Posts by Matthew Poole
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Cue comments about the state playing in the market, communist forms of government, etc. The state isn't there to take risks, profitable or otherwise. It's there to set the frameworks within which the private sector (and I'll include SOEs here) can take risks.
Steering the country down a potentially foolish path because it also might prove very profitable, when there's a path that carries far lesser risk traded against almost no diminution in potential reward, is just stupid beyond measure.To put it another way, the dairy industry makes enough money right now to not need government assistance to try and get into other ventures that may make money. Other industries, with enormous profit potential and far less exposure to climatic and marketplace risk, do need government assistance to try and become self-sufficient. Trading on their success does not need to impact on dairying in any significant way, except in the minds of farmers who care for nothing beyond the well-being of their own bank balances. What is good for farmers is not necessarily good for the country.
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I don't think it's foolish. Risky maybe.
When did "risky" become "foolish" in the CDO/CLO fiasco? They're very closely linked, and it's often only in hindsight that one sees that what appeared to be "risky" was, actually, "really bloody stupid." At the level of macroeconomic direction involved in running a country, "risky" and "foolish" aren't concepts that should be readily entertained. I don't want governments trying to run the country as an exercise in crossed fingers and fervent prayers, but that's what "risky" and "foolish" choices are, effectively, doing. Diversifying the economy is prudent, and prudence is, really, about the best we can hope for from any of our elected servants.
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But if your economy is heavily biased toward one particular form of industry you're in deep trouble if something strikes that industry.
Conversely you do quite well if that doesn't happen.It's very foolish to rely on good luck to protect something as important as the national economy. So far, though, that seems to have been the prevailing attitude from Wellington. "It won't happen to us. We'll be fine." A wonderful carry-over of the "She'll be right" attitude for which Kiwis are world-renown, and one that's distinctly unhealthy when viewed from a resilience perspective.
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You don't see the software, creative or hi-tech industries having to mount glossy tv campaigns just to get young people to consider working in them, either.
That's mostly because those industries don't have the PR advisers that agriculture does. It's not that they're attractive career choices, it's purely because they're well behind the 8-ball about getting people involved. We've got a serious shortage of IS and computer science students, as well as electronic and mechanical engineering. I alluded earlier to Motorola, and a significant reason that they chose Australia over here was that our tertiary system just isn't turning out sufficient numbers of suitably-qualified people to make having a major high-tech R&D facility a viable proposition. Our loss, and one that's not going to change in a hurry.
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Everyone has ways to lose money.
Yes, that's very true. But if your economy is heavily biased toward one particular form of industry you're in deep trouble if something strikes that industry. NZ's a foot-and-mouth infection away from being in very, very deep shit economically.
The current economic crisis is somewhat unprecedented in its scope, having screwed over a very broad swathe of industries including includes primary produce. The general rule about diversity breeding resistance has held in past downturns, though, and is a lesson that NZ still hasn't really learned despite all the fancy talk by Labour about "building a knowledge economy." I guess we should be thankful that National's admitting in deed, if not in word, that they're not going to seriously bother even trying.
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I'm sure the government have plans for R&D - just not a tax credit based approach. I guess we'll see when the Budget arrives.
Your faith is touching. They're already hinting strongly that nearly everything is going to be on a static, or dropping, budget for the coming year. Education, Health and Justice are, from memory, the areas that English has said will be getting the only budget increases. R&D just isn't a priority for National. If it was, they would've left the R&D tax credits alone, if only for the fact that, as an existing scheme, its costs were lower than the expense of designing and implementing a replacement.
That farming JV is interesting. I'd never heard of it before. Certainly a good idea, but looking at their 2008 annual report I wouldn't be counting on it to contribute much of anything to NZ's balance of payments for a little while. And, again, it's a heavy reliance on a single industry. That's not healthy for an economy. Yes, primary produce is always in demand, but pricing (and thus returns) is very, very fickle. Diversity is good, and it would be incredibly foolish to pretend that simply diversifying the industry to other shores is any kind of substitute for encouraging solid, high-tech development within NZ.
