Operating Environment

Constant 1995/96 prices	1997	2002	2003
Agriculture	5,479	5,608	5,645
Forestry and logging	1,169	1,469	1,592
Food and beverage manufacturing	4,875	5,173	5,684
Wood and paper products manufacturing	2,027	2,031	2,266
Total GDP	95,922	108,665	113,507

In current prices, it is estimated that agriculture, horticulture and forestry, including processing, manufacture, transport and wholesale trade contribute a total of 20% to GDP. (data sourced from Statistics New Zealand)

After several years of sustained prosperity, the higher New Zealand dollar, especially against the United States dollar, and adverse climatic events have put pressure on many producers and exporters. The sectors also have to adapt continually to changes in international markets. Consumers and retailers are demanding increasingly stringent product and service standards, and food safety, fitness for purpose and product traceability requirements are increasingly demanding. Consolidation of the retail sector and supply chains, house brands and costs associated with new security requirements for exporters are all impacting on the way exporters do business.

MAF forecasts for the outlook period through to 2006/07 suggest that dairy product, lumber and panel prices are projected to rise, prices for beef, pulp and paper will fluctuate, there may be some decline in sheepmeat prices, and log prices are likely to remain relatively static. Beyond the forecast outlook period, the agribusiness and forestry sectors have very substantial long-term potential to contribute to higher per capita income for New Zealanders on a sustainable basis. This is through productivity gains, volume increases and the ability to diversify and compete in higher-value markets.

Key sources of competitive advantage include New Zealand's “clean, green” image, high product safety and integrity, and our ability to meet increasingly demanding quality, service delivery and market access requirements that competitors find onerous. There is also great potential for productivity and innovation gains from biotechnology and other fields of science, and from businesses developing more differentiated high-value and niche markets.

To fulfil and sustain the sectors' growth potential the Government and industry continue to work in partnership to improve market access, enhance biosecurity, address regulatory issues, enhance infrastructure, improve frameworks for water allocation and better meet the skill needs of the sectors.

MAF plays an active role in the GIF strategy

MAF plays an active role in the Government's GIF strategy. It leads the public policy components of the Wood Processing Strategy, and there is substantial work on improving the sector-specific regulatory framework, for example recent wool and meat industry reforms and ongoing industry good-related interventions such as commodity levy applications and administration of the Sustainable Farming Fund.

Climatic Impacts

The sectors are vulnerable to adverse climatic events

In recent years, significant parts of the East Coast of both islands, and especially the South Island, have been affected by excessively dry or drought conditions. This has had a particular impact on new dairy conversions in these regions that can only be partially alleviated by irrigation.

Last season, the west coast of the North Island and particularly the Manawatu and southern Taranaki regions suffered the effects of significant drought. For many, this has been followed this season by the dramatic effects of major floods. Similarly Northland has experienced difficult climatic conditions.

It is estimated that the on-farm impacts of the floods in February 2004 on sheep and beef farms, dairy farms, arable farms, process and vegetable growers, and forestry will total in excess of $180 million. This figure includes the direct costs/losses of the floods, short-term recovery costs and ongoing production impacts as farms recover.

These events confirm the vulnerability of biologically-based production systems to climatic variations and the need for MAF to maintain adequate capacity to assume responsibility for leading the agricultural recovery plans in both field response and in government policy development.

Trade

Issues of trade access, the rules of trade, and the barriers to trade are of overwhelming importance

With over 80 percent of New Zealand's primary production exported each year, access to overseas markets is of critical importance (Figure 2). However, New Zealand faces high tariffs and other forms of and border protection that continue to curtail our market access. The overarching long-term objective for New Zealand is the achievement of an international trading environment free of political barriers to trade and underpinned by a rules-based international trading system that ensures trade is conducted without impediment from spurious technical trade barriers.

Figure 2: Agricultural, Horticultural, Food and Forestry Exports - 2003

Agricultural, horticultural, food and forestry exports were valued at $17.9 billion or 65 percent of New Zealand's merchandise exports. (data sourced from Statistics New Zealand)

A particular priority for New Zealand is meaningful progress in multilateral trade negotiations, in particular through the current World Trade Organisation (WTO) Doha Development Round. New Zealand's main objectives are to improve market access, through reducing tariffs and expanding tariff quotas, and eliminating agricultural export subsidies. In pursuing these objectives New Zealand plays a pivotal leadership role in the Cairns Group of agricultural exporting countries. Despite the setback that the negotiations received at the Ministerial Meeting in Cancun in September 2003, they remain on track although the original deadline of concluding them by the end of 2004 is now unlikely to be achieved.

Also important are the initiatives to lead and influence the multilateral standards covering safety in trade. MAF has strong inputs into the Codex Alimentarius work that deals with food safety in trade, the work of the World Animal Health Organisation (OIE) which deals with animal health, animal welfare and related human health risks, and the work of the International Plant Protection Convention (IPPC) that covers plant health aspects of trade. All fit under the umbrella of the WTO Sanitary and Phytosanitary (SPS) Agreement.

