Free trade is the answer to farm volatility, says New Zealand’s top diplomat

By embracing both their lack of subsidies and the challenges of the global marketplace, New Zealand farmers have broken free from supermarket strangleholds and unpredictable price shifts.

During tough times, a focus on innovation, technology and managing costs has driven productivity improvements in the lamb and dairy sectors that have made New Zealand’s lamb and dairy farmers the envy of their UK counterparts.

New Zealand high commissioner and farmer Sir Lockwood Smith tells Farmers Weekly why those battling volatile commodity prices should welcome the free market, not fear it.

What makes New Zealand agriculture such a global success?

When you farm without subsidies, it creates more competition. It leads to innovation and the uptake of technology. There is more focus on the market and that tends to make New Zealand agriculture such a success – we operate real farming businesses in a competitive global environment.

It hasn’t always been like that. When we had subsidies – from 1973-85 – there was minimal innovation. Farmers tended to farm for the subsidies and the greatest support was to the sheep industry – probably up to 70% of the value of the product produced.

Farmers cleared more land to farm more sheep – it didn’t matter how unproductive they were – they were paid to have more sheep so they had more sheep. Once subsidies were wiped, we started to see the uptake of technology again.

See also: How focus on productivity put NZ livestock farmers ahead

Since the 1990s, our sheep industry has seen a 100% productivity improvement. We have less than half the number of sheep but we still produce not much less lamb. It’s a similar story in the dairy industry, where productivity has risen by 33%.

How did the end of subsidies affect your own farm?

I grew up on a farm – the land I still farm today. I entered parliament in 1984 and my father died in 1987 so I had to take over the farm. Since then, I have been very focused on performance recording and selection on the basis of performance.

Lockwood Smith on farm with his herd

The end of subsidies in 1985 meant we had to get more productive, so I introduced Belgian Blue genetics into our Angus Friesian beef herd. I didn’t go to Belgian Blue animals because in New Zealand they would struggle to survive. But I introduced the genetics progressively – and it increased the 400-day liveweight of my cattle by one-third.

Biography

  • An award-winning beef farmer and breeder, Sir Lockwood Smith is New Zealand’s high commissioner to the UK.
  • He served as an MP in New Zealand from 1984 until retiring in 2013 to pursue a diplomatic career. During his time in parliament, he served as a senior minister with various portfolios including agriculture, trade and education.
  • Sir Lockwood Smith’s Woodleigh Stud was founded in 1988 with the importation of embryos and semen from Britain. Before entering politics, Sir Lockwood was the New Zealand Dairy Board’s marketing manager for central and South East Asia.

It was already a good herd but by introducing the Belgian Blue genetics I got a huge lift in growth rate and performance. That use of genetics – the focus on performance and productivity – has really characterised New Zealand farming since subsidies were eliminated.

That doesn’t completely explain how a country of 4.5 million people can export agricultural products halfway round the world to beat the Brits on their own doorstep?

Necessity is the mother of invention. If you draw a 1,000-mile diameter line around New Zealand, there aren’t a lot of people but there are an awful lot of seagulls. If you draw that same circle around London or the UK, you have a huge population of reasonably well-off people.

But I think the big difference between farming in our part of the world and what I see here in Europe is that when things get tough – as they have been recently in the dairy industry – New Zealand farmers look at how they can make their businesses more resilient.

In tough times, New Zealand farmers focus on innovation, on knowledge and information coming out of the marketplace, so they can plan a strategy. They work with their financiers, with technology, and reduce their costs to manage the situation.

When times are tough in Europe, we see protests outside parliaments. Farmers turn to politicians. I think that is the main cultural difference. But there is no long-term future in that culture – the future lies in extracting value in a sustainable way out of the marketplace.

There is a big debate about how UK farmers should extract more from the market. Should it be through advertising and promotion? Or should it be through R&D and innovation?

For me, it is not a question of either or – they are both important.

But where New Zealand is slightly different to the UK is that our supermarket chains have little power over our agricultural sector because our farmers focus on the global marketplace.

We operate in more than 100 markets globally – because we had to diversify our markets. Where there is a lot of farmer focus on the domestic market, as there tends to be in the UK, you give a lot of power to retailers. The domestic focus in the UK tends to hand a lot of power to the supermarket chains – it is just something I observe.

Lockwood Smith on his farm

I would never be arrogant enough to tell UK farmers what they should do. But the New Zealand experience would suggest that diversifying your market and operating globally tends to put you in a stronger position.

Despite these differences, you still see New Zealand and the UK as bedfellows rather than competitors when it comes to feeding the world?

There is no question we can work together. Both countries have very good agricultural sectors in our economies. Both have a fine reputation for producing quality agricultural products and we have different seasonality and, in many cases, we also produce different products.

Take the dairy industry: New Zealand produces more powder products than cheese. So Fonterra has invested in the Netherlands to get lactose – a by-product of cheese production – which is then imported by Dairy Crest into the UK and used as an ingredient in infant formula.

Dairy Crest also uses its own demineralised whey, which is a by-product of its own cheese production here in the UK. Those products are then exported to Fonterra’s joint venture in China, which is called Beingmate, and further processed into high-quality infant formula.

It is a classic example of a modern food chain. New Zealand benefits because we don’t produce enough lactose ourselves, and the Netherlands and the UK benefit from Fonterra’s technology in using these by-products and their joint venture marketing network across China.

It is a great example of where I see the future – we can do so much more together, even in industries where there is less ingredient processing. Growing global consumption of lamb is also in both our countries’ interests. There are all sorts of opportunities to work together.

How are you trying to achieve that as high commissioner?

I have put a lot of effort into encouraging people to think about the benefits of market liberalisation. Free trade agreements not only open up markets, they open up minds and they offer great opportunities. They are hugely important for the world.

The Transatlantic Trade and Investment Partnership (TTIP) offers great opportunities for both the EU and the US. And I have been involved in encouraging people to see the new opportunities that would emerge out of a free trade agreement between the EU and New Zealand, too.

I have also put a lot of effort into encouraging the UK farming industry not be overly concerned by running a business in a more competitive environment, because the benefits New Zealand farmers have achieved by getting rid of protectionism have been staggering.

But free markets can also be volatile.

I don’t blame farmers for being afraid of volatility because it is a challenge. But one of the reasons volatility is so bad in the agricultural sector is because so little global production is traded.

So many agricultural products are produced and consumed in a protected environment that small changes in supply and demand create huge price shifts in the small proportion that is traded internationally. Volatility would reduce if a greater proportion of production was traded.

One of the biggest success stories of liberalisation is the New Zealand wine industry. In 1985, our wine industry – which was protected by a 40% tariff on imports – was a basket case. We didn’t drink that much wine and we couldn’t export the wine we did produce because it was battery acid.

After subsidies were wiped, cheap wine imports were allowed in. But we innovated and in 30 years our wine industry has gone from an industry that couldn’t export its own product because it was so bad to an industry that now earns more than twice our wool industry.

It is a classic story of what removing protectionism can do – turn an industry from one that was always looking to the government for help to an industry that is absolutely focused on the global marketplace and going like gangbusters.