Greens: Falling milk prices highlight danger of National’s economic strategy

Written By: notices and features - Date published: 7:11 pm, August 6th, 2014 - 39 comments
Categories: China, Economy, election 2014, exports, farming, greens, International, national, same old national - Tags: dairy

This press release from the Greens pretty well sums up the situation that National have left the economy in. Once you remove the rebuild effects from the Christchurch earthquakes, our increasingly undiversified economy is looking in pretty poor shape for the decade ahead.

Falling dairy prices are highlighting the danger of National’s economic strategy that focuses on the export of a few, simple commodities, the Green Party said today.

Dairy prices are down 8.4 percent this week – a 41 percent fall from their highs in February. Whole milk prices are down 11.5 percent largely due to weaker demand from China.

“National’s economic strategy has simplified our economy and concentrated our exports on a few, low-value-added commodities,” said Green Party Co-leader Dr Russel Norman.

“National has bet the farm on the farm and it isn’t working. A growing reliance on one or two commodity exports has made our economy more vulnerable to commodity price swings.

“Producing increasing amounts of milk powder also has huge, downstream environmental impacts. We need to build a smart green economy with much lower carbon emissions and water pollution.

“A smarter way forward is to invest in innovation and policies that support our manufacturing and ICT export sectors.

“National is not building a strong, resilient export sector.”

Last month the Green Party launched their economic plan to build a smarter, more innovative economy which has, as its centrepiece, an additional $1 billion of government investment in research and development (R&D), including tax breaks for business.

“Innovation lies at the heart of a smart, green economy. Economies that innovate do better over the long term, creating good jobs that pay well while protecting the environment,” said Dr Norman.

“Our economy is on the wrong track. We invest half what most other developed countries do on research and development.

“Innovation is a key driver of prosperity in advanced economies, yet this current Government has relied on an economic strategy of simply doing more: producing more milk solids, mining more minerals, securing more free trade deals, and working longer hours.

“We want businesses to get on with innovating and exporting high value products that command high prices and support high wages. Our R&D tax credit is the simplest and quickest way to spur innovation activity.

“Voters have a choice this election: National’s simplified economy that creates few jobs and remains vulnerable to commodity price cycles; or a smarter, greener economy where innovation flourishes and manufacturers develop high value exports,” said Dr Norman.

Green Party election priority paper on innovation

The value of manufactured exports as a percentage of total export has continued to decline under National. Source: Statistics New Zealand

Rank	2008	2013	2014 (to date)
1	Dairy	21.6%	Dairy	28.3%	Dairy	31.6%
2	Meat	12.0%	Meat	11.0%	Meat	13.2%
3	Oil	6.9%	Wood	8.1%	Wood	7.1%
4	Wood	5.1%	Oil	3.1%	Fruit	4.2%
Total		44.6%		50.5%		55.1%

39 comments on “Greens: Falling milk prices highlight danger of National’s economic strategy ”

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Ad 1

6 August 2014 at 7:45 pm

Pretty stunning that the dollar fell 2 cents in 2 days despite strong interest rates and lowest unemployment figures in 5 years.
The global analysts read NZ as now solely a dairy play.

Finally the economic leadership vacuum reveals itself, and not a moment too soon.

Also Fonterra’s CEO still sure it’s salvation is in bulk low value goods leaving us all so vulnerable to this great binge purge cycle. Change course now or resign Mr Spiering.
- Kiwiri 1.1
  
  6 August 2014 at 10:43 pm
  
  Change course now or resign Mr Spiering.
  
  He has been paid a lot of money. To do what?
- Tracey 1.2
  
  7 August 2014 at 11:17 am
  
  does the reserve bank have to declare if it has been selling nzd?
tricledrown 2

6 August 2014 at 7:48 pm

Milk prices won’t recover any time soon unless their is a drought in many of the countries expanding milk production .
their are many countries expanding and their land and labour are half the price of our costs most are closer to market as well. Then if we have a drought as well or interest rates go up because we are at higher risk of defaulting on the $50 billion in Dairy debt.
- Murray Olsen 2.1
  
  7 August 2014 at 2:10 am
  
  Our labour is pretty cheap these days, but our land is ridiculously expensive, and we are a long way from the markets. The price of land won’t go down in a hurry, so the Tory answer will be to push farm and processing wages down and to some extent use domestic sales to subsidise exports. It’s just not right that I can buy Mainland cheese cheaper in Brisbane than in Auckland, and cheaper still in Germany.
Jono 3

