Meat New Zealand AGM Wednesday, 26 March 2003

Speech by
Murray Sherwin
Director-General of MAF

Mr Chairman, Ladies and Gentlemen

Thank you for the invitation to speak to you today. Meat New Zealand is one of MAF's key stakeholder groups. We value highly the relationship we have with your organisation and we intend to build that relationship further in the future. We see our role at MAF as helping to create an environment in which your industry, and other primary producers, are able to produce sustained and sustainable prosperity. To do that, we rely on a high quality dialogue with your organisation, and with you members, so that we can understand the issues that are impeding your capacity to innovate and grow.

A large part of our role involves identifying and managing risks and opportunities. Today I would like to talk about a specific, and very large, risk, in the form of foot and mouth disease (FMD) and perhaps our biggest opportunity - namely the WTO's Doha Development Round of trade talks.

FOOT AND MOUTH DISEASE: The impacts

FMD is never far from our minds as a risk, not just to farmers, but to the well-being of all New Zealanders. To better understand what an FMD outbreak might mean for New Zealand, we have collaborated with our colleagues at the Reserve Bank and the Treasury to make use of their economic modelling capability. We can inject into their economic models some crude estimates of the impact on export values and trace through the impacts on a broader range of macro-economic variables. The results were published by the Reserve Bank last month, and do not make attractive reading.

All meat, animal by-products, wool and dairy products exported from New Zealand carry a MAF or NZFSA certificate that, amongst other things, assures the importing country that New Zealand is FMD free. With confirmation of a single FMD case in New Zealand, those certificates become invalid and export of those products into our key markets ceases. We would, of course, work very hard with our colleagues in NZFSA and MFAT to re-establish trade certification as quickly as possible. This would include efforts to have, for example, the South Island accepted as FMD free if the outbreak occurred in the North Island, and vice versa.

We would also be working very hard to retain access for products like wool (especially scoured product) and dairy products (e.g. milk powders and other heat-processed products with no risk of carrying FMD). But for our key markets, the standard rule is that FMD freedom is not accepted until three months have elapsed since the last identified case. Few countries have incentives to treat us generously in this exercise. This means that about two-thirds of our export trade would be at risk for at least four to five months, or longer.

Having added that scenario into the economic models, we can see GDP impacts demonstrated of around 8 percent after two years. Moreover, the government's net debt-to-GDP ratio by 2009/2010 jumps from around 12 percent projected in the absence of FMD to around 25 percent after FMD. This is due to lower government revenue, increased expenditure and the drop in GDP. In effect, this reverses the past 15 years of progress towards a lower government-net-debt ratio. There are significant impacts on unemployment and we could expect significant impacts on the financial health of some of our companies and communities, as well as directly on the income of farmers.

Note that the scenario that generates these results is generally regarded as being at the optimistic end of the spectrum in terms of the speed with which the outbreak is contained and the speed with which market access is regained for our farm products.

The profound economic impact that would be caused by a FMD outbreak is clear. It is certainly enough to demand the attention of policy makers in many government agencies as we think about both the implications for wider economic management, for biosecurity capability, and for the response measures that must be in place.

If there is one message that emerges from the UK experience of 2001, it is that prompt action makes a very big difference to the ultimate impact of the disease. From the date of first diagnosis in the UK, three days elapsed before the authorities imposed a ban on all livestock movements. Subsequent reviews suggest that, had they imposed an immediate halt to all movements of livestock, the number of animals finally slaughtered may have been reduced by between 35 and 50 percent.

We have taken that message on board. Should an outbreak occur in New Zealand, expect to see an instant nationwide ban on all livestock movements.

FMD: The response capability

So what would an FMD alert look like in New Zealand? What should you, as representatives of farmers, processors and exporters expect to see from MAF, and what would we be expecting from you?

Let me talk through a hypothetical example.

It starts with a farmer milking his cows one morning. He notices several cows with very little milk, salivating and reluctant to move. There are also some visible lesions and blisters. Unsure of what is causing these symptoms, he calls his vet. The vet arrives around noon, inspects the cows, and concludes, based on her clinical examination, that she cannot exclude the possibility of FMD.

Like most New Zealand large animal vets, she has had training in what to look for with FMD, and that training has been reinforced over the years by articles in the New Zealand Veterinary Journal, in Surveillance, the MAF Journal, and in the periodic direct mail-outs from MAF. Like many of her professional colleagues, she may also have participated in MAF exotic disease courses over the years. If we are particularly lucky, she may be one of the 100 or so vets that MAF sent to the UK to assist in their FMD outbreak in 2001.

