The challenges posed to the UK by Brexit are many and the risks real. Yet the opportunities are significant, too.
New Zealand faced a similar situation in 1973 when Britain joined what was then the European Economic Community. Apart from some quotas negotiated for lamb, beef and dairy, tariffs shut it out of a market that once took half its exports.
New Zealand’s success since then as a modern, sophisticated agricultural producer is a story of reform, liberalisation and, above all, focus on the global marketplace. Though it is a small global producer, it now engages in half of world trade in sheep meat and one-third in dairy products. Its supply chains span the globe. The country exports from the EU today as much dairy product as it exports to it. Its wine commands the highest average price of any country’s in the UK. This is all done without subsidies or import protections for farmers. In fact, that is one of the most important reasons for its success.
Locked out of high-value agricultural markets in Europe, the US and Japan by tariffs in the 1970s, New Zealand sought to diversify its economy by protecting fledgling industries. That pushed up the cost structure of the economy and farmers wanted subsidies to compensate.
By the early 1980s, agriculture had 30 separate production subsidies and export incentives. Support exceeded 30 per cent of the value of product. For sheep meat, it was a whopping 90 per cent. Unsurprisingly, the number of sheep rocketed — to 70m.
Perverse outcomes included environmental degradation and, significantly, stifling of innovation. Farmers followed the subsidies, not science and technological development. Productivity was the victim.
The economy was tanking when, in 1985, a new government set about major economic reforms, sweeping away agricultural support. The aim was to expose the New Zealand economy to international competition. Freed from the distraction of subsidies, farmers focused on the market once more. They looked to science and technology to improve productivity and increase profitability.
The results speak for themselves. Sheep industry productivity has increased by more than 100 per cent. Improved fertility and growth rates mean New Zealand exports similar amounts of lamb as before despite sheep numbers having halved. And the environment is a whole lot better off, as land unsuited to livestock farming has been planted in grapes or returned to forestry.
At the height of subsidies, production had become so dislocated from the international marketplace that farmers had to destroy tonnes of frozen sheep meat as there was nowhere to sell it. So as well as peeling back protections, New Zealand had to embark on a concerted strategy of market opening.
But competing abroad also meant accepting greater competition at home. I know some fear that trade liberalisation can lead to a race to the bottom — simply competing on price and lowering standards. But that has not been our experience in New Zealand.
In the 1980s, a 40 per cent tariff prevented imports of cheap wine, so New Zealand produced it. You couldn’t export it — the stuff was barely drinkable. With the tariff protection gone, 30 years later wine is one of the country’s biggest export earners, with better environmental standards, too.
In our experience, protection and direct income support constrain competitiveness over time and inhibit innovation and productivity. As a farmer myself, I found that being freed from bureaucratic constraints and government dictates was a powerful incentive to be better at what I do. Change brings opportunities. Grab them if you want to shape your own future.
Source: FinancialTimes
Link: https://www.ft.com/content/117f5f10-ed57-11e6-ba01-119a44939bb6