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Home > Promotions > Excellence > Subsidy
Farmers in most countries continue to face radical change, through the reduction or elimination of government subsidies, driven by the need to reform world trade within agricultural products. Farmers fear for the future of those who work on the land, their families, and for the rural communities. They fear the long-term destruction of the traditional farming systems and the rural way of life. Yet the truth is quite different, and for family farming there is life after subsidies. Indeed, life after subsidies is better than farming that is dependent upon state handouts. In 1984, nearly 40% of the average New Zealand sheep and beef farmer's gross income came from Government subsidies. In that year, the New Zealand Government removed all subsidies to its agriculture sector and insisted that primary industries succeed or fail on their export and local market earnings. From that time New Zealand representatives have promoted agricultural trade reform in world forums, arguing that low-cost production of marketable commodities and further-processed foods can be profitable for farmers, without government subsidies. Fair and reasonable access to all food markets must be guaranteed, however, so New Zealand has joined with the Cairns Group of agricultural exporters to press for trade reforms through the World Trade Organisation. New Zealand's producer board system is being deregulated and primary product marketing is now corporately organised, with a mix of co-operatives and public and private companies. Market signals are transmitted back clearly to producers, who then change their approach and their output, within the bounds of climate, geography and genetics. New Zealand's experience has been that the elimination of subsidies also increases innovation; increases self-esteem of farmers (who are no longer not state dependents); increases the relationship and connection to the market (giving better information flows to the farmer); and ensures long-term viability by continuously responding to change whereas subsidies progressively remove farms from reality. These longer term benefits will far outweigh the short-term difficulties of adjustment, which are hard on smaller farms. Top ^ New Zealand emerged from the Second World War with its industrial and agricultural capacities intact, in a world facing major shortages of consumer and agricultural goods. The country grasped these opportunities so effectively that in the early 1950s Gross Domestic Product (GDP) per capita was exceeded only by Switzerland. But this prosperity was not to last. Reliance on the primary production base, combined with a highly protected economy, oilshocks, and the UK entering the EU, resulted in a relative decline in per capita GDP throughout the 1970s and 1980s. Since 1984 successive governments have embarked on a series of economic reforms across all sectors of the economy. For agriculture this meant the removal of producer and exporter subsidies and incentive payments. The effects of this were balanced in part by the elimination of import licensing systems and import quotas, and by heavy reductions in tariff protection. Most consumer subsidies were also removed. The exchange rate was changed from a fixed to a floating system, and the central bank (the Reserve Bank) was assigned the overriding role of controlling inflation. The Public Service was restructured to improve accountability, reduce costs and focus on priorities. Many services were supplied on a "user pays" basis. Several government owned industries were restructured as State-Owned Enterprises, which were required to work as closely as possible to a private sector model. Some of these enterprises were subsequently sold to the private sector. The economic reforms of the past decade have created a strong foundation for sustainable economic growth. The New Zealand economy is now one of the least subsidised and most open economies in the world, an essential factor for a nation so reliant on trading. The agriculture and forestry sector is one of the largest sectors in the New Zealand economy. Together with its support and processing components it regularly contributes more than $20 billion per year, or about 16% of GDP. The agricultural industry is a major employer, with an estimated 215,000 people being approx 11.4% of the workforce. In the 15 years since 1986-87, the value of economic activity in New Zealand's farm sector has grown by over 40% in constant dollar terms. Economic growth in the agricultural sector has outpaced growth in the New Zealand economy as a whole. Top ^ The removal of farm subsidies has proved to be a catalyst for productivity gains, improving by and annual average of 5.9%. By comparison, the period before the removal of farm subsidies saw agricultural productivity grow at only 1%. Total stock numbers has fallen by around 10%, but total productivity from the smaller number of animals has actually increased. Sheep farming has seen the greatest change, with total sheep stock units falling from over 60 million to 40 million today. However the numbers of lambs born per 100 ewes has risen by 20% and each lamb is finished to a higher weight and standard than before. Cattle numbers have actually increased, as some drystock farms have been converted into dairy farming and larger numbers of the annual dairy calf production are retained for dairy-beef production. The diversification of land use prompted by the removal of subsidies, into more dairying, more farm forestry and more horticultural crops, has been beneficial for farmers and increased the size and scope of the agricultural sector, as innovative products have been developed. In the past two years real sheep and beef farm profitability (inflation adjusted) has recovered to around $80,000, compared with $100,000 with subsidies. Nonetheless, farming in New Zealand continues to offer an income high enough to provide a return on capital similar to other countries and a good standard of living. Farmers are now farming better; they are much more conscious that their activities must make business sense. They maintain cost structures that reflect the real earning capacity of their farms, with allowances for the high and lows of international commodity prices. Good management of the environment is an integral part of sustainable farming practice, and the base of farming activities has broadened to include farm tourism and forestry. The New Zealand agribusiness sector has become far more professional and innovative. As a result, it is more efficient at providing the world with top quality foodstuffs and fibres. The farm servicing companies have also had to become more efficient, as farmers have insisted on greater value for money. Fertiliser prices are a good example, now being at the same level, and often cheaper, than they were in the mid 1980s. It was noticed that much of the benefit of farm subsidies had flowed through to the rural servicing sector, which was also forced to restructure. Other effects of the removal of subsidies have included the careful management of marginal land, reduction of excessive debt levels, improved managerial abilities and land value more in relation to productivity. Water quality has improved as farmers abandoned wasteful practices fuelled by subsidies and farming of marginal and often ecologically fragile land unable to sustain agricultural activities has declined. Totally unsuitable or infertile land has reverted to native bush cover and increased New Zealand's natural biodiversity. Land prices generally have realigned to eliminate the "guaranteed" nature of some farming income and the tax benefits which were associated with national development plans, changes in land use and livestock expansion. Top ^ The level of assistance to agriculture in New Zealand is now only 2% of the value of output (1999) and this is spent mainly on research and development. This compares to the average of the OECD countries of 40%, and support levels in Europe, for some crops and primary products, of more than 50%. The United States, Canada and Japan are also large subsidisers of agriculture, although under World Trade Organisation agreements the nature of that support is changing from export product price subsidies to border protection and land grants designed to maintain the rural infrastructure. New Zealand exports of meat and dairy products face quotas and tariffs in nearly all major markets which, while guaranteeing some rights of entry, also tax the import prices and limit the opportunities for growth. Therefore New Zealand is active in world forums to seek changes to world trading restrictions, which will also help developing countries and combat hunger and poverty. SOURCES: Top ^ |
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