New Zealand Executive Government Speech Archive

Friends from the National Party. Across the country, you see evidence of a better New Zealand. New industries have emerged. Two hundred thousand more New Zealanders have found jobs in the last four years. There's more consumer choice and better service. We're building better roads. Even in the stubbornly conservative areas of health and education, it's unquestionably true that we offer the highest standard of medical care in our history and more innovation in our schools. In general, things in New Zealand are better than they've ever been.

Our opponents tell us we're arrogant about our achievements. I say we're far from it, because our vision is to make New Zealand better still. While they stab one another in the back, gain endorsements from the Ku Klux Klan, or work out a way to resurrect the old Post Office telephone service, we're identifying the real issues in New Zealand - the areas where we need to do better, to build an ever-better New Zealand. Agriculture is foremost. Agriculture is New Zealand's most important industry. That's indisputable. But its performance, right now, is decidedly mixed. Dairy farmers and deer farmers are booming, with record payouts. Sheep and cattle farmers are suffering the worst slump since the mid-1980s. People are looking for a scapegoat.

The chief one is the high value of the kiwi dollar. Our political opponents go round the country telling farmers that if the Government were somehow to force the dollar down, all their problems would be solved. They tell them we need our dollar to do something like this. That, we're told, is the key to success in agriculture. What's interesting is that that is exactly what our dollar did do from 1979 to 1992. If a falling dollar is the answer, then the question must have been wrong, because for most of that time our sheep and cattle industries were in trouble.

It is true that since 1992 the dollar has been going up. That has had an impact on farm incomes. But the impact is not nearly as great as some would have you believe. According to the Meat and Wool Board's Economic Service, the rising dollar was responsible for only 18% of the drop in beef farmers' incomes. The big fall in the price of hamburger patties in the US was responsible for 82% of the problem.

Our political opponents are going round the country telling farmers that they're going to solve that 18% of the problem - with their weird and wonderful schemes that would mean higher interest rates and higher prices for fuel and fertiliser for farmers. I have another approach. I'm not going to advocate destroying the economy to solve 18% of beef farmers' problems. I've got a plan to deal with the other 82%. It's called marketing.

Some of you will have seen this before. This line shows the price of hamburger patties in the United States. This second line shows the payout to New Zealand farmers. Look how they mimic one another almost exactly. Every time the price of hamburgers goes up in the US, New Zealand beef farmers earn more, and might think everything is going well. But whenever the price falls in the US, New Zealand beef farmers take a pay cut, and think the industry is going to the wall.

In either case, this is just hopeless. It's just a typical commodity trading picture. It offers no security to New Zealand farmers, or to the industry as a whole. It is a recipe for long-term decline and eventual disaster, because the price of commodities - whether beef, wool or computer equipment - will trend down over time.

Now look at lamb. Here's the UK retail price for imported lamb over time. And here's the New Zealand farm-gate schedule price. When Labour abolished SMPs, the schedule collapsed. Up until that point, half of what farmers were being paid came from the taxpayer, and the taxpayer wasn't going to foot the bill any more. But look how the industry responded. It had to, or else by now there would have been no lamb industry. By 1990, the industry was extracting as much extra value from the market as it had been drawing from the taxpayer. And then it improved still further. Despite the recent drop, by spring, we should see sheep farmers receiving up to $50 a lamb.

The difference is that the lamb industry has extracted greater value from the market. There will be a whole lot of reasons for that. Here's just one: the export of chilled meat. The lamb industry has nearly doubled its exports of chilled meat. In the beef industry, it's remained almost static. Chilled lamb is worth over $8,000 a tonne compared with the around $2,000 for carcass lamb. It's worth about four times as much. Chilled beef also attracts a premium over frozen beef. Chilled beef is worth over $4,000 more a tonne. For every tonne of meat you manage to get out of commodity trade and into the chilled meat market, you can double, triple or quadruple your return.

A proportion of every animal we produce will end up as hamburgers or sausages. But, clearly, the more we get into high quality table cuts that can be sold as chilled meat, the more value we can extract from the market. And there are people in Hamilton who are working on just that - getting more of the beef carcass into high-quality table cuts that can be sold as chilled beef. I want you to listen to Dr Brian Chrystall, chief scientist at the Meat Industry Research Institute of New Zealand.

