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Key fiddles while dairy industry burns

Written By: - Date published: 9:27 am, March 16th, 2016 - 46 comments
Categories: Andrew Little, business, climate change, economy, Economy, Environment, global warming, john key, labour, national, political parties, Politics, same old national, sustainability - Tags:

gumboot key2

Another day and more bad news for the dairy industry.  International prices for milk have fallen a further 2.9% to US$2190 per metric tonne.  National’s policy of increasing dairy production through increased irrigation and dairy conversion is looking pretty sick now.  The world is awash with cheap milk and New Zealand’s dairy industry is under major pressure.

Clearly this is a failure of National’s economic policy.  It shows how bereft they are of ideas in that increasing milk supply was the one significant policy they had.  It was bad enough that our rivers and streams were being destroyed and our greenhouse gas production was skyrocketing.  But the increased production is adding to the glut that threatens the viability of many farms.

So how does National handle this crisis?  It has gone into full attack mode on Andrew Little with the word “ignorant” being used repeatedly.  I bet you that pretty well every quote that Key has given in the past day about the crisis has used this word.

What has Little done to deserve this?  He has pointed out the extent of the crisis and the long term implications.  Many farms are insolvent.  If the banks trigger a sell off then it is likely that farm prices will plummet.  Overseas interests with access to cheap credit will be licking their lips.  The US$21 trillion in bank accounts in China is looking for any sort of return.  Cheap credit puts them at a distinct advantage to local purchasers.  That lower interest rate makes the business model for an overseas purchaser more viable than a local equivalent.

The country is facing a potential crisis.  Even Key concedes that one in ten farms could fail.  Andrew Little realises this.  This article from Stuff sets out his thoughts on the matter:

Labour leader Andrew Little has stepped up his attacks on the big banks, threatening to force them to cut interest rates if they don’t pass on cuts by the Reserve Bank.

Little said he would not rule out legislating to force them to pass on reduction, though if he did it would be “with great reluctance and a heavy heart”.

The big banks last week refused to match the full 25 basis point cut by the Reserve Bank, with cuts of 10-20 basis points on mortgages and even no cut by the BNZ.

Little said he would start with “pretty serious talking, you might say ‘stiff-arming'”.

“If they are not responsive to that I guess you’ve got to look at your options.

“When you’re in government you have the power to legislate but I think you’ve got to have a pretty serious talk to the banks about expectations,” Little said.

“If the Government’s expectation is that the banks will pass on – certainly in this case drops in the OCR [Official Cash Rate] – to lenders from banks then the Government should state that and be very firm about it and remind banks it does have powers banks don’t have.”

It is not as if the Australian Banks are going broke.  They hauled out of New Zealand a combined record profit of $4.59 billion last year.  That is $1,000 for every man woman and child in the country.

So is it such a bad thing to talk about regulating the banking industry?  Only if you believe unquestionably in a free market.  And if you are prepared to stand aside and let the threats facing the dairy industry become a full blown crisis.

Governments are meant to lead, not stand aside and wring their hands and say there is nothing they can do.  Good on Andrew Little for expressing a willingness to use the levers of power to address a crisis of this Government’s making.

46 comments on “Key fiddles while dairy industry burns ”

  1. Ad 1

    Little will need to keep up the attack. You’re either fully banker-neolib in banking or you’re not.

    Plus, he needs to quote the Reserve Bank systemic risk quotes over and over. They will give him the cover he needs. Little should also call out Wheeler on his over-focus on inflation rather than the broader economy.

    Can’t go back Leader: big ideas not Little ideas.

  2. Stuart Munro 2

    I think the focus needs to be kept squarely on Key and his inadequate government.

    Dairy farms are being decimated on his watch – he needs to get off his gluteus and do something for once in his trivial life.

    Never mind what Little plans – it is Key’s gross and sustained incompetence that is the issue here. Little’s plans can only come into effect once we’ve thrown the lying reptile out.

    • saveNZ 2.1

      Agree with both Ad & Stuart Munro.

      Little should keep up the attack on banks profits ripping off Kiwis as well as how ex banker Key and his inadequate government.

      National are destroying Dairy by not diversifying and making Dairy political by interfering in councils, pushing dairy intensification and pushing TPP and globalism instead of focusing on core issues, safe products, risk control and innovation.

      Dairy will come back, but will it be under NZ ownership?

  3. NACT’s economic direction is pretty dependent on Fonterra and the Chch rebuild. Under Key, we’re the land of milk and insurance money.

    With Fonterra stuck in bulk supply mode, it could be years before dairy farming becomes profitable again. And the rebuild is well under way and probably approaching its financial half life.

    So what’s National’s alternative?

    • mickysavage 3.1

      Under Key, we’re the land of milk and insurance money.

      Well put.

    • The Gormless Fool formerly known as Oleolebiscuitbarrell 3.2

      Why does National need an alternative? The government is just not responsible for deciding what we produce and who we sell it to.

      • McFlock 3.2.1

        It is responsible for the welfare of its citizens, maximising public good, and minimising public bad.

