Opinion: The lifestyle of every single New Zealander depends upon the money-go-round from the export economy - over 80 per cent of which is thanks to the primary sector, Dr Jacqueline Rowarth writes.
Record prices being paid to farmers do not automatically translate to record profits.
This point appears to have been overlooked in all the hype around milk payout and meat schedules.
Farmers are not creaming it, whether they are dairy or drystock. On-farm inflation has risen even faster than what is being experienced by New Zealand in general.
A record milk price including general inflation would be $9.60.
What the high milk price and meat schedules do mean, however, is more money for everyone through the money-go-round.
Fonterra has already stated that the current dairy payout will result in $13.8 billion into the economy from Fonterra alone. This money will circulate – it is called the money-go-round.
Each dollar passes from the farm to other businesses. The farmer pays the accountant, the fencing contractor, the seed merchant - and the hairdresser, the chemist and the supermarket.
Then the fencers and hairdressers pay the supermarket, and the supermarket employees can pay the hairdresser. And so the money goes round.
Savings and taxes reduce the money in circulation at each stage, and leakages occur, but $1 is worth more in communities than $1. Exactly how much more is the subject of considerable debate. The descriptor should, perhaps, be "turnover" rather than the more commonly used "multiplier".
Banks have estimated that each dollar coming into the country through export payments to dairy turns over approximately eight times in the community and each sheep and beef dollar turns over six-seven times.
The importance of this in Covid-times is that exports bring new money into New Zealand. Money that is already here 'leaks' out of circulation, into housing, for instance, or any purchase from overseas.
Money paid for housing in New Zealand supports the employment of surveyors, builders, brickies, roofers, painters, electricians, plumbers and real estate agents who then support employment in other sectors.
Money paid for goods supports employment in shops and supermarkets and transport.
Money paid for goods online from overseas suppliers supports the transport employees in New Zealand, and the rest benefits people overseas.
Globalisation of the economy means that everything is linked, which is why a decision in the Northern Hemisphere has implications here.
Dr Jaqueline Rowarth. Photo / Supplied
The effect of food insecurity overseas follows the basic economic principle of supply and demand: if supply decreases, demand increases, and consumers are prepared to pay more for what we produce.
The Ministry for Primary Industries' December Situation and Outlook for the Primary Industries forecast that the Food and Fibre Sector will bring in $50.8 billion in export revenue to the year to 30th June 2022. This will be 82.4 per cent of merchandise exports, 11.2 per cent of GDP and 14 per cent of employment.
New Zealand no longer has a reliable international student market or a flourishing tourism sector.
The recent border announcement might mean a resurgence, but with Covid and mutations, the future is not clear – except that people will continue to need food.
This demand for food is the reason that, so far, the New Zealand economy has managed to keep going. The export income from food has offset the money leaks.
Government borrowings to support incomes has certainly been part of the success. That money will need to be recovered in the future and inflation is already ramping up.
But the vital primary sector doing the "heavy-lifting" is strained because of labour shortages, increasing pressures to do reduce environmental impact despite world-leading efficiencies, and regulations around tools and technologies that could be the step change to even greater efficiencies.
All these uncertainties create further pressures and farmer morale is precarious.
Yet another call by activists to stop the use of synthetic nitrogen in New Zealand encapsulates the issues. The recent Horizons Research survey commissioned by Greenpeace reports that 54 per cent of people agreed that the New Zealand Government should phase out the use of synthetic nitrogen.
Were they told what doing so would mean for escalating food prices? Or were they told that organic sources (which MPI has already indicated are limited) could be used instead?
Were they told that there are health concerns around blue babies, colorectal cancer and preterm babies? Or were they told that the research around these issues has already been disproved?
Were they told that dropping synthetic nitrogen would remove $19.8 billion from the economy, and all the jobs and money-go-round that is supported – or were they just told New Zealand would be better?
The constant negativity from some groups cherry-picking information and not setting it in context is taking its toll on the sector that is supporting us.
To be vibrant and attract others to contribute to the primary industries, farmers need to be acknowledged that they are doing what New Zealand wants – supporting the economy and caring for the environment and their stock. And doing so despite the expenses connected with farming in the Covid era.
New Zealand needs the primary sector to pull in the dollars from overseas to keep the money turning over.
The lifestyle of every single New Zealander depends upon the money-go-round from the export economy, over 80 per cent of which is thanks to the primary sector.
- Dr Jacqueline Rowarth, Adjunct Professor Lincoln University, is a farmer-elected director of DairyNZ and Ravensdown. The analysis and conclusions above are her own. jsrowarth@gmail.com