The vet knows to call the MAF Exotic Disease Response Centre, part of the National Centre for Disease Investigation (NCDI) at Wallaceville, Upper Hutt using the well-publicised 0800 number. On making that call, she is connected with an expert veterinarian who talks her through the symptoms she has seen in the animals. If that conversation does not allow the possibility of FMD to be excluded, the machinery begins to stir. The original vet will be requested to stay on the property, to organise mustering of other stock on the property for examination, ensure no stock leaves the property, and to begin documentation of all movements of animals and animal products on and off the property over the previous fortnight.

An Investigating Veterinarian, one of 100 around the country with specialist training, will be dispatched to the property. Our contractual arrangements require that one of these Investigating Veterinarians can be present on any property in New Zealand within a maximum of six hours from being called.

On arrival, the Investigating Veterinarian conducts a second examination of the animals.

If FMD still cannot be excluded, our response machine goes into hyperdrive.

At that point, several actions are triggered:

A MAF National Centre for Disease Investigation (NCDI) specialist is dispatched to the property, by helicopter if necessary.

All properties within three kilometres of the original site are sealed and inspections initiated on all livestock within that zone.

Preparations commence for the slaughter of livestock on the original property.

A nationwide livestock standstill is declared.

A 'whole-of-government' crisis management structure is activated.

A process commences to trace movements of all livestock and risk goods over the previous couple of weeks from the infected property.

Investigative teams begin assessing transmission risks, including gathering information from NIWA and elsewhere to enable meteorological modelling of potential wind-borne virus and to assist in the delimitation process.

Samples are dispatched to the containment lab at NCDI where basic tests will be conducted to determine whether we are dealing with FMD.

As soon as possible, virus samples will be dispatched to the Institute for Animal Health laboratory at Pirbright in the UK, where the virus can be typed and our arrangements with the International Vaccine Bank activated.

Within 48-hours of samples arriving at Wallaceville, we will know whether or not we are dealing with FMD. If it is FMD, we will still not know which strain of the virus is here and which vaccine would be necessary should we wish to use it. Hence the use of Pirbright. But even with the arrangements we have with the International Vaccine Bank - a joint arrangement with the UK, Australia, Ireland, Norway, Finland, Sweden and Malta - it could take at least four to five weeks to get vaccines produced and back to New Zealand.

Given the lags involved in identifying the strain and producing the appropriate vaccine, we would order the production of the vaccine on an ASAP-basis, and make a decision later about whether, when or how it might be used. Key judgements in that decision would relate to the effectiveness of our slaughter procedures and progress in containing the outbreak.

At present, all animals vaccinated would have to be tagged and subsequently slaughtered due to the inability to otherwise distinguish between vaccinated and infected animals. But even then, vaccination might assist to contain the spread of the disease and reduce its ultimate costs. We have some reasons to believe that within about five years, new vaccines and new tests might enable us to retain vaccinated animals within the national herd and flock for the remainder of their productive lives.

Resource availability

None of these response activities happens without a considerable amount of planning, management and foresight. And none of it happens without people on the ground - preferably people with the right skills, the right training and the right experience.

MAF does not carry such a 'peace-time army'. Instead, we have arrangements in place (and are developing more) that allow us to call on a substantial pool of veterinarians and other skilled personnel. We have a standing contract with AgriQuality Ltd that gives us access to 100 patrol vets. The MAF Verification Agency has around 130 vets, mostly engaged in freezing works up and down the country. With a nation wide livestock stand still, at least for the first couple of weeks of any outbreak, we would expect to call on those to assist. Massey University will make available its entire veterinary staff (around 30) and its final year veterinary students (around 75). Under the Biosecurity Act, we have the power to call up every registered vet in New Zealand to assist should that be deemed necessary. And importantly, there is an international veterinary reserve agreement that could be triggered, bringing at least 100 vets from Australia, the US, Canada, UK and Ireland. (The US provided around 300 vets to the UK under this arrangement).

Vets are an essential part of the response capability, but a great deal of other manpower would also be required. It is important to use the vets for the essential functions of patrolling for disease diagnosis. The process of animal slaughter, disposal, cleaning and disinfection is best done by others, under appropriate supervision. Here, contractual arrangements with AgriQuality, and the 'whole of government' crisis co-ordination machinery becomes important, with the latter giving us access to Defence and Civil Defence mechanisms to assist with such work. We have arrangements under discussion with Wrightsons that would give us access to some of their people with useful non-veterinary skills. If necessary, we would also call on meat company staff to assist with slaughter and disposal processes.

Finally, but very importantly, we have in place a memorandum of understanding with the New Zealand Police that would enable us to call on their services to enforce and administer the livestock standstill process. And, as mentioned, we would quickly kick into action the government's central emergency management processes, operating out of the Beehive Emergency Operations Centre. This would be used to co-ordinate the government response, including military or other involvement, and ensure that all arms of the government response were integrated and communicating effectively.

