Short Term Gain - Longer Term Pain?

Posted by Pete Smith
18 February 2017

Opinion - Short Term gain - longer term pain?

An article written by Cambridge dairy farmer Marc Gascoigne in regard to live calf exports appeared in the February 13 edition of NZ Farmer. Marc presented his stance in regard to the recent shipment of 4500 dairy heifers for export to China which was greeted by a chorus of criticism from animal welfare groups as well as opposition politicians and some farmers.

Winston Peters came straight out and said it was “economic treason”.

Marc’s position was that as a 2% producer of world production and with only 6 million of the world’s 271 million dairy cows then it didn’t make a scrap of difference that some of our genetics went offshore. He also pointed out that under a free trade agreement we couldn’t make exemptions on certain parameters to suit ourselves.

This debate is not new around our export industries be it agri-foods, fishing, natural based resource products or forestry and you normally sit in Winston’s camp or Marcs’.

Of total goods exported in the 2016 calendar year, more than $29 billion (60 per cent) were agri-food.  Add in forestry and fishing, and natural resource-based products total approximately $35b (72 per cent of total goods exported). Manufactured non-food goods, including all forms of machinery and electronics, struggle to reach $6b. Our only other big foreign exchange earners are tourism ($10b) and foreign students ($3.5b)

As far as forestry goes we predominantly grow a low value product in radiata pine. In some ways the value of radiata pine sold in log form sits with the fact that it is readily available and cheap globally when compared against the like of old growth hemlock, spruce, douglas fir, cedar and alder.

Many argue that with limited shelf life and low value globally that our forestry resources are best sold in log form while some say we need to look at adding value here and creating diversity and demand in our product range.

Late last year the NZ Wood Council chair Brian Stanley pointed out that jobs and environmental sustainability are under threat from foreign log buyers who are flying over New Zealand forests and offering struggling landowners cash to buy immature trees, particularly up North.

Neil Geerkens​, general manager of Northland Forest Managers, said the concerns were real and that trees cut down before their prime would not be there when the industry expected them prompting Mark Hansen of Whangarei’s Rosvall Sawmill, to predict mills will close.

All of these arguments have merit and the ideal way to proceed is not an easy one.

Without government regulation it is impossible to intervene in what are essentially commercial decisions by private companies or in the case of private forests individually held investments. Any interference in what is a private property right will not send the right signals to encourage future independent investment and allow a free market environment for people to get the highest returns on their investments.

Additionally smaller private blocks often present issues with volumes, grade outturn, quality and prescribed timing of harvesting that may not work in with domestic sawmills and what they forecast and receive ongoing from commercial forest owners. For the smaller private forest owner, a readily available export market and log price with favourable JAS conversion that often beats domestic return on truck becomes a no brainer.

If owners can liquidate the trees at an earlier age yet cover forward growth return due to a summer export price premium or historically high peak pricing then again you can’t argue against those decisions to sell or harvest to export log markets being made. Especially given the cash returned then becomes readily available to utilise elsewhere or reinvest.

This however is the conundrum that exists here in New Zealand across the export sector and is reflected in the debate of Marc Gascoigne’s support of live dairy heifer exports versus Winston Peters’ dissent at the possible intellectual property loss.

The short term proposition versus the potential longer term implications that may present themselves and the effect of losing control or not adding value to our ultimate detriment.

Adding value doesn’t necessarily always relate to new and versatile products and market development it can commonly be as simple as retained knowledge and supply chain efficiencies. I just hope we can hang onto that advantage in the longer term without it being bought and sold in the short term.

Unlike Marc Gascoigne’s view about our lowly position as a producer on the global scene I see this as our real strength and believe we should never fear being bypassed or passed over by bigger competitors when we do things better and retain both the intangible and material assets and products that the rest of the world desires.

Agri-foods, as mentioned earlier for headlining our exports, is a good example and also a reference point for other export sectors.

Although there’s a global food shortage looming New Zealand won’t be able to solve it by growing food here. That will come from within those countries close at hand.

Here in New Zealand, our future lies in growing food for wealthier people in other countries, and using that income to pay for all of those things that we struggle to produce in New Zealand. So we need to focus our thoughts on countries that have growing economies, a growing middle class, and where there are local constraints on good-quality food production. China has a growing middle class, plenty of cash reserves, an FTA with NZ but do they also have an already defined longer term outcome in mind for their terms of trade or supply chains? This is a key question that shouldn’t be labeled anything other than judicious for being asked or considered in regard to our trading partners and position.

Holding a position of strength with our exports and successfully achieving the short term gains in tandem with the longer term protection of our commercial identity and value is the challenge ahead.

It’s inevitably about unifying the likes of Marc Gascoigne and Winston Peters and considering the wider implications that may present themselves further down the track on the back of how we transact today.

How we manage this and whether we can remains to be seen.

Pete welcomes feedback at pete@ribbonwood.co.nz

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