Dialogue: Free rein vital to secure future of primary sector

The falls from grace of Argentina and New Zealand emphasise that everything possible must be done to make our primary sector competitive, writes BILL JAMIESON.

Argentina and New Zealand were once among the wealthiest countries in the world. Yet Argentina is now in an economic and social crisis while we struggle to catch up with our fellow OECD countries. So what went wrong?

It's all a matter of history, dating back as far as the early 19th century. Then Britannia ruled the waves, British ships carried most of the world's produce, the Industrial Revolution made Britain the world's workshop and this dominant position induced British governments to pursue the doctrine of unrestricted free trade with an almost messianic fervour.

The resultant prosperity increased the British appetite for more sophisticated foodstuffs.

By 1900 for instance, the annual consumption of meat had increased to 127 pounds (57.6kg) a head, of which only 79 pounds (35.8kg) was produced domestically.

The introduction of refrigerated shipping in the 1870s had allowed Argentina and New Zealand to fill this gap with large shipments of frozen meat and other primary produce.

Under a free-trade regime, the extensive farming methods employed by both countries gave them a large comparative economic advantage over the traditional methods of European farmers.

New Zealand, in particular, ended up in a position of mutual dependency with Britain. We provided them with a reliable source of cheap foodstuffs, while Britain provided us with a steady market for our increasing farm production.

Despite periodic downturns in export prices - some of them severe - this happy arrangement continued for several decades to both countries' mutual advantage.

As far as New Zealand was concerned, while the grass grew and stock numbers increased through improved farm efficiency, farmers were rewarded with consistent and gradually increasing returns.

All parties involved in the distribution chain, and the country at large, continued to prosper as Britain continued to absorb 80 per cent of New Zealand's agricultural exports.

The 1930s saw a catastrophic fall in export prices. The effect on Britain's own farmers induced it to abandon free trade. However, a system of imperial preference gave some measure of protection to the likes of Australian and New Zealand farmers.

But this effectively cut Argentina off from its most lucrative market, a situation exacerbated by an outbreak of foot and mouth disease that lingered for many years. As a result, Argentina dropped rapidly down the list of wealthy nations.

Despite the new agreements, continued pressure from British farmers over the course of the 1930s led to temporary quantitative restrictions on imports of mutton and lamb, and a proposal in 1935 to impose a levy on all imported meat.

This was reportedly met with "dumb amazement" in New Zealand and, although not proceeded with, was an indication of the weakening of commercial ties that had been regarded as inviolable.

The Second World War changed all that as Britain entered into bulk supply agreements, which survived until 1953, and allowed New Zealand farmers and the country, in general, to prosper mightily from a favourable trading regime.

But from 1954 onwards New Zealand's exports to Britain had to compete with foreign produce, much of it from subsidised European farmers dumping surpluses on international markets.

The final blow was Britain's entry into the highly protectionist European Common Market in 1973.

This imposed severe quantitative restrictions and levies on all of our major main export commodities.

During the period from 1953 when access to New Zealand's export markets was gradually eroded, successive governments took steps designed to preserve the status quo and the viability of the country's farmers. These included such economic lunacies as the ewe retention scheme, supplementary minimum prices and the licensing of meat works.

Internal commerce was, likewise, hindered by the bureaucratic nightmares of such bodies as the Potato Board, the Wheat Committee and the Egg Marketing Board. All this hindered the obvious need to diversify by using the undoubted entrepreneurial skills of the nation's farmers.

The reformist governments of the 1980s realised that the period from 1880, when refrigeration heralded the start of major exports of primary produce, to 1930, when protectionist tendencies started to appear, was a relatively short, never-to-be-repeated era of benign conditions for New Zealand's principal industry in the form of low-cost extensive agriculture.

Once stifling regulations and distorting farming subsidies were removed, our primary sector showed remarkable resilience, introducing such innovations as large-scale kiwifruit orchards, the domestication of feral deer, rotary cowsheds, a continuing stream of new apple varieties and the specialist marketing of Merino wool.

All this paid off in the boom conditions of last year's export season. This was surely final proof that when New Zealand farmers are rich, we are all rich.

Like it or not, our future is tied inextricably with maximising returns from commodity markets.

While expanding into other high-tech areas, such as medical research and software development, is also doubtless important, the fact remains that for the medium term, at least, it is primary produce exports (albeit with maximum added value) that are the key to our economic wellbeing.

So rather than yearning for a return of 1950s-style prosperity, where we allegedly led the world, we should accept that those times were truly exceptional. We should, therefore, give total support to our primary sector to allow it to compete in a fiercely competitive world.

In this context, some of the excessive restrictions imposed on genetic modification and aquaculture, and opposition to free-trade negotiations are surely to be deplored.

* Bill Jamieson is a Manurewa accountant and recent history graduate from the University of Auckland.