Transforming New Zealand’s sheep and beef industries

A recurring theme in articles I have written over the last year has been the need for more exports. Right now, our exports exceed our imports, with this occurring in each of the last five months. This is good news, but running a surplus of exports versus imports for a few months is not enough. We also have to pay for deficits in our invisibles, plus we have big overseas interest bills on all of our historical overseas borrowings.

The latest current account deficit is $24.7 billion per annum as at 31 March 2025. This has had to be financed by an equivalent inflow of investment capital from overseas. This deficit is a measure of the extent to which our international expenditure on consumption items, including imports of goods, plus invisibles and interest on foreign debt, exceeds our income.

A key measure of the extent of the problem as measured by World Bank data is that New Zealand’s exports have declined from 36% of GDP in 2000 to 24% in 2023.  This percentage is now well below both the OECD and global average of 29% of GDP. We are lagging badly.

Constructs of a population policy

Some weeks back I wrote that New Zealand needs a population policy. However, I purposely did not say what that policy should be. Instead, I focused on identifying the unplanned population bulges we are currently creating, focusing particularly on the current bulge of 30-35-year-olds who will eventually make the current cohort of retired boomers look small.

I particularly wanted to dispel the false notion that we have declining cohorts of working-age people.  It is simply not true.

Accordingly, in this article I want to focus on what a sensible population policy might look like. Inevitably that means introducing some value judgements as to what is the right thing for New Zealand to do.

Forestry can be a big plus for sheep and beef farmers but there are caveats

These are good times for sheep and beef famers with record product prices for meat. That is precisely why now is the time for sheep and beef farmers to be looking again at farm forestry. It is always easier to diversify when existing business activities are providing a profit.

The Climate Change Response (Emissions Trading Scheme—Forestry Conversion) Amendment Bill is currently working its way through Parliament. As I write this article, it is at the Select Committee stage.

I expect changes to be made before the bill  becomes enacted later this year, with the current plan being for an October enactment, but one key message in relation to purpose is clear. This is a bill that is aimed at sheep and beef farmers, giving them options but supposedly keeping the big and largely overseas-owned forestry corporates at bay.

New Zealand needs a population policy

In a recent article I wrote how New Zealand’s resident population was increasing at a faster rate than either GDP or exports, with this contributing to a recent decline in per capita GDP. I suggested that New Zealand needed a population policy.  Here I dig deeper into the structure of our New Zealand population and present some surprising findings.

Quite simply, New Zealand has a bulge in its population with large numbers of people in the 30 to 40-year age bracket. The bulge is due to inward migration.

New Zealand’s decline in per capita economic growth is fundamental and long-term

New Zealand’s per capita decline in economic growth rate is more than just a phase of the economic cycle. The per capita reduction in growth is now structural.  The average Kiwi has made minimal progress in his or her income-earning ability since just before COVID struck in early 2020. Per capita exports have declined because of big population increases, such that there has been no overall increase in per capita export income since 2014.

In this article I focus on data that tell us what has been happening. I also focus on data that tell us that the future is going to be difficult. The data I use come from the Reserve Bank (HM5 series) and from interrogating Infoshare at Stats NZ.

My starting point in researching for this article was to look at what has been happening to gross domestic product (GDP) over the last 35 years since 1990, measured in inflation-adjusted terms.

Dairy is the export leader that underpins the economy but it can only do what is possible

In my most recent article I set out the reasons why sustained economic growth for New Zealand is not possible without sustained growth of exports. Our latest current-account deficit of $27 billion for the September 2024 year is a measure of the extent to which we are currently living beyond our means.

This $27 billion deficit has had to be met by a balancing net $27 billion of new capital coming into the country over the same 12 months. Quite simply, there is no way this situation can be remedied without either a very big increase in exports or a very big decrease in imports, or alternatively both of these happening. 

Much of the current account deficit is due to historical flows of imported capital that now have to be serviced through interest payments and repatriation of profits.

I use this as an example of the principle that in economics there are ‘no free lunches’. There are a lot of lunches from the last few years that we still have to pay for.