6 August 2014 at 7:49 pm

It goes beyond dairy; the price of logs has fallen by something like 40% in the last three months and harvest due to start this spring are off until the the following summer at the earliest. This according to an experienced harvest planner / client of mine I was talking to, today
- Draco T Bastard 3.1
  
  6 August 2014 at 8:00 pm
  
  Well, at least with trees the longer we leave them in the ground the better the wood is.
dave 4

6 August 2014 at 7:57 pm

goldman sachs predicts a 5 year world wide glut of milk jesse Colombo article on new Zealand is coming true
http://www.forbes.com/sites/jessecolombo/2014/04/17/12-reasons-why-new-zealands-economic-bubble-will-end-in-disaster/
- Paul 4.1
  
  6 August 2014 at 8:09 pm
  
  And once milk prices crash, farmers get into debt and have to sell their farms at rock bottom prices to the rich foreign corporates, just as these companies planned, when they stockpiled the milk.
  
  We are heading towards feudal status thanks to the Judases who have sold and stole this country for 30 pieces of silver for the past 30 years. We’ve sold our banks, our forests, our industry… Our farmland is about all we’ve got left.
  
  Read this and weep.
  http://www.scoop.co.nz/stories/PO1401/S00011/who-owns-nz-foreign-control-key-facts-updated.htm
  
  Douglas, Richardson, Prebble, Fay, Key….previous generations would have tried you for treason.
  Now it seems you get knighted for being a traitor.
  - weka 4.1.1
    
    6 August 2014 at 8:53 pm
    
    “Our farmland is about all we’ve got left.”
    
    There is still water and sovereignty to go (plus the obvious ones like oil and minerals).
    - Paul 4.1.1.1
      
      6 August 2014 at 8:57 pm
      
      The TPP will deal to our sovereignty
  - Tracey 4.1.2
    
    7 August 2014 at 11:19 am
    
    farmers are already in pretty big debt.
- Bob 4.2
  
  8 August 2014 at 2:04 pm
  
  Interesting, this article completely debunks what the Greens state in the above press release, Jesse Colombo “Though New Zealand is commonly thought to be an agriculture-based economy, this couldn’t be further from the truth. Agriculture accounts for only 5.1 percent of New Zealand’s GDP”
Draco T Bastard 5

6 August 2014 at 7:59 pm

We invest half what most other developed countries do on research and development.

And because we’re such a small country we actually need to double the amount or more.

Our R&D tax credit is the simplest and quickest way to spur innovation activity.

R&D tax credits almost invariably don’t work (The Entrepreneurial State). What we really need is massive government funding of R&D over decades with the government owning the IP that results.
- tricledrown 5.1
  
  7 August 2014 at 12:21 pm
  
  +many billions stephen Joyce has used his position to bully researchers he has pulled funding then reinstated as well as completely wiped out areas we were leading the world in!
  Most of that Knowledge that us taxpayers have paid for over many decades institutional knowledge that can’t be replaced ie Wool Research and invermays world leading genetics research!
  Any research that doesn’t have immediate export potential has been denied access to funding.
  More short term thinking from business minds who can only see quarterly to annual returns blinkered bigots!
  Research needs time good things take time!
disturbed 6

6 August 2014 at 8:18 pm

Gees Jono is that right? – Thanks for that.

This economy is like walking on eggshells and we saw how this Government has deliberately and systematically pulled the rug out of all our icon industries that kept us as a stable economy for many tears.

Start with,
Postie plus,
Fisher @ Paykel.
Canterbury woollen Mills.
hillside workshops.

Just off the top of my head while they prop up;
Warner Bros,
Tiwai Point aluminium smelter.
AMI Australian insurance. and a host of others.
Australian owned NovaPay.
Are we actually being put down by our own Government here?
Looks awfully like it doesn’t it.

No wonder we are heading for the ditch.
Time to vote them out folks.
Saarbo 7

6 August 2014 at 9:25 pm

Good post, it make you wonder why so many business people support a party so devoid of ideas! What National did get right was “timing”….which makes them lucky. Competence is non existant.
- Paul 7.1
  
  6 August 2014 at 9:27 pm
  
  They support National because they rely on TVNZ and TV3 for the news.
  It’s an effective filter to prevent the truth reaching them.
  - Saarbo 7.1.1
    
    6 August 2014 at 10:06 pm
    
    Yes, so easy to win the Gower’s and garner’s of the world…send them a bottle of wine and a the odd e-mail from Key. Cheap and easy to please. I think you are spot on the mark there paul.
- Chooky 7.2
  
  7 August 2014 at 9:43 am
  
  +100 Good Post …and yes it makes “you wonder why so many business people support a party so devoid of ideas!”
  
