250
200
150
2005
2000
1995
1990
1985
1980
100
1975
Milk solids (kg per cow)
350
Diversification of land use
• Movement away from simple commodities-based
land use
• Land is now also used for:
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Orchards
Vineyards
Adventure tourism
Deer Farming
NZ Horticulture – a growth industry
New markets
Exporters looked for new markets to help diversify risk and
find new opportunities
NZ agricultural exports, by value, year ending 30 June
100
90
80
70
60
50
40
30
20
10
0
UK
Rest of Europe
Australia
USA, Canada, Mexico
China
Rest of Asia
Africa
Rest of world
1973
1991
2004
Open markets lead to increased
innovation
• Refrigerated meat shipments in 1882 to advanced genetics
and nutrition in 2007
• NZ Agritech developments include
- Milking machines
- Electric fence systems
- Fruit Harvesting technology
- Food processing technology
- New fruit varieties
- Robotic cutting
The NZ agricultural sector: after reform
• Features of New Zealand’s farm sector today:
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Improved productivity
Increased efficiency
Product innovation
Market Focused
Farming now an attractive business option
• NZ Farmers do not want to return to protectionism and
subsidies
NZ Agriculture today: share of GDP
140
$ Billion (real)
120
100
80
60
Ag +98 %
Rest + 51%
40
20
0
1990-91
GDP minus Ag
2004-05p
Ag GDP
Useful Business models: Co-operatives
• High concentration of co-operatives in the NZ primary sector
• Co-operative companies are large, sophisticated businesses run
on commercial lines
• Benefits of co-operatives
- Balance the market power of larger businesses and associated
costs: input supplies, manufacturing and processing, marketing and
distribution channels
- Disperse the risks farmers face associated with weather, commodity
prices and exchange rate volatility
• Co-operatives persist because they prove to be an effective
business model for agricultural sectors
• Adapt successfully to the changing global environment
Role of NZ government today
• The New Zealand Government’s role is to establish
an appropriate framework:
• Main policy tool is regulation
• General budgetary outlays only for basic research and
pest/disease control
• Direct support only for large-scale emergencies, climatic
events
• It is possible to provide a non-trade-distorting safety
net e.g.: EC CAP reform
New issues in agricultural trade:
customer as regulator
• Many markets no longer about competing on
price
• Need to be aware of what the customer wants
• Food safety / Environmental concerns / animal
welfare
• Private standards more restrictive than
regulations
• Global halal market – $2 trillion (and growing)
• Perception is reality, even if false (food miles)
Social responsibility
• An open market transmits clear signals of
consumers’ priorities, such as:
• Environmental sustainability
• Food safety (traceability)
• Animal welfare
Eg: Sustainability and the environment
• Driven by consumer expectations and increasing awareness of
environmental issues (both in market and at home)
• Environmental programmes in New Zealand
• Private sector and government joint initiatives
• Voluntary, e.g. “Dairying and Clean Streams Accord”
• The need for good and robust science (e.g. life cycle analysis)
• We need to be able to demonstrate our sustainability to avoid
resistance and new barriers
• Government/Industry Collaboration
International partnership opportunities
• Fonterra partnership with Dairy America: largest American
exporter of dairy products
• Dairy investment in Soprole (Chile), including technology and
machinery
• Increased efficiency
• Increased exports
• ZESPRI - Global growing/marketing partnerships
• Year round fruit supply / market presence
• “Win-win” situations: foreign and local companies both gain
Global Agriculture Market Outlook
• Economic settings experienced sharp drop but commodity
markets gradually improving
• World food prices increasing
• Massive latent demand in developing world
• Branding increasingly important
• Demand for “clean, green” quality product
• Increased importance of market awareness from
producers
Conclusion
• Global Agriculture is still in sore need of reform
• Reform brings benefits both internationally and domestically
• Path to liberalisation inevitable but ultimately, customer demands
may prove more influential than regulation
• Market responsiveness key to adaptation
• New Zealand experience shows that reform does not have to be a
shock
• gradual, controlled transition facilitates positive change
• Non trade-distorting options for continued support (R&D,
education, etc)
• Huge potential for increased profit
The End