Dialogue: Pride, not tariffs, the key to wine success

By JASPER WRIGHT*

Lockwood Smith sounded like an economic dinosaur in his recent trumpeting on tariffs on the Dialogue page. Or to change the metaphor, like one of those cloth-capped, elderly men who in the 1950s and 1960s stood at the back of the hall at political meetings shouting during the speaker's lulls, "What about the workers?"

Dr Smith has a new query: "What about the tariffs?"

Yet today's tariffs play little part in our economic mix. The ones remaining stand mainly below 10 per cent and have little impact on the continuing cost of imports. The major impact on consumer costs is the exchange rate.

When our exchange rate dropped from around 80USc to under 50c, this was a major cost increase to importers, equivalent roughly to 30 per cent increase on goods sourced in American dollars.

If the exchange rate were to go back up to 80c, the cost of sourcing those goods would go down by a similar amount as long as the suppliers did not increase their price in their local currency.

There are other inputs as well because the economy is a complicated beast with a large number of inputs providing a large number of outputs. Its workings are not fully understood, which makes economics an inexact form of prediction.

However, the exchange rate-tariff connection is a matter of simple arithmetic. If the exchange rate increases by 30 per cent, goods from overseas are cheaper, even if tariffs go up to 20 per cent, all other things remaining the same. Similarly, if the exchange rate goes down by 30 per cent and tariffs are removed entirely, goods are still more expensive.

To bolster his case, Dr Smith brings up the question of the wine industry.

Undoubtedly that industry has been a success story. However, the production of poor wine in the 1950s and 1960s was not brought about by tariffs. It was done that way because that was the tradition.

The industry was largely a collection of small businesses, predominantly Dalmatian and numerically predominant in Auckland, making wine for their own use and for sale at the farm gate.

Horror stories abound from those days. Grapes were crushed by feet in the European tradition, a sack of sugar was added to help fermentation (half a sack for dry wine) and, after bottling, the wine was aged under the house for at least three weeks.

These stories weren't always true but they weren't always false, either.

The grapes used were not the tradi-tional wine grapes but varieties such as Bacco 22 and Albany Surprise, which produced wines ranging from poor to indescribable.

This was hardly the basis for an internationally competitive business but by the mid-1960s changes were under way. New vineyards with professional management and corporate structures were becoming players.

Montana, McWilliams and Cooks planted the right grapes for quality wine and standards rose.

This was nothing to do with tariffs and everything to do with pride in getting things right. It certainly was not driven by economic assessment by the vignerons.

As standards rose, so did customer purchases, and demand for quality wines could not be met by existing plantings.

But at the height of Rogernomics, the Government came to the rescue. A grant was given to each vine grower who would pull out old-style grapes. This payment for each hectare enabled some growers to get out of an industry which was changing too fast for them and for others to replant in vitis vinefera (classic wine grapes) to meet international standards.

From there to now, the acreage of grapes has grown steadily, wine pro-duction has surged and quality has become a success story. The success is not a result of tariffs, as Dr Smith would have us believe, but of enterprise aided by intelligent government intervention.

This was the Singapore model. It is not one of continuing protection or subsidies but of intelligent help for a limited time to enable an industry to grow and then compete internationally.

It is ironic that Dr Smith should use as an example an industry that is a success because of government help and subsidy, something which has been an anathema to his party.

While tariffs today are of little importance in our economic mix at less than 10 per cent on a small range of imports, quotas and tariffs of 40 per cent by our trading partners on our major exports are not.

This is a win/lose situation for the European Union and the United States and they intend to win. Take, for example, the action of the British police in arresting and jailing some of our Dairy Board executives for allegedly trying to beat the EU quota system. And the imposition last year by President Clinton of quotas on our lamb imports, with a tariff of 40 per cent on all imports over this quota.

Yet Dr Smith tells us that our continuing tariff reduction gives us respect at Apec. Does it really? The respect did not stop the United States imposing quotas on our lamb, nor has it helped us in the abolition of quotas on our products by America and the EU.

In the years that they were in government, Dr Smith and his colleagues achieved nothing of significance in improved access for our agricultural products to these major markets.

* Jasper Wright is an Auckland writer.