  ‘Turns out our Rockstar Economy is lactose intolerant’
  
  By Martyn Bradbury / August 7, 2014
  
  “Unemployment is down marginally because of the rebuild – is John Key saying the only force to make him intervene into the market is a natural disaster or act of God? Waiting around for the next natural disaster is not an economic plan….
  - See more at: http://thedailyblog.co.nz/2014/08/07/turns-out-our-rockstar-economy-is-lactose-intolerant/#sthash.nzLwLQYq.dpuf
Brendon Harre 8

6 August 2014 at 9:40 pm

The Canterbury earthquake insurance has reached ‘peak’ pay out of $11million a day and will gradually decline over the next few years. Economic stimulation from this therefore has peaked.

http://www.interest.co.nz/news/71304/private-insurers-reach-halfway-mark-fully-settling-11392-over-cap-dwelling-claims-includi

The wheels on the ‘rock star economy bus’ are falling off. To add to the peaking insurance wheel.

Dairy prices down.

Interest rates up as the Reserve Bank tries to stop the housing bubble.

High exchange that will not fall enough to compensate for falling dairy prices due to high interest rates attracting foreign exchange.

Poor ‘pork like’ public investment in areas such as transport, research and the Canterbury rebuild means NZ does not have the safety of falling back on a diversified productive economy.
tricledrown 9

6 August 2014 at 10:06 pm

Nationals new economic strategy is praying for a drought to hit a lot of other agricultural producing countries.
and praying for no drought in NEW Zealand
Colonial Viper 10

7 August 2014 at 1:32 am

It’s nice to blame National, but NZ has been losing manufacturing exporters at a rapid clip for 30 years now. Our entire political and business leadership class has, on a collective basis and over a generation or two, led us into this dead end.
- dave 10.1
  
  7 August 2014 at 3:51 am
  
  no we can blame national
  holioak govt in 1960s sat on there hands though sheep and wool trade would never end it did.
  
  muldoon wreaked our Govt. saving scheme and bankrupted the country.
  
  Max Bradford screwed up the power system
  
  national caused leaky building disaster (morris Williamson)
  
  and John key piled us into debt again
  
  and every time labour has to clean up there mess
  
  national there supporters cronies doners and the elites are to blame and they should meet the gallows
Wayne 11

7 August 2014 at 7:48 am

This is a classic case of selective use of statistics.

The main graph has manufactures (presumably excluding milk powder etc) declining as a percentage of exports.

Of course dairy exports have had a 50% increase in price over the three years (prior to the latest decline). So if the largest export category has a dramatic price increase in a short space of time, it is inevitable that its share of total exports will increase. And that would still be the case if for instance manufactures (excluding diary) had increased by say 10%.

Of course a 40% reduction in diary prices, as has occurred in the last 8 months, will reverse the trend. General manufactures will increase their share of exports.

It would be more relevant to consider whether general manufactures have increased. They have certainly had an uplift since the depths of the GFC in 2009 and 2010.

And there is no doubt that more money could be put into Callaghan Innovation to boost R&D spend by the most innovative manufacturing firms, such as Fisher and Paykel Healthcare, and the high tech service firms, such as Weta Digital.

The current spend by Callaghan is around $150 million per anum. For instance current policy has firms receiving a grant that is 20% of the firms R&D spend, up to a maximum of $5 million per anum. That 20% could easily be lifted to 30%. It would require an extra $50 million per year to be allocated to the business innovation budget.

Similarly a larger range of firms could be eligible. At present the Growth Grant covers the top 100 or so most innovative firms. Doubling the number of qualifying firms would not require twice the money since the largest firms are already covered.

Overall the business leaning R&D budget could go up to say $300 million, up from the current $150 million per anum.
- Paul 11.1
  
  7 August 2014 at 7:51 am
  
  So all is well on Planet Key nothing to see here, move on….
- Draco T Bastard 11.2
  
  7 August 2014 at 8:47 am
  
  Of course dairy exports have had a 50% increase in price over the three years (prior to the latest decline). So if the largest export category has a dramatic price increase in a short space of time, it is inevitable that its share of total exports will increase. And that would still be the case if for instance manufactures (excluding diary) had increased by say 10%.
  
  Of course a 40% reduction in diary prices, as has occurred in the last 8 months, will reverse the trend. General manufactures will increase their share of exports.
  
