Dr Jacqueline Rowarth: Why productivity growth is the key to future wellbeing

The primary sector brings in over 80 per cent of the export economy but the latest productivity report shows it went backwards. File photo / Bevan Conley

Opinion: Only through productivity gains will New Zealand be able to pay for everything it wants, Dr Jacqueline Rowarth writes.

Productivity growth is the key to future wellbeing.

Dr Bryce Wilkinson, Senior Fellow with The New Zealand Initiative explained clearly last week that “Nothing really compares to productivity growth for making the good things in life more affordable”.

Only through productivity gains will New Zealand be able to pay for everything it wants – not just the higher incomes that individuals desire, but also all the things that we need: infrastructure, education, health, law and order, science, culture, social welfare...

These are supported by the government through taxes which tend to increase if productivity increases.

At the end of March, Statistics New Zealand reported that labour productivity grew at an average annual growth rate of 1.3 per cent between 1996 and 2022.

This was not as much as achieved by Australia (1.9 per cent), adding to the attraction of crossing the Tasman.

Dr Wilkinson has calculated that on average, firms in Australia can afford to pay workers 63 per cent more in 2022 than in 1996, whereas New Zealand firms are stuck, on average, at only 40 per cent more.

Things in New Zealand are not going to get better without action, and a major factor in the latest productivity report appears to have been overlooked: productivity in the primary sector went backwards.

This is grim.

The primary sector brings in over 80 per cent of the export economy – the new money that comes into the country to offset everything that we buy from overseas – and productivity went backwards.

Workers had to spend more hours to achieve the same outcome.

Dr Jacqueline Rowarth. Photo / Supplied

Certainly, lack of labour across the innovation value chain from farm to port is having an effect, but so is the increased burden of regulation.

Farmers and growers have been trying to explain the impact of paperwork for some time. Last month they told the leader of the National Party Chris Luxon that 30 per cent of their time is spent on paperwork that adds no value.

Now StatsNZ has confirmed the problem.

But it hasn’t always been this way.

In the March 2019 year, the primary industries were lauded for having the highest labour productivity growth from 1996 to 2019. In 2019, workers in these industries produced 172 goods and services per hour, compared with 100 in 1996.

Further, in the March 2019 year, labour productivity in agriculture, forestry, and fishing, grew 13 per cent.

In contrast, labour productivity in both goods-producing and services industries decreased by 0.5 and 0.4 per cent, respectively.

But in 2022, Labour productivity in the primary sector went backwards by 4.3 per cent.

How will the Government recover the ever-increasing balance of payment deficit without a flourishing export economy?

Minister of Agriculture Hon Damien O’Connor has called the primary sector the foundation of the economy and has stated that “farmers, growers and other rural businesses are critical to the local economies, providing jobs as well as export revenue for us all”.

That is why he has invested more dollars in cyclone recovery, but it is the whole sector that is struggling, not just those hit by weather events.

The pressure from interest rates (the primary sector topped the list of businesses reporting an increase in interest rates at 63 per cent, higher than construction and retail trade), and now Fonterra’s reduction in the payout for dairy farmers (which then affects all the other milk processors) has resulted in farmers and growers questioning why they are working such long hours for such meagre returns.

Co-operatives declaring that their profits are up this year would do well to consider their members.

It is great when a processor is in a strong position, but if there is no strength left in the balance for shareholders, they might choose different words – or pay more for what the farmers and growers are producing.

Similarly, it is good to read that New Zealand’s Government borrowings aren’t as large as many other developed countries.

Listen to Rowena Duncum interview Dr Jacqueline Rowarth on The Country below:

The International Monetary Fund’s general government net debt indicator shows New Zealand’s debt at 21.3 per cent of GDP in 2023, compared to 40.7 per cent in Australia, 71.3 per cent in the UK and 94.9 per cent in the US. But New Zealand’s debt escalated from the onset of Covid, and whether there is anything to show for it is a moot point – productivity data would suggest not.

Increasing productivity is a matter of identifying the barriers to achievement.

Pointless paperwork should be eliminated in all sectors, and investment in infrastructure – proper roads to reduce accidents while enabling traffic flow rather than creating extra speed limits which have an effect only on law-abiding drivers while applying brakes to the economy - and how many road cone and lollipop operators do we really need?

Workforce planning is vital and the government can send signals to schools about opportunities for now and the future.

The clues are already on the immigration website - engineering, construction, health, science, trades, and the new green list where agriculture appears in various forms.

Productivity requires the right people in the right jobs doing the right things in the right way. The 4Rs enable progress. And with productivity gains, wellbeing increases for everybody.

Dr Wilkinson and Minister O’Connor have explained why.

- Dr Jacqueline Rowarth, Adjunct Professor Lincoln University, is a director of several agricultural companies and levy bodies. The analysis and conclusions above are her own. jsrowarth@gmail.com