 The net interest payments and profit repatriations now total about $15 billion each year of foreign funds outflows and it is this that is driving the current account deficit. This number has been compounding fast in response to the overall net debt between New Zealand and the rest of the world that now exceeds $200 billion.

Note that this is the net debt after balancing out the overseas assets of New Zealanders. The gross debt is about $600 billion.

Well, that is enough about macro-economics reminders. It’s time to move on to the question of where increased exports might come from?

Economic growth depends on exports

New Zealand’s current account deficit, now running at $27 billion per annum, is increasingly dominated by interest on historical deficits plus repatriated profits to overseas owners. Export growth is the only possible pathway to solve the problem.

 Almost everyone in New Zealand knows that per capita incomes have been drifting backwards for at least two years.  Looking back further, Dean Brunskill at interest.co.nz has authored a graph showing that per capita GDP in September 2024, which is the latest available data, was essentially the same as five years previously in pre-COVID September 2019.

Although the presence of tough times has been and is obvious, the fundamental reasons why this has been happening are a subject of debate.

Separating fundamental long-term trends from short-term economic cycles is easy with hindsight but can be complex in real time. Similarly, separating fundamental causes from symptoms and noise can get very muddled. There is also a subjective overlay of politics in terms of who should bear the blame.

The key take-home proposition in this article, which I will now develop, is that New Zealand has a fundamental problem in that the value of exports from goods and services is too low relative to the total cost of the goods and services coming into the country.

Fonterra takes U-turn on consumer products

On 16 May, Fonterra announced a proposal to divest itself of all production and marketing of consumer goods. This took most people linked to the dairy industry, including me, by surprise.

If the proposal is fully implemented, then Fonterra will in future only produce ingredients. Some of these ingredients will be sold to food-service entities and the rest will be sold as commodities.

In marketing language, Fonterra will be exclusively a B2B (business to business) entity with nothing that is consumer-facing.  Fonterra calls it a step-change but it is more than that. It is a U-turn.

All of Fonterra’s brands would be divested.

 Fonterra’s New Zealand and international brands include Anchor, Fernleaf,  Mainland, Chesdale, Fresh’n Fruity, De Winkel, Perfect Italiano, Western Star, Anlene, Anmum and others.  TipTop used to be Fonterra’s ice-cream brand but that was sold in 2019 at a time when Fonterra had balance-sheet problems.

The proposed divestment also includes the sale of three consumer processing plants in New Zealand, nine processing plants in Australia and five plants in South East Asia.

Dairy industry needs strategic A2 policy

in recent years, the level of A2 beta-casein in New Zealand milk has been increasing rapidly and the level of A1 beta-casein has been correspondingly decreasing.

Unpublished data from New Zealand’s leading herd-improvement cooperative, LIC, which was supplied to me on request, indicate that once the 2023-born dairy calves join the milking herd in 2025, these two-year-olds will produce beta-casein that is approximately 84% A2. In contrast, only 16% of their beta-casein will be A1.

This is a remarkable difference from the early to mid-1990s, when the proportion of A2 beta-casein in New Zealand milk was reported in various medical papers, using data from the New Zealand Dairy Research Institute, now part of Fonterra, as approximately 50%.

Bird flu presents lots of uncertainty for both animals and humans

My knowledge about bird flu was very little until I received a request to find someone who could assess the risks within a New Zealand context, including a suggestion that I might, if necessary, self-nominate.

 I could not identify anyone who would want to stick their head up on this one, so I decided to go on a journey of self-exploration. Here, I share what I learned.

Bird flu is the term for a large family of viruses, with avian influenza being the more formal name. These viruses have been around since at least the 1880s, but my bet is they have been around since birds evolved. In the last 30 years, a particular category of bird flu, called H5N1, has come to human attention.

H5N1 viruses are always evolving through ongoing mutations and we now have variants that can transfer between both bird species and many animal species.  The mammal species include seals, sea lions, cats, foxes and cattle. In all likelihood they can transmit and multiply in other species.