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Lyndon, that's hardly surprising. It will be interesting to see what effect the demise of the R&D credit here has on reported spending.
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to export our expertise in farming, not the raw products (which is really what I was referring to hurriedly above). So long as we own an ongoing share of the result, not just sell our knowledge for a few one-off baubles. Like kiwifruit.
That way will still not earn us significant sums. Think about it. Fonterra is by far the largest company in NZ by turnover, but still only the sixth-largest dairy company in the world (says [http://en.wikipedia.org/wiki/Fonterra|Wikipedia]]. I'll take its word for that much). It also has a turnover of roughly NZD20b (again, Wikipedia). The world's largest dairy company, Danone, reportedly had around NZD35b in revenue for 2008, across all its operations (it's the parent of Kraft Foods, so spreads well beyond dairy). Let's say, for ease of calculation, that the other four average NZD27.5b in annual revenue each. In this hypothetical world, Fonterra comes up with some genius production method that manages to licence to these other five producers, for a whopping 2% (seriously, 2% of revenue would be an insane licence value) of annual revenue each. That's a grand total of NZD2.9b. Yes, that's 2.1% of our GDP, but it's also concentrated into one company, in one industry, and doesn't compare so well to, say, Microsoft, which with USD60b in revenue last year turns over more than three-quarters of NZ's national GDP. I know which of those two I'd rather have.
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to export our expertise in farming, not the raw products (which is really what I was referring to hurriedly above). So long as we own an ongoing share of the result, not just sell our knowledge for a few one-off baubles. Like kiwifruit.
That way will still not earn us significant sums. Think about it. Fonterra is by far the largest company in NZ by turnover, but still only the sixth-largest dairy company in the world (says [http://en.wikipedia.org/wiki/Fonterra|Wikipedia]]. I'll take its word for that much). It also has a turnover of roughly NZD20b (again, Wikipedia). The world's largest dairy company, Danone, reportedly had around NZD35b in revenue for 2008, across all its operations (it's the parent of Kraft Foods, so spreads well beyond dairy). Let's say, for ease of calculation, that the other four average NZD27.5b in annual revenue each. In this hypothetical world, Fonterra comes up with some genius production method that manages to licence to these other five producers, for a whopping 2% (seriously, 2% of revenue would be an insane licence value) of annual revenue each. That's a grand total of NZD2.9b. Yes, that's 2.1% of our GDP, but it's also concentrated into one company, in one industry, and doesn't compare so well to, say, Microsoft, which with USD60b in revenue last year turns over more than three-quarters of NZ's national GDP. I know which of those two I'd rather have.
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And there is a tension there between absolute productivity and relative sectoral productivity globally. If we can operate our dairy and meat industries as a global leader, there is benefit in that over being just an average software producer.
However, if we make that choice as a country then we must accept an inevitable and significant decline in our position within the OECD for all measures of wealth. You don't make money from primary products, you just don't. The whole tangible consumables thing is generally a loser unless you can make serious value-add, and there's only so much you can do with pastoral produce.
There are, too, hard limits on how much milk, meat and wool we can produce. No matter how good we are, how efficient, we have a finite supply of land, and an even more finite supply of land that's useful for working stock. The head-per-hectare count isn't moving, either, and that's your real limit on just how much you can yield. Whatever we can manage to trick out of our stock, others can do too. We're a very small country, physically, making the limits that much more significant. In time, once agricultural subsidies are consigned to the dustbin of history (I'm not holding my breath on that happening in the next 20 years, either), we may well be able to compete in output as well as quality, but for now we're on the wrong side of a battle that's got lots of very inefficient producers being supported by large economies.
The other big negative to primary produce is that its price is set by world markets in which we're a very, very small player. Fonterra may be a monstrous milk supplier, but even it can't do much about the global supply/demand relationships. How much money has been knocked out of our economy in the last six months with the precipitous decline in the world price of dairy products? That's not healthy.