"At the moment, perhaps 80% of the carcass that is not table beef can be ending up in manufacturing grade product. Some of that will be ground into sausages or hamburgers but really a lot of it can still be used for other product that is eaten as intact tissue. It may be that it will be processed to roast beef, maybe sold as stir-fry situations, but certainly of much higher value. Currently, 15 to 17% of a carcass can move to table cuts. We feel that by changing processing and handling we can increase that percentage to around 30%."

He's talking about changing sausages into steak. And, in Asia, there's a massive emerging middle-class that is going to want higher-quality products.

There are a few pessimists in the red-meat industry who reckon we can't compete in Asia. They reckon that even if we can increase the percentage of high-quality meat we get out of an animal, it won't do us any good because the Asian market, we're told, prefers fatty, grain-fed American beef. Some probably do. But not all. And, increasingly, around the world, people are becoming more concerned about the health benefits of different foods. We have a big advantage over the Americans in that regard. What's more, research to be released next month shows the idea that the Asian market prefers grain-fed beef is not as soundly-based as many expect.

Let's hear from the chief scientist at MIRINZ again. "Although a lot of people say that Asians and others prefer the taste of grain-fed beef, oftentimes that's a view that is pushed by the producers of that grain-fed product. One of the trials we've just completed evaluating the reactions of Asians in the Singapore market have shown that they can be very positive about our grass fed-product. There is no point New Zealand trying to mimic the Americans and try to produce grain-fed product. That's not our speciality and I think we are better off trying to concentrate on raising and processing good quality grass-fed animals. The value of the product then can become a health food because of its low fat content, but also, of course, like all meat, it is a good source of iron and a source of other minerals. So really, the beef that we produce in New Zealand is a high-quality health food. Essentially, lean beef has no more fat than skinless chicken."

So, there's an opportunity out there: to sell our beef as a quality health product to a growing market which is positive about it. I'm going to tell you what we need to do to take advantage of it. I've identified three fundamentals:

• Greater investment in the marketplace
• Greater control over distribution lines
• Paying farmers for producing what the market wants

Underpinning all that must be long-term relationships, between exporters and overseas users, and exporters and farmers. In the case of beef, we've heard a little about what is wanted by the Asian market. There's a niche for New Zealand grass-fed lean beef, presented as a health product. We need to explore that niche in detail to determine exactly what is demanded. I'm promoting a seminar with MIRINZ and Tradenz on 10 July to examine that issue, among others. We need to control distribution lines, because that's the only way to guarantee the quality of product through to the end user. We need to pay the farmer for producing what the market wants. Farmers will respond, and the breeding industry will respond, if market signals are allowed to make their way to the farm-gate.

For all this to work, we need long-term relationships to develop in the industry. There's no way that meat companies can guarantee supply of a premium product to overseas buyers, unless they have security of supply themselves. Unless they get security of supply, they'll continue to waste their resources on procurement rather than in the marketplace. If this sounds pie-in-the-sky, then listen to Dr Richard Janes of the Game Industry Board talking about the venison industry.

"One of venison's major attributes, and it's totally in tune with consumer life-style trends, is its nutritional profile. It's low fat, low-cholesterol, absolutely in tune with what customers want." So that's my first point. "Delivery of a quality product, on the plate, to the most discerning customers in the world, who are paying premium prices, cannot be left to chance. It's not possible to kiss your product goodbye in New Zealand and expect then or leave it to chance that it'll be a quality product on the plate of a diner. A diner will give us one shot. If the product, for some reason, is not perfection, we don't expect or deserve repeat purchase."

There's my second point- control of distribution. "You get paid more for lean meat in the venison industry because, in our view, that's a major underlying shift in red-meat consumption world-wide over the last few years. In our view, venison fits that market trend absolutely and we look to line up our payment systems with the market." That's the third point - paying for what the market wants. And the industry is underpinned by long-term relationships.

"Stronger relationships between exporters and farmers are a genuine win-win situation. Farmers competing at the farm-gate, selling for 10c a kilogram more from one exporter to another, may seem to have short-term advantage. But we're in this business for the long-haul. We are going to have to supply the market consistently with a quality product and it needs a genuine, forward-looking, long-term relationship between farmers and exporters. It's no good anyone taking whatever on the day is best for me, because that is the prescription for longer-term problems for the New Zealand farmer."

