'Too many cows in one basket' - Cunliffe
Tue, 01 May 2012 6:19a.m.
New Zealand's heavy reliance on dairy exports is threatening the future of the economy, according to Labour.
The latest Overseas Merchandise Trade figures show exports have fallen in the last two quarters, led by a decline in prices for milk products, crude oil and fruit.
Labour's David Cunliffe says the Government needs to diversify the economy so that it is not a hostage to commodity prices.
"It's what the ratings agencies have been warning us for many years and were really clear about when they downgraded us last year – we are underdiversified, we have too many cows in one basket and we need to do better on that front."
Mr Cunliffe says New Zealand should place more importance on value-added exports and developing other manufacturing and service industries.
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3/05/2012 12:32:20 p.m.
Look, totally agree with the fact that NZ Inc. needs to diversify where it earns it's overseas dollars from. Now if that is a/the government's responsibility lets identify the areas where they can assist this. First is alter legislation/taxation. Obviously better use of write offs for R&D are in order (and they aren't being done now). Also tax and legislative changes to our riduculaous passion for dumping our personal wealth into residential property rentals!!. But there has been other attempts where Labour and Loony Lefties prefer to hobble any chance of diversification. The procrastination that the left throws in for any reasonable attempt to alter the Resource Management Act so that new business opportunities can get off the ground before they are redundant in their techknowlogy hobbles opportunities to diversify. The left and green movement that stops any thought of new mining activities, exploring new oil and gas reserves, and EVEN protests against where some wind generators go defies all logic from the same group that states we are too dependent on agriculture. Then on top of all that would drive many a participent in agriculture or forstry to leave by accepting an untried for system of trading in carbon credits at a monetary value that no other country in the world uses. So lets get right to the nub Mr. Cunliffe, what advice would you give NZ Inc. to diversify when you have blatantly assisted in putting up 90% of all obsticles that stops just that?
2/05/2012 5:13:47 p.m.
@Mike. I assume your comment is in regard to my comment. I suggest a scenario that offers Fonterra and telecom business practice reflecting your scenario of NZ Farmers borrowing large sums of money over lean years or times against future earnings. I mentioned Borrowing. You mentioned Lending. The two practices have fundamental differences. One is receiving capital and paying that capital back with interest. The other is Giving capital and receiving that capital and interest back. Fonterra and Telecom give that capital on earnings, already earned. Not earning not yet earned. Farmers have good years, and bad years. its proper business practice to retain profit for the bad times. Not spend that profit, then rely on borrowing to fund the bad times. As I mentioned. If Farmers are borrowing large sums of money over lean times. They are setting themselves up for failure. with such business practices. they deserve to fail
2/05/2012 1:19:50 p.m.
I agree that borrowing so much is not ideal, but the farmers had a choice - borrow or go bust. NZ farmers have had uneconomic years basically from the mid 80's through to the early 2000's. The success of Fonterra (and NZDG before that) is amazing considering how much they had working against them - the farmers dug deep and worked hard even though it was bad financially for them individually. No group has worked harder or for longer at something for NZ than NZ farmers, and the Greens/Labour want them destroyed for showing that low incomes can achieve with hard work.It is going to take many good years to fix their debt problems, just as it will take many good years for NZ's debt problems to be fixed.What business in NZ doesn't have borrowings? As NZ lacks equity, that leaves borrowing money. It is really no different than selling shares to raise capital, just the investors are banks and if it all turns pear shaped then it will see everything fall over. But then business has always been that way. Even go back to the 1800's, businesses borrowed to finance capital. The control given when borrow is really no different than non-voting shares issued, and when NZ racists go on about 'selling NZ' they forget this. Actually, borrowing gives the banks more rights than sharholders!$48 bil borrowed sounds a lot, and it is, but it is still only a smaller portion of the asset value of NZ farms. Banks dont believe in too high leverage and tend to want their loans covered.NZ needs more earning, less bludging as its the outgoings that are crippling NZ. Even take Telecom, its finances show they have acquired capital through loans and shares - so that is no different than farmers borrowing. Fonterra looks better, but that is because its farmers/investors have borrowed, not really the Fonterra Entity itself.
2/05/2012 10:46:29 a.m.
@Mike, don't you think that borrowing huge amounts of money during lean years, against future earning is a totally irresponsible business practice? What earnings are they borrowing against? all it takes is a year, bare minimum to totally screw that idea up with another low productivity. What you describe is irresponsible business practice. Imagine what would happen if Fonterra or even telecom used the same business practice? Its rather akin to "putting all your eggs in one basket. Its totally irresponsible and plain stupid. If what you describe is common with New Zealand farmers. then basically, they deserve to lose everything they have. They are setting themselves up for failure.
2/05/2012 8:04:48 a.m.