        The collapse of 10% of one of our key industries will have far-reaching repercussions. This is a public bad. What is the government going to do about it?

        • The Gormless Fool formerly known as Oleolebiscuitbarrell 3.2.1.1

          Hopefully, nothing.

          Why so keen to be enslaved by politicians, and John Key in particular? Odd.

          • McFlock 3.2.1.1.1

            Well, even if “enslaved” were an accurate term, you can’t eat liberty.

            But if the role of government is to not give a shit about crises facing the nation, what the fuck are they there for? Are you against the existence of things like EQC or the police as well?

            • The Gormless Fool formerly known as Oleolebiscuitbarrell 3.2.1.1.1.1

              If this were a crisis (and I suspect it’s not) what could the government have done about it anyway? Forbidden people from being dairy farmers? Forbidden people from lending to people who want to be dairy farmers?

              I don’t like the sound of a government that thinks that’s its job. Once they start forbidding there’s no end to where they’ll stop.

              • McFlock

                🙄

                The idea that the only way a government can encourage economic diversity and regional development is through “forbidding” is simply an example of your typical tory’s failure of imagination.

                Hey, you know what would have been a good move by government? Closely monitoring developments in one of our key industries.

                You know what would have been another good move by government? Researching other, better, cleaner things to do with the same land, so less farmers jump on the milk bandwagon.

                You know what would have been another good move by government? Actually letting regional environmental agencies make dairy farmers pay the costs of their resource use and preventing their pollution, rather than giving them blanket irrigation consents and doing fuck all when their cows shit in our waterways.

                But no, all you can imagine is someone being told by government “we have enough dairy farms, you’re not allowed to create one”.

                • The Gormless Fool formerly known as Oleolebiscuitbarrell

                  No. That all sounds dreadful.

                  • McFlock

                    All of it?

                    Even the bit about stopping cows from shitting in our rivers?

                    I mean, not wanting the government to simply fund a private benefit is at least ideologically consistent, but allowing carte blanche negative externalities like turning into sewers the rivers that don’t get dried up by theft for irrigation?

                • Brutus Iscariot

                  “You know what would have been another good move by government? Researching other, better, cleaner things to do with the same land, so less farmers jump on the milk bandwagon.”

                  Or the hicks could have done it themselves.

                  But totally agree re: environmental regulation. Thankfully now a lot of these dairy conversions will go back to forestry and other agriculture/horticulture, so to some extent the problem will self mitigate. Maybe we look at some kind of biofuel programme with the marginal land, though that’s a lot harder to make economical with oil cheap again.

                  • McFlock

                    The “hicks” can do a bit, but think about Agresearch, Zespri developing new fruit, that level of thing.

                    Longer term, more “blue skies” research, rather than being restricted to current knowledge.

              • Stuart Munro

                So you oppose the fisheries management system too? Or are you just FOS.

                • The Gormless Fool formerly known as Oleolebiscuitbarrell

                  I’m not sure that’s the same thing.

                • Brutus Iscariot

                  Fisheries management is about preservation of a finite resource that exists in the public domain. Because fish exist in the public domain, there is no natural disincentive to take as much as you can.

                  Dairy is done on private land and you pay for the acquisition and propagation of your own flock.

                  Your analogy would be comparable if we had massive nature reserves of wandering bovines that anyone could help themselves to at any given time.

                  • Stuart Munro

                    And yet they consume finite public resources – water and biological waste dispersal capacity. In a sparsely dairy farmed country your argument would be true, but with intensification problematic impacts need to be considered.

                    The well-run farms I know are not monocultures – they have three or more profit centres – sheep beef agroforestry deer farmstays – which reduce their vulnerability to market volatility as well as their environmental footprint.

                    Government discouragement of dairy monocultures or CAFOs could be achieved by incentives – but diversification grants might not be inappropriate at this time since the object is to save not just the farmers but the rural communities.

                    • Brutus Iscariot

                      Biofuel…

                    • The Gormless Fool formerly known as Oleolebiscuitbarrel

                      I agree we should put a price on water and that polluters should pay.

                    • Stuart Munro

                      Biofuel is a little problematic to date – with the exception of the Brazilian ethanol & bagasse systems none break even from an energy perspective at present. NZ with superior UV might compete using butanol https://www.technologyreview.com/s/423373/bug-creates-butanol-directly-from-cellulose/
                      which is the superior biofuel at present because it works in existing engines & reticulation infrastructure. Long term algal biodiesal is probably better but neither are sufficiently developed locally to resolve the current problem.

                      Temperate fruits and horticulture crops can coexist constructively with dairy and these require less development and could feed existing marketing structures. Hemp would be ideal, tank farmed fish enjoy superior protein conversion rates (& prawns if warming continues apace). Bamboo for fibre would be a superior waste remediation planting with local industrial benefits.

                      And of course camels grow quickly and tolerate arid conditions.

                  • Draco T Bastard

                    Incorrect.