OrganiSational structure

The organisational structure of the response process is well established and most of it well practised. It ranges from Field Operations Response Teams (FORT) managed under contract by AgriQuality, reporting to the Exotic Disease Response Centre (EDRC) at Wallaceville, near Upper Hutt, where our MAF specialist labs are located, to the National Co-ordination

Centre (NCC) which is MAF-based and ultimately to the cross-Government emergency co-ordination structure for domestic and external security co-ordination (DESC and ODESC) located in the Beehive basement where we are able to call on all of the resources of the Government to deal with such emergencies

These structures may seem complicated but the impact of an event such as an FMD outbreak is profound. It is important to ensure that information flows readily, that decisions and the reasons for them are understood across the entire system and that communication out to farmers, the public and our trading partners is prompt, accurate and reliable.

THE RISKS?

We can never say that FMD will not find its way to New Zealand. Our biosecurity controls are the envy of the world, but we cannot provide a hermetically sealed border.

To underscore that point, let me quote some numbers. Last year at New Zealand's international airports, quarantine officers removed the following from incoming passengers:

8.0 tonnes of meat products
15.9 tonnes of fruit
3.6 tonnes of seeds
3.2 tonnes of dairy products
3.2 tonnes of fish products
5,800 plant items

Using audit techniques, our biometricians estimate that we capture about 96 percent of the potential fruit fly host material carried by incoming passengers, and around 91 percent of the FMD risk material. To repeat, our border controls are good, but not absolute.

If we were to suffer an outbreak of FMD, the consequences would be severe. That deserves the attention of all of us. MAF aims to offer protection second to none - and response capability second to none should the protection be breached. We need your support to do so.

VALUE OF THE URUGUAY ROUND OUTCOME

Another subject near to the heart of New Zealand farmers is the impact that international trade barriers can have on the prices they receive for their produce - in the case of Meat New Zealand's levy payers, the farm gate prices for their stock.

The GATT Uruguay Round represented the first significant step in the process of agriculture trade liberalisation through the multilateral negotiations route. The Uruguay Round produced some important benefits for the New Zealand meat industry, including:

Secure access into the US beef market through abolition of the Meat Import Law and its 'voluntary restraint' system. Introduction of access for New Zealand beef under a newly established tariff quota of over 213,000 tonnes annually. (We have estimated that this additional access to the US market will generate additional export revenue of some NZ$168 million to beef farmers between 1995 and 2004 compared with what would have been the case in the absence of the Uruguay Round.)

Improved access opportunities for beef in other markets, including the lucrative Japanese and Korean markets.

Significant gains for sheep meat exports. The main benefit here was in expansion of tariff quotas - access was increased, and 'locked in' to the European Union's schedule, as was a tariff level of zero. This allowed for increased predictability in the trade. Also, the ceiling on chilled shipments was abolished. Our studies show that an additional $1.46 billion for the 1995-2004 period is likely to be generated than would have been the case otherwise.

Greater disciplines on export subsidies. For the first time, limits were placed on their use, and commitments made for reduction. While this primarily represents a benefit to the New Zealand dairy industry, as this is the area most affected by this policy, the meat industry also gained consequently. European Union export subsidies on beef were significantly reduced. Further, no new export subsidy policies could be created, as the commitments relate to specific commodities. And, New Zealand benefits from European Union assurances that it would not export subsidised beef into important Asian and Pacific markets - namely, Japan, Korea, Taiwan, Singapore, Malaysia and Papua New Guinea.

There are many other examples of benefits to the meat industry and New Zealand because of the Uruguay Round outcome. Many are less obvious than the ones I have briefly illustrated here, and relate to rules in areas such as sanitary and phytosanitary disciplines (sanitary certificates and regulatory systems) and dispute settlement. I don't have to remind this audience about the overarching importance of the WTO Dispute Settlement system to countries like New Zealand. What our successful prosecution of the lamb case against the US shows is that the system works. Without the WTO rules and processes, we would have had little chance of achieving the removal of the US safeguards on lamb.

THE CURRENT WTO ROUND - THE DOHA DEVELOPMENT AGENDA

While the gains from the Uruguay round were substantial, trade in agricultural products is far from the free trade ideal we all have such a strong interest in

Now we are right in the middle of another negotiation - the Doha Development Agenda. Total additional agricultural export receipts flowing from the Uruguay Round have been estimated at over $6 billion over the 1995 - 2004 period. A similarly successful result from the Doha round is clearly worthy of all the effort we can muster.

PROCESS AND TIMELINE

So what is the state of the current agriculture negotiations?

The November 2001 Doha mandate set out a timeline for negotiations on agriculture which would have 'modalities' (formulas for tariff and subsidy reductions and a new rules framework) established on 31 March 2003.