It was Cunliffes team came up with Farm Revenue = Profit.Remember that when they claimed that million dollar revenue = milion dollar profit? When the farmers on average paid like $1500 tax the prior year? That is Cunliffe and his teams knowledge of economics and finance. You could grab any kid out of high school who isn't failing economics and accounting and they could do a better job than Labour!Take a look at Fonterra closely. Labour is saying our exports are finding high dollar is hard so recommend intervention and muldoon style devaluation. In economic terms its like Labour has gone back to before man discovered fire! It didn't work under Muldoon in the 70-80's so why would it magically work now with a world recession?So even in a bad world situation, Fonterra has grown. How did they do it? Well they did increase the raw milk supply slightly. The did benefit from a rise in world prices. But their biggest gains is they Diversified. Take their failed Sanlu venture, that cost them $300,000,000 - but almost every other venture they have invested in has been beneficial. Fonterra is moving from a raw milk type product to more processed. This also provides more jobs, and more added value. When Labour is talking of destroying Dairy for the benefit of NZ, its Dairy thats holding NZ together through recession.NZ farmers owe $48 billion in debt as they borrowed through the lean years against future income, and they need more good years to make a dent in the debt and get it back to more managable control. But Labour is looking to knife the farmers in the back and kill our economic recovery. The way to growth is not to destroy something else to make something inadequate appear better. Oh wait - thats been Labour Policy for going on a century!Take the unions who have managed to have almost every major meat processor shutdown - all in the cause of the workers they made redundant!
1/05/2012 11:36:05 p.m.
I think Cunliffe is a very good candidate for Prime Minister. He is not too left or Right and understands economy better than Key or English. Infact Key is too scared to take him on as an opposition leader
1/05/2012 4:28:34 p.m.
Labour leaders now and in the past.
Have given themselves the portfolios of science and Innovation,Hopefully indicating they have some new policy ideas in these areas.Where for all the talk of a knowledge economy taxpayers money has often disappeared into unsuccessful Ventures."Perhaps a good reason why the books are in the red right now"!
Labour needs to persuade the public it can provide a credible and better alternativeto national and it needs to do it Vai a flagship of policies that are more substatial than an opposition to asset sales.It cannot argue with any crediblity that the Government does not have a mandate for asset sales when palpaby it has.
We have something the world wants not only milk but a food basket.What does greece have or italy have aren't they Knowledge economies.Well they don't produce anything the world wants.How do we compete with the likes of china who have workers at 50 cents an hour you can't.If fonterra ever floated on the exchange well i'd expect Labour to put all of that kiwi saver money they could into buying stock quite ironic!Along with the rest of the world.
1/05/2012 1:41:33 p.m.
actually, an over-reliance on agricultural export and tendency to sacrifice the actual ability to grow economically in favour of increasing that has been a hallmark of national and labour both for a LONG time. national has two unfortunate habits though: getting elected just in time to cop the inevitable outcome of this, and a wonderful skill at going out of their way to make things Worse.
dairy farming is just worse still, at least in parts of the country. (Canterbury, for example, is not actually suited for it, for the most part. it's ideal for barley and sheep though.)
for a functional economy, your agriculture needs to serve the city-region it's in primerally, (because, obviously, people need to eat) with only any Excess being exported. you want your cities producing the bulk exports (and that's between city regions, not countries. the nation-state is, economically, a non-thing.) those exports buy imports, which you then replace where possible with local production, some of which can create new exports. which leaves you with more slots for new imports (the new exports allow for some and the slots previously taken up by the now replaced imports). there is, of course, some loss to technological obsolescence from time to time, and market shifts reducing demands for certain exports... but so long as you keep replacing the imports and Do Not Specialize (on a city region scale) they're compensated for just fine.
(also: welfare is all well and good, but starts becoming problematic when one city-region's taxes are paying for it in another city-region. if the economy is not already healthy and growing it can't support the load without damaging the growth cycle, as they are functionally an export with no corresponding import. military production has similar issues. )
1/05/2012 10:18:43 a.m.
Its extremely arrogant and naive to blame the nine years of Labour governance for a lack of action. While blaming Labour nine years. You are ignoring the fact that National Have been government for the last four years, for want of a better argument.. Historically, NZs economy has always suffered during National government. For example, Piggy Muldoon bankrupted NZs economy, The Nat government of the 90s severely compromised NZs economy. After the 2008 election, a credit downgrade was inevitable. National needs to lift their performance to avoid yet another downgrade before the 2014 election. warning signs are already evident.
1/05/2012 9:59:27 a.m.
Agree 100% with your comments Jim. Cunliffe is one of those unfortunate types that is all bull and bluster but when it comes to making real decisions he is no where to be seen. His arrival at Labour party HQ on election night was unbelievable -- he was waving at the meagre crowd that had gathered as if he had just become the PM. David Shearer is the right choice as labour leader and they would be very wise to keep Cunliffe as far away as possible.
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