                    The water the farmers us is public.
                    The resources that they consume from the land are public.
                    The pollution they cause is public.
                    The GHGs they emit are public.

                    There is, quite simply, nothing that a farmer can do that isn’t public in some way or another. Which means to say that the rest of us have a say in what they do and how they do it.

                    And by the pollution of our water ways and other damage caused by farmers it’s time we did.

  4. Kevin 4

    And I am sure the European farmers are crying into their milk.

    I wonder how much of this has been orchestrated from Europe in order to break Fonterra. If it is, they are doing a pretty good job of it.

  5. Draco T Bastard 5

    “When you’re in government you have the power to legislate but I think you’ve got to have a pretty serious talk to the banks about expectations,” Little said.

    The expectations are already well known so, no, you really don’t. You have to act in the best interests of the country and if that means pissing off a few banks then so be it.

    Besides, it’s time to do some Real Monetary Reform and stop messing about with the present failed model. No matter what you do, it’s still not going to work for the country as a whole.

  6. linda 6

    Well the down side of interest rate cut is savers those us who aren’t reckless are subsidizeing. The debtors. Since 2008 intestrates need to rise its not right that savers are being used. To bailout. Reckless. Debtors

    • mickysavage 6.1

      People with deposits have been doing very well. And it tends to be an old v young thing.

      • Kiwiri 6.1.1

        Can someone confirm that the deposit rates are dropping very quickly on the heels of the RB’s announcement but, in contrast, the lending/mortgage rates are obstinately still holding up with no indication they are trending down at the same time?

      • whateva next? 6.1.2

        aye, dividing a ruling, more and more I hear comments about us “baby boomers” causing the plight of the next generation, as opposed to John Key driving a wedge between us and our children. Shameful, especially as his offspring want for nothing.(financially speaking)

  7. weka 7

    So what’s the point of the RB making changes to the OCR if the trading banks don’t follow? Why isn’t it already legislated for? And have the banks done this a lot?

    • Draco T Bastard 7.1

      So what’s the point of the RB making changes to the OCR if the trading banks don’t follow? Why isn’t it already legislated for?

      It’s pure ideology. Competition is supposed to force them to act but it never really does. What we see instead is something very similar to cartel behaviour.

      And have the banks done this a lot?

      I recall a time or two since the GFC.

      • weka 7.1.1

        Ok, so like a ‘Gentlemen’s’ agreement, where the RB indicates what they should do.

    • Kiwiri 7.2

      Along the lines of what I asked above, and in slightly different words now, it seems like the trading banks are not hesitating at all in passing down the rates as far as deposit/savings rates are concerned, but they are stalling and making excuses when it comes to passing on the lower rates for mortgage/lending rates??

    • Expat 7.3

      The only interest rates likely to fall are floating and new loans, those on fixed rates will have to wait till the end of the agreement or refinance, usually incurring a penalty.

  8. Chooky 8

    ‘Low dairy payouts could cost NZ banks billions, Reserve Bank stress tests show’

    http://www.stuff.co.nz/business/77948349/Low-dairy-payouts-could-cost-NZ-banks-billions-Reserve-Bank-stress-tests-show

    “Banks could face billions in write-offs, and may have to go to their owners for extra cash, under a grim scenario for the dairy sector.

    On Wednesday the Reserve Bank revealed its stress tests for New Zealand’s major rural lenders about the impact of dairy prices staying low for years to come…

  9. Keith 9

    “Only if you believe unquestionably in a free market”. Well the National Party only do when it suits them. Just one of many examples of National Party interference is with immigration. They love to interfere in that area as it does a sterling job of keeping wage growth supressed and ensures all the labour laws in the world are pointless! So to hell with free market pressures on wages!

    Standard Dirty Politics deflection from Key. “Ignorant” must be a focus group approved term.

  10. Don't worry. Be happy 10

    There will be a lot of very hungry suffering cows this winter with farmers unable to buy in enough feed. What will animal welfare organisations do? Anything? Nothing

  11. whateva next? 11

    I have commented on another thread, but it’s relevant here too.
    It’s a shame Andrew Little’s speech today wasn’t shown on 6 o clock news.
    http://www.inthehouse.co.nz/date/2016-03-16

  12. Reddelusion 12

    Labours so called prescription has been tried in the 70s and 80s, farm SMP , pick winners, think big, wage freeze, price freeze, tariffs, rigid workforce conditions, state preferred monopolies etc etc did not work then, won’t work now, na can’t cocoon itself from the world

    • Stuart Munro 12.1

      Maybe – but Key’s recipe is worse – poverty idleness vice corruption and debt slavery to foreign banks – this lazy thriftless vicious and unprincipled fake government needs to help the people ruined by their frankly stupid dairy plan or gtfo of my country.

  13. linda 13

    2008 gfc was warning shot about the perils of debt debtors should have taken notice and used the short window to eliminate debt they didn’t debtors are re-possible for there own actions farmers farmed land values and capital gain through speculation debtors can only blame themselves fools even be-leaved a cult leader know as john key

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