Less than 30 years ago, deer farming in this country was illegal. Now, New Zealand is the biggest exporter of venison in the world. People as diverse as the New Zealand Olympic Team and actor Jack Nicholson are eating Cervena. The industry has followed the three fundamentals, underpinned by long-term relationships. It's not just people within the agriculture industry who are saying all this. Accounting firm Ernst & Young, in a recent report, had exactly the same to say: " … red meats are largely marketed as they were a generation ago …". The firm argues strongly that we need to shift our focus away from "short-term commodity trading to longer term, stable vending of products". On distribution, the firm says that "control of distribution chains will play a significant role in who captures the total value chain for New Zealand red-meat, because branding requires control over the distribution and supply systems".

Ernst & Young says farmers need to be paid for quality. It says the grading and schedule system "splendidly isolated farmers from the subtleties of changing market signals". Farmers are denied "consistent rewards for providing a product that [meets] a particular market specification." The lack of trust between farmers and companies was also highlighted by Ernst & Young. "The single biggest impediment to moving to a focus on quality and differentiation has been the lack of long term commitments and partnerships between farmers and meat processors."

A very quick look around the Parliamentary Library reveals at least a dozen reports on the red-meat industry in recent years. The Ernst & Young report is just the latest in a long line. We have case studies in other industries, we have meat industry researchers, we have accounting firms and we have the Government all saying the same thing. And farmers, too, know what needs to be done. Listen to Chris Canning, Chairman of Northland's Beef Improvement Group:

"The problem is that the New Zealand beef producer is producing the wrong product. He's producing something which overseas markets don't want. And the reason that he's producing the wrong product is because he's been locked into a supply system which fails to pay him for quality. Now, we sheet the blame for the situation back, essentially, to our grading system and the grading systems are administered by the Meat Board. We got together with the processors in the region and worked out a rational solution for providing an information loop, essentially, that would join together both the farmer and the meat company. And the purpose of the information loop was to be able to provide signals back from the market to the farmer. Those signals were to be provided in such a way that the farmer would be able to react to them and produce the product that the world market wanted. The pact that we had with the meat companies was that if we were able, in fact, to respond to those signals, they would pay us."

I'm getting that same message from farmers right around New Zealand. They know what needs to be done and all the report-writers have told us what needs to be done. Stopping it, I believe, is the conservatism of too many in the agricultural establishment.

Those of you who have known me throughout my ministerial career will know that buddying up with the old establishment in my portfolio area is not necessarily my strong point. In just over 100 days as Minister, I've already managed to upset the Council of Wool Exporters. I said I believed it would be impossible to design a system better guaranteed to deliver less to the farmer than the current wool auction system. According to the president, Mr Don Quested, I've just got to accept that wool will always be a "raw material". Well, I don't, so it looks like I'll have a few more problems with the Council of Wool Exporters.

The Meat Board is shocked by my suggestion that we remove the grading system from forthcoming legislation. I've been told we'd be crazy to do that. I think we've heard enough today to suggest we'd be crazy to keep it. It looks like I'm going to have a few problems with the Meat Board as well. I'm not too concerned about that. Farmers throughout New Zealand agree with me. Even Labour's agriculture spokesperson is on record as describing keeping the grading system in the legislation as "a bit obsolete". It will be removed from the final legislation.

There are those who question whether the Meat Board should even continue to exist. I'm not one of them, yet. We have new legislation about to be introduced that provides for stronger linkages between meat companies and producers. It should be the catalyst for the Meat Board to really lift its performance, and demonstrate that it should continue to exist. I expect the Meat Board to respond to that new environment positively and take a leading role in promoting the ideas I've discussed with you today. I'll be meeting with the directors of the Meat Board shortly to tell them what I expect from them once the legislation is passed.

I'm not interested in people who tell us our products are just commodities and we should be happy with whatever price we can get on the world market. Our agriculture products are the finest in the world and our farmers the most efficient. To those who tell us we should lift our sights no higher than commodity trading, I have one word in response. That word is "water".

In New Zealand, water has almost no value. Even to call it a commodity is overstating it. Yet there are people who will gladly pay $2.59 for a bottle of this Deep Spring New Zealand water. It doesn't even have bubbles in it. Yet it is worth far more than milk, Coca-Cola and some brands of orange juice. It has successfully been turned into a branded consumer product. Don't say we can't do the same or better with beef, wool or anything else. I'm not interested in negativity. I'm about marketing for better agriculture. Because, by doing that, agriculture, as New Zealand's most important industry, can make a major contribution to building an even better New Zealand.