Officials from MAF and MFAT are in Geneva right now working through the latest draft distributed by the Chairman of the Committee on Agriculture, ex-Hong Kong Ambassador Stuart Harbinson. Judging by the mood at recent meetings, they will be having a tough time of it up there. The last discussion, based around an earlier draft, only served to expose the deep rifts in positions.

With only one week to go to agree on the modalities, I'm afraid the chances of an agreement by 31 March are not high. The European Union (supported by friends such Japan, Korea, Norway, Switzerland and the Eastern Europeans along with, in certain areas, a number of developing countries which have preferential access to the European market) maintains that the current draft text is too ambitious. New Zealand, with strong support from fellow Cairns Group members as well as the US, doesn't think it goes far enough.

The European Union and others also continue to push the 'non-trade concerns' envelope, maintaining the inclusion of issues such as geographical indications (e.g. Parma ham, champagne or feta), consumer information and labelling for animal welfare and 'precaution' in food safety in the modalities is the price that must be paid for a higher level of ambition in tariff and subsidy cuts. In our view, potentially serious additional trade barriers could flow from the changes envisaged by the European Union. We will continue to remind the European Union that these issues are outside the mandate agreed by ministers in Doha.

WHERE TO FROM HERE?

So the outlook for meeting the 31 March deadline is not good. However, despite the gaps in positions, every Member is still politically committed to working towards that deadline. The process from here will obviously depend on how this week's meetings go. If the modalities are agreed, the aim is to spend the next five months, between now and the next WTO Ministerial meeting in Cancun, Mexico in September, drawing up the draft schedules of commitments as set out in the agreed modalities.

If the modalities are not agreed, I'm sure there will be an alternative processes, such as ongoing detailed technical discussions, set down for the months in the lead-up to Cancun. However, with the Doha Round due to wrap up by the end of 2004, the timeline is certainly tight. Of course, the other complication is the fact that the Round is not just about agriculture.

There are other areas being negotiated in tandem and progress or otherwise in these areas will certainly have an effect on agriculture and vice versa. The European Union and others less keen to liberalise agriculture would do well to remember that when they make their services and non-agriculture market access demands - insufficient progress in agriculture may well have flow-on effects in those areas also. As many Ministers are emphasising, without a sufficiently successful outcome on agriculture there is no Round.

NEW ZEALAND VIEWS AND STRATEGY

As for New Zealand, we are after an ambitious outcome for agriculture. The present Harbinson drafts would simply not produce the sort of benefits we're seeking. I noted earlier some of the positive outcomes from the Uruguay Round for the New Zealand meat sector. Yes, we are still seeing benefits. But distortions and barriers remain because of the continuing protectionist bent of the major players.

We, alongside a good number of the WTO membership, those of us that are competitive agricultural exporters, are looking to completely remove some of those distortions.

Export subsidies, for example. It is good to see that the notion of elimination has taken root in the discussions, but New Zealand will continue to pursue a faster track than currently proposed. Remember that export subsidies for industrial products were eliminated 50 years ago. Last year (available - 2000-01) the European Union used almost €400 million (over NZ$700 million) on subsidies exporting almost 500,000 tonnes of beef. This damages not only countries such as our own, but also the effects of export subsidies can devastate developing countries' production capacities. We need to eliminate them sooner.

Domestic support to farmers, particularly trade distorting market price support, is another example of others' policies causing injury and disrupting our trade. Our position remains that we must eliminate or significantly reduce trade-distorting domestic subsidies on a product-specific basis.

Market access is the area likely to be at the forefront of your minds, and the area with the most tangible benefits. Here New Zealand negotiators will continue to push strongly for the protection of our current access entitlements, such as the European Union sheep meat tariff quota and US beef tariff quota, and push for large cuts to tariffs and increases in tariff quota volumes. Current drafts would still provide a good outcome - e.g. preliminary estimates point to over 150,000 tonnes additional access in beef in the US and 350,000 tonnes in the European Union. But even so, 90 percent of those markets would still be reserved for domestic producers - hardly the situation we see for electronics or motor vehicles!

The positions adopted by the European Union, Japan and others that these demands are too ambitious are ludicrous. The way we read the instructions from Ministers, as outlined in the Doha mandate, our (the Cairns Group) proposals are reasonable and fit well with the instructions: 'substantially improve market access, substantially reduce trade-distorting domestic support, and phase out export subsidies'.

We have a lot of hard work ahead of us to achieve further significant agriculture trade liberalisation. The stakes are very high for all participants in the negotiation. We can expect regular crises along the way. But as the results from the Uruguay Round have illustrated, the potential further gains to New Zealand agriculture, and in particular the meat sector, are well worth going after.

Thank you for your attention.

Contact for Enquiries

Director-General
Ministry of Agriculture and Forestry
PO Box 2526
Wellington

Tel: +64 4 894 0100
Fax: +64 4 894 0720
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