Nothing has changed in over 100 years. The economy still depends on farming. And farming depends now not on Britain but on China.
The annual Ministry of Primary Industries’ Situation and Outlook report out yesterday reports that food and fibre exports made up 81.8 per cent of New Zealand’s merchandise exports and that those agricultural exports overwhelmingly went to China.
The report comes at a time when New Zealand is under pressure from the United States and Australia to confront China in the Pacific.
The report says: “Food and fibre sector exports have outperformed expectations throughout the disruption caused by the COVID-19 pandemic, Russia-Ukraine conflict and global inflation to reach an expected $52.2 billion of export revenue for the year to 30 June 2022.
“This represents a 9 per cent increase from the previous year and a great result given the challenges farmers, growers and fishers have faced over the past two years to produce and deliver food and fibre products to their customers.”
“This will be the first time we’ve hit more than $50 billion in food and fibre exports, and an increase of almost 10 per cent ($4.6 billion) on the previous year,” Agriculture Minister Damien O’Connor said yesterday.
The report is a sobering political document because it underlines the economic importance of the primary sector as the New Zealand economy heads towards what seems likely to be a slowdown.
The OECD, in its Economic Outlook released yesterday, said that global GDP growth was now projected to slow sharply this year, to around 3%, and remain at a similar pace in 2023.
“This is well below the pace of recovery projected last December,” the Outlook said.
“After reaching 5% in 2021, real GDP growth will ease to 3% in 2022 and 2% in 2023.
“High inflation and rising interest rates will weigh on private consumption.
“Economic growth will slow but remain solid as pent-up demand during the surge in COVID-19 infections in early 2022 is unleashed, and gradual reopening of the border allows the tourism sector to recover.
“Inflation will decline in 2023 but remain high, as firms pass on global commodity price inflation and workers demand higher wages.”
The OECD’s GDP figures are well below those forecast by Treasury in last month’s Budget Economic and Fiscal Update.
Those forecast 2022-23 GDP growth at 4.6 per cent and 2023-24 at 3.6 per cent.
O’Connor should have been in Paris for the release of the OECD report but was held back here because he caught Covid; however, he is recovered and is expected to leave today for the first World Trade Organisation Ministerial meeting in nearly four years in Geneva.
New Zealand has specific issues it will want to bring up here, such as the repeated refusal of the United States to appoint judges to the WTO’s Appellate Court, which means that small states like New Zealand cannot bring cases against big states over issues like dumping.
There are influential voices in Wellington who wonder why the Prime Minister, Jacinda Ardern, was so keen to sign up to the Biden Administration’s Indo-Pacific Economic Framework with issues like this unresolved in the background.
The state of the world economy will be high on this agenda as well.
The war in Ukraine is having a major impact on world food prices.
On Monday, the United Nations Food and Agriculture Organisation and the UN World Food Programme issued a stark warning of multiple looming food crises driven by conflict, climate shocks, the fallout from the COVID-19 pandemic, and massive public debt burdens – exacerbated by the ripple effects of the war in Ukraine “which has pushed food and fuel prices to accelerate in many nations across the globe.”
These factors may impact the New Zealand dairy industry.
“Rising dairy prices are due to insufficient milk production in Western Europe and Oceania to meet global demand, as well as lower US milk production due to rising grain prices,” the Outlook said.
“In the near to medium term, global dairy prices are expected to weaken but remain elevated and above their historical average.”
But against this, the farming sector will have to contend with rapidly increasing fertiliser costs.
China halted fertiliser exports last year due to food security concerns; Yara, the world’s second-largest producer of ammonia, announced that it would reduce its European production capacity of ammonia and urea by 55 per cent, and the economic sanctions on Russia and other disruptions as a consequence of the Ukraine war have all raised fertiliser costs.
The Outlook said: “Higher fertiliser prices are likely to raise production costs across countries, including New Zealand, thereby influencing which crops are cultivated and how much fertiliser is used.”
Another impact on New Zealand is the persistent Chinese Covid lockdowns.
“Supply-chain bottlenecks are likely to last through the year,” the Outlook said.
“Prolonged lockdowns and Covid restrictions in China will likely put further strains on New Zealand producers’ ability to get their products to market.
“New Zealand exporters are struggling to get shipping containers for their products and boats to transport them.”
China remains New Zealand’s top agricultural export market. Thirty-seven per cent of all primary produce exports go there. The next largest market, the US, takes only 10 per cent.
Even the extended NATO Asia-Pacific group intended to counter China in the region — South Korea, Japan and Australia — -take only 16 per cent of New Zealand’s primary exports. Adding the US and Australia to that still only comes to 34 per cent, still less than China.
And the China market dominates our dairy exports. It takes 41 per cent of all dairy exports; the next biggest market, Australia, takes only five per cent.
It is the same for meat and wool. China is our largest market for all lamb, beef and wool and takes 37 per cent of our exports.
The “western block” of the US, Australia, UK, Japan and South Korea altogether takes only 34 per cent of our meat and wool exports.
It is those brutal facts that have played a large role in determining New Zealand’s “independent” foreign policy.
Over the next year, a declining world economy will make that relationship with China even more important.