Wednesday, April 18, 2018

What can we learn from New Zealand?

One of the most interesting panels I attended at the Society of Agricultural Economists conference at the University of Warwick was on what, if anything, we could learn from the reforms in New Zealand, often held up as an example of the benefits to be obtained from a radical eradication of subsidies. Interestingly, the position first taken in the discussion was that the experiences were so different in terms of geography, the prevalence of cooperatives, the timing and form of subsidies etc. that little could be learnt. However, as the discussion progressed, some lessons were extracted.

It is important to understand the context in which reforms took place. New Zealand was suffering from fixed exchange rates, the Think Big energy projects and high inflation, leading to a fiscal crisis. The subsidies were in place for a relatively short time and were also offered to manufacturing to offset the effects of a high exchange rate. Capitalisation into asset prices did not have the same impact as elsewhere.

For a long time New Zealand agriculture enjoyed preferential access to UK markets at guaranteed prices, but in the 1960s commodity prices fell. There were some really sad cases among farmers, but not that many went bankrupt. Because most farms were family farms, some use was made of unpaid labour.

New Zealand had first mover advantage with exports to China, but failed to follow through on that and let others capture market share. Hence, the first mover advantage was squandered.

New Zealand had 67.8m sheep in 1985 and 29.1m in 2015. The dairy herd has expanded, particularly on the Canterbury Plains, but this has led to concern about environmental impacts in terms of climate change and water pollution.

It was pointed out that the structure of cooperatives allowed the rapid transmission of intelligence from external markets to producers.

Some specific mitigation measures were provided. For example, although subsidies on interest payments were withdrawn, the actual payments were kept at the same level. There was also help with farm business plans.

The UK should aim for value added growth, but what sorts of policies did this imply? One approach might be to enhance the knowledge base.

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