BNZ's economists have cut their Fonterra payout forecast as the GDP outlook dampens leading the bank's head of research Stephen Toplis to suggest it's not hard to envisage a scenario where a recession becomes imminent.
"We have been warning for some time now that there was a very real chance that growth would falter, the NZ dollar would respond, and that the falling NZ dollar might create an inflation problem even as economic activity diminished. In our opinion, this process is now well in train," Toplis says.
The biggest economic “shock” is the ongoing demise of the dairy sector, Toplis notes. This week's GlobalDairyTrade auction saw prices fall by 5.9% with wholemilk power plunging 10.8%. It's the eighth consecutive fall in dairy auction prices, and the biggest drop since the April 1 auction, taking prices to six-year lows.
"Accordingly, with the further slump in the very latest dairy auction price and confirmation that the ban on dairy imports into Russia from the EU, the USA and others will continue, we have lowered our expected 2015/16 milk price forecast to $5.20kg from a previously forecast $5.70. Unfortunately, downside risks remain, with our forecast still reliant on some pricing recovery over the next twelve months," Toplis says.
ANZ's economists yesterday cut their forecast to $4.50, down from $5-$5.25.
Toplis points out the dairy payout "income effect" feeds through to the broader economy, adversely impacting private consumption, investment and government revenues.
"So while agriculture production is not significantly impacted other parts of GDP most definitely are. In part, the demise of dairy will be having an impact on economy-wide confidence, such as reflected in the recently released ANZ survey. In turn these confidence readings are also useful in predicting future GDP growth. Unfortunately, the trend in confidence is down. And it’s not only agriculture where this shows up."
There's also a softening in construction expectations as the contribution from the residential part of the Christchurch rebuild starts peaking, adds Toplis.
"Our GDP forecasts were already on the pessimistic side of consensus and lower than the RBNZ’s. So, rather than take a knife to our own view, we simply find ourselves more comfortable with our central case scenario. For the record, we are forecasting annual average growth of 2.4% for calendar 2015 after a 3.3% increase in 2014. We forecast growth averaging 2.1% for the following two years."
Skewed to the downside
But the balance of risks to BNZ's forecast is becoming skewed to the downside, Toplis says.
"Indeed, so much so that it is not hard to envisage a scenario where a recession becomes imminent."
He suggests a recession prognosis could run like this: Dairy prices fail to recover, which is quite plausible, drought hits production following an El Nino event which the Southern Oscillation Index predicts will happen, Christchurch house prices start falling leading to more generalised uncertainty in the housing market with Toplis saying there's already some evidence of this, investment activity fails to rise in the forecast manner due to increased business uncertainty, and general weakening in the economy results in lower net immigration.
"While not our central scenario it’s easy to see how such a series of events could quickly tip the balance. And we haven’t even talked about the possibility of an adverse global economic shock such as the potential for