  What you’re saying there, Wayne, is that counting things by money is delusional.
  
  And there is no doubt that more money could be put into Callaghan Innovation to boost R&D spend by the most innovative manufacturing firms, such as Fisher and Paykel Healthcare, and the high tech service firms, such as Weta Digital.
  
  Why rely on only a few preferred firms? Innovation can come from anywhere. We just need to find it and support it which our present reliance upon preferred firms in the private sector is failing to do.
  
  Similarly a larger range of firms could be eligible.
  
  We need to make it so that everyone is eligible.
  
  Overall the business leaning R&D budget could go up to say $300 million, up from the current $150 million per anum.
  
  As I say up thread, as we’re such a small country our R&D needs to be much bigger. My preference is for around 20% to 25% of our economy to be given over to R&D. Considering that today’s technology can get rid of around 50%+ of jobs that’s easily achievable.
Ad 12

7 August 2014 at 9:53 am

I think the tenor of the Greens’ release could have been improved if they had policy ideas for how to decrease the commodity-cycle vulnerability of dairying within the farming and dairying community. Generally dairy farmers are not dumb, are hard-working, and are motivated to innovate – precisely because they have made the gamble to shift modes, go into debt, and rebuild their entire business often with multiple shareholders.

I believe the stronger target should be the New Zealand domiciled dairy companies.
Tracey 13

7 August 2014 at 9:55 am

Mr Key takes money from a guy convicted for attacking his partner and her mother and for breaching RMA and Building Consent regulations. His lawyer Paul Dale says it’s cos he doesn’t speak English. Perhaps before becoming a citizen he ought to have learned? Does this mean the buildings he promised to build and the hotel he opened are going to collapse and not pay minimum wage and all that stuff cos he can’t speak English?
Tracey 14

7 August 2014 at 10:05 am

Wayne

Your opening sentence ought to have come with a major irony alert

reply feature is not showing for me
philj 15

7 August 2014 at 12:13 pm

xox
Let’s not forget the other National governments strategy for growth. Migration. This boosts the economy temporally and umbalances it simultaneously. EQ rebuild building boost, employment growth for Philippino workers ( any Chinese labourers yet?)
Not to mention the fracking economy!
Mike 16

7 August 2014 at 1:17 pm

The only saving grace in all of these commodity prices dropping is imagine the mess we would be in if the Labour/Green coalition were running the country. Labour would be social engineering everything, handouts to everyone (from where?) and the Greens would be banning everything and saying no to all progress!
National have done a fantastic job especially given the GFC in 2008.Obviously it would be nicer if commodity prices were staying strong but at least we have a Government exercising fiscal responsibility.
- weka 16.1
  
  7 August 2014 at 1:36 pm
  
  you support polluted rivers and environmental degradation then?
john 17

7 August 2014 at 11:18 pm

The stupidity of the Greens claim, is that as dairy prices plummet, the manufactured goods as a % of exports will dramatically increase.

Using their measure, if we have a total disaster, and lose ALL exports except manufacturing, that would be wonderful because manufacturing would be 100% of exports.

The total business experience of every Green MP, added together, comes to less than some school kids I know.
- Colonial Viper 17.1
  
  7 August 2014 at 11:25 pm
  
  I think the Greens can look at a dashboard of various economic measures at the same time.
john 18

7 August 2014 at 11:42 pm

The Greens want to put hundreds of millions of taxpayer dollars into the green energy sector – a sector where all our top green energy companies are drowning – many of them are worth less than 10% of what they were just two or three years ago. wind generator makers, eco bulb makers etc.

Which isn’t a surprise because even the world’s leading companies in this sector have more than halved in capital value recently.

That’s because the technology is time consuming and expensive to develop, and if you can’t sell a massive amount in a year or two it’s already hopelessly outdated.

Between them the Greens have no investment experience, virtually no business experience – most have never even had so much as a job in the private sector.
- Colonial Viper 18.1
  
  7 August 2014 at 11:44 pm
  
  Oh fuck off John, better than BAU, which is leading our world off a cliff.
  - john 18.1.1
    
    7 August 2014 at 11:57 pm
    
    Such intelligent argument, followed up by a doomsday prediction.
    - ropata 18.1.1.1
      
      8 August 2014 at 1:10 am
      
      yeah, dairy or bust!
      fill all the rivers with shit!
      dam it, mine it, chop it down and sell it!
      more motorways! more raping and pillaging!
      
      no public transport! no more tourism! no more environment!
      
      john why do you love turds so much?