The experience of New Zealand
In the years prior to 1984, the New Zealand economy faced a number of structural difficulties. It is argued that the heavily protected manufacturing sector had become inefficient, and the public sector bloated. In agriculture increasingly large subsidies had been put in place to encourage exports in the face of difficulties including greater international competition, high levels of inflation and the accession of the United Kingdom to the European Community in 1972, which resulted in New Zealand's entry to its most significant (and guaranteed) market being severely restricted.
In 1959-60 53.0 per cent of all New Zealand's outputs went to the United Kingdom; by 1998-99 that proportion had fallen to 6.2 per cent.
This transformation and the diversification to new markets were well under way by the mid-1970s, but then to ease the problems of transition at a time of low agricultural prices a range of a range of loans, incentives, tax dispensations and cash payments were introduced. Of particular note were sheep subsidies, payments to encourage livestock farmers to purchase more animals, and subsidies for fertiliser, as well as loans to develop marginal land.
By 1984 the result was that there were nearly 70 million sheep on farms in New Zealand, and in total more than 21 million hectares of land was in occupation. But the problems of poor rates of economic growth, high domestic inflation, declining terms of trade, a rising current account deficit and soaring government borrowing forced the Labour Government elected in 1984 to implement a radical programme of economic reform.
The Government announced a 20 per cent devaluation of the currency and the removal of controls over interest rates. It subsequently pursued policies aimed at controlling inflation, and promoting economic growth through enhanced competitiveness in the private sector and improved efficiency in the public sector: in short through liberalisation, deregulation, floating the exchange rate, and a programme of privatisation.
The Government sought to make the agricultural sector more efficient by eliminating protection and price support both for outputs and inputs. The Government removed assistance rapidly from agriculture. Most subsidies were stopped immediately. Farmers were also required to pay for services previously paid for by the Government, such as inspection and consultancy. In addition more general changes in economic policy, such as the drive to deregulate, affected the sector.
From 1980 to 1984, the Government spent NZ$772 million each year on support for pastoral agriculture, which represented 32.7 per cent of farm incomes. Between 1985 and 1990 the figures were NZ$677 million and 18.7 per cent. By 1996 to 1998 the figure was NZ$115 million (mainly on research and quarantine services), representing 2.3 per cent of farm GDP.
The reforms were not easy: many of those we spoke to in New Zealand commented on the "pain" of transition. The result of reform was a certain degree of streamlining of agriculture and some changes in the structure of the sector. There has been a decline in production of sheep products (sheep numbers fell below 44 million in 2001, a fall of 38 per cent), and in the area of land under occupation (to 16.6 million hectares by 2001, a fall of 21 per cent). At the same time there has been an expansion of cattle products, dairying and forestry. Horticultural production has more than doubled. Farm sizes have increased as smaller units have amalgamated, and the number of farm workers particularly in the livestock sector has fallen. We were also told about severe effects in the agricultural supply industries and in the processing sectors.
Today, 5.5 per cent of the country's gross domestic product is derived from agriculture (compared with approximately 0.7 per cent in the United Kingdom). More importantly, it is a major source of foreign revenue, making up a huge proportion of total export earnings.
In 1960-61, New Zealand's agricultural exports were worth NZ$519 million. This was 92.5 per cent of the country's total foreign earnings. By 1980-81 that proportion had fallen to 62.4 per cent, and by 1998-99 the total agricultural exports of NZ$11,516 million represented 50.9 per cent of the total.
In 1960-61, the agricultural sector made up 14.6 % of New Zealand's total GDP. By 1980-81 that had fallen to 9.4 %, and by 1998-99 to 5.2 %. Growth sectors over the same period included forestry, fishing and manufacturing exports.
It is claimed that "reform of agricultural policy has allowed signals about new products, new markets, innovations, and new technologies to reach those in a position to make important decisions in a changing economy". Certainly we were struck by the business-like approach of the farmers we met, from the sheep farmer who told us about a niche in the market for lamb which he and a handful of colleagues were exploiting on the West Coast of the United States, to the young dairy farmers whose herd was ever-increasing in size. We saw plenty of evidence that farmers were well-connected with their marketplaces - and were free to exploit opportunities as they saw fit.
The situation in New Zealand is not the same as in the United Kingdom. There change was decided domestically - and was forced on the country by severe problems which affected the wider economy, not just agriculture. Tenant farmers, so numerous in Britain, are rarer in New Zealand, and the family farm backed by producer cooperatives has proved to be flexible, responsive and innovative. Population densities in New Zealand in no way compare with those of this country. Agriculture is far more important to the economy there than in the United Kingdom, and so policy is more likely to take account of the needs of the industry. It is worth noting that the recent success of the sector owes much to the "competitive" value of the New Zealand dollar, for example.
Nevertheless, there are lessons to be learned from New Zealand. We consider that they include:
(a) radical change is best carried out quickly, with strong political leadership, and should be accompanied by wider reforms which liberalise the supply-side and marketing areas;
(b) the importance of an approach to co-operation and large scale enterprises which takes into account the need to compete in a global as well as domestic market place;
(c) a 'can-do, will-do' culture, based on enthusiasm for farming, is essential if agriculture is to thrive in a competitive environment; this in turn, depends on a structure where change is seen as a normal part of development, and where there are no institutional bars to such change (for example quotas);
(d) the need for strong Government support for agricultural science, but with leadership from the industry; and
(e)New Zealand has benefited from developing new markets and by being very export focussed.
Above all, that farming take place in an unprotected, liberalised marketplace without traumatic environmental effects. Indeed that farming can flourish in such circumstances.