New Zealand is complementing its multilateral trade policy objectives with the investigation and/or negotiation of bilateral and regional Closer Economic Partnerships (CEPs). The principal focus of these partnerships is to enhance New Zealand's bilateral trade, economic and investment opportunities and relationships.

Working with the Customs and Immigration Services to manage border security

Terrorism and the threat of bio-terrorism using food or animal/plant diseases as a method of attack is becoming increasingly recognised as a risk, in terms of both the direct impact on productivity and consumers' health, and the potential to lead to market failure and subsequent substantial economic loss to New Zealand.

Environmental

Ongoing viability of the sectors is dependent on nurturing the physical resources upon which they are based addressing public confidence issues

The occurrence of BSE in North America and the subsequent reaction of trading partners was a reminder of the emotive – and not always balanced – response of consumers and policy makers to perceived risk. There is little international leadership shown in risk communication and differentiating between “negligible” risk and “zero” risk. There is a shared interest in getting countries off the apparent “treadmill” of extreme reaction and onerous response to problems – real or perceived – within or outside their borders, and in ensuring public confidence in regulatory programmes.

There is increasing pressure on, and competition for, New Zealand's freshwater resources between in-stream uses – biodiversity, recreational, cultural and amenity – and use for hydro-electricity production and irrigation. Lack of access to water impedes economic development, land use diversification, risk management in agricultural production and maintenance of energy security. There are questions around whether the current Resource Management Act based and regulatory framework for dealing with water allocation and quality is still appropriate in situations of over allocation, water scarcity, intensification of agriculture and competition for use. These issues are being addressed by work undertaken across government as part of the water allocation and management work under the Sustainable Development Programme of Action.

Recent biosecurity incursion responses undertaken in Auckland and Hamilton have highlighted the challenges of achieving good biosecurity outcomes, while ensuring that community concerns are being addressed. Extensive community and health support programmes are now an integral part of major biosecurity eradication programmes. It is anticipated that opposition to traditional eradication methods will prevail, especially when these are undertaken in urban situations, and therefore it is imperative that new technology developments enable alternative options for the future.

Social and Cultural

The sectors must address expectations of consumers and citizens

Internationally, consumer confidence in the safety of their food supply has been shaken by a number of high-profile events, including BSE and E coli-related deaths and a number of contamination scares. Consumers are also concerned about issues relating to genetically modified foods, other biotechnology issues and animal welfare and are demanding increasing accountability from regulators. The Government needs to demonstrate on an ongoing basis that the public's concerns have been heeded and that their interests are integrated into government policy and operations.

Access to water margins and public land for recreational purposes such as walking, fishing, picnicking and tramping is an important part of New Zealand's lifestyle and culture. Extensive consultation in 2003 in response to the report of the Land Access Ministerial Reference Group reflects high public concerns and unease that these traditional expectations are being increasingly restricted.

Internal

The organisation is undergoing significant change to better equip itself to deliver on its widening mandate and to ensure the provision of high quality services for its stakeholders

MAF is in a period of intense change. In part this results from:

• A determination to manage for outcomes and, in particular, the need to focus our resources on the delivery of outputs that contribute to the outcomes we have identified.
• A realisation that managing for outcomes requires us to strengthen our approach to management and our management capability.
• The Government's decision to extend our accountability and mandate for biosecurity.

We are implementing internal governance and planning and budgeting processes to improve our ability to ensure that we are focusing our efforts and resources on doing the right things at the right time to contribute to our outcomes. This involves reviewing our current resource allocation with a view to making potential efficiency gains by “working smarter” and thus reducing costs.

The corporate capability project (page 29) reflects the need to invest in MAF's corporate infrastructure to improve on our effectiveness and efficiency. We also need to be able to capture and use information more effectively to lift our ability to contribute to outcomes.

Implementing the Government's decisions with respect to the Biosecurity Strategy is already having a significant impact on MAF and that impact will increase over time. In the short term we have altered our senior management structure by creating a Biosecurity Strategic Unit, and incorporating our reference laboratories into a new biosecurity implementation group. There will be consequential changes to our Operations Group and the NZFSA. We are reorganising our biosecurity implementation activities so that they focus on what we have to do, to pick up on our new accountabilities and to provide for the inclusion of accountability for functions currently undertaken by other departments. Structural change is disruptive but in this case necessary.

More importantly, however, over the medium term we will need to:

• Consider and improve the risk assessment and risk management processes that we use to ensure that they include all the interests that the biosecurity system is intended to protect and that they constitute replicable best practice.
• Improve our ability to measure our performance and to manage our performance (these needs interlink with the corporate capability project referred to above).
• Develop a way of operating that enables us to maintain stakeholder and public awareness, support and participation in the biosecurity system and that supports our ability to work together more effectively.
• Develop new capability with respect to conservation, aquatic and public health biosecurity.

Maintaining an acceptable rate of progress on the initiatives outlined above while continuing to provide the outputs we are required to produce will stretch the management team and the organisation. Without making progress we will undermine our ability to deliver our outputs effectively in the future.

Contact for Enquiries

Strategy and Performance Group
Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington

Tel: +64 4 894 0100
Fax: +64 4 894 0738 Contact this person