Mike Petersen: City not such a super driver of economy

Opinion

Watching the Auckland "Super City" debate from afar in Waipukurau is theatre itself, and some of the greatest entertainment is the claim that Auckland is the engine room of the economy.

Despite all of the talk in the great Lord Mayor debate, agriculture and food production is the engine room of the economy, with 4 per cent of the population delivering over 65 per cent of foreign exchange earnings.

Food production is our comparative advantage, and meat and wool exports are playing a key role. The $6 billion export earner that is the sheep and beef industry is defying the economic crisis.

Many commentators talk about our country's reliance on agriculture and food production as the main export earner. However, within this grouping there is a diverse group of sectors, often complementary by nature, and ensuring New Zealand can prosper year after year. Last year dairy returns enjoyed phenomenal returns and this year our premium lamb is riding the crest of the wave.

Sheepmeat, and lamb prices in particular, have staged a remarkable recovery in the past year. Lamb returns at the farm gate are 60 per cent higher than this time last year, reflecting the strong growth at retail in all of our export markets.

In spite of our high per capita meat consumption in New Zealand, the domestic market is very small, and 90 per cent of New Zealand's sheepmeat production is exported. Nearly half goes to the valuable UK and EU markets where lamb continues to hold its own despite the recession. We are seeing consumers trading down from eating out regularly and they now dine at home much more frequently. UK supermarket promotions urge consumers to treat themselves to a meal at home and they have linked New Zealand lamb as a quality product to meet this market shift. This trend has also been positive for New Zealand wine sales, with supermarket purchases up to complement the meal at home.

New Zealand beef farmers have seen improvements in farm gate returns also.

In-market prices soared in the middle of last year on the back of the biofuel and commodity boom. They have now reverted to a more normal trading range but we are confident of better pricing later this year following the large cull of dairy cows in New Zealand and in North America in response to the drop in milk pricing.

As in Europe, North American consumers have changed their eating out patterns too. The fast food chains have picked up the market share and this fits well with our hamburger beef exports into this market.

The impact of the global recession is still unfolding on a daily basis and impacting on many of the established global economies. In contrast, however, the growing emerging markets of China and India are demonstrating the enormous potential that these markets hold.

While Japan, Korea and Taiwan continue to be established destinations for our beef there is also the promise of significant opportunities for meat and wool in China.

The emerging market project with Meat & Wool New Zealand, the Alliance Group, Anzco and Silver Fern Farms is a co-ordinated marketing proposition to translate this opportunity into reality.

While current exchange rates make a big difference to our export returns, we must balance this with reality. Last year, sheep and beef farmers experienced the lowest profit levels in 50 years. This was due then to the high exchange rate and the drought that affected many regions.

This year sheep and beef farm profitability is estimated to improve significantly because of sheepmeat and beef pricing, tightened stock supplies and a more encouraging exchange rate.

Unfortunately wool returns continue to disappoint and the recession is playing some part. Most of our wool is used in carpets and in the current climate there is a lack of new building and building refurbishment happening.

A year ago we were seeing market prices for New Zealand strong wool in US dollars steadily climbing, though the high New Zealand dollar meant these gains did not come back to New Zealand farmers.

Staggeringly today, even with the New Zealand dollar down over 30 per cent, the buyers of New Zealand wool overseas have never been able to buy New Zealand wool cheaper.

This is the United Nations Year of the Natural Fibre. The time is right for wool.

However, there still needs to be behavioural and structural change so the full potential for wool can be realised. Farmers and the companies must work together to make this happen.

The opportunities that exist for our meat and wool industry are real. Global markets are looking for more of what we produce because they are the finest, naturally produced meat and wool products in the world.

In spite of the global financial crisis, food security is the new phenomenon and New Zealand is ideally placed to supply the world.

The strongly diversified nature of agriculture has been a real strength for the wider New Zealand economy.

At a time when many economies are struggling, our sheep and beef industry has prospered, defying the trends of other businesses.

So while the Super City debate rages, and various celebrities put their hands up for the job of Lord Mayor, here in the regions we are looking at much simpler things. The reliance on agriculture and food production as the key driver for the economy should give New Zealand confidence that the future is assured.

Anything else is pure entertainment.

* Mike Petersen is Meat & Wool New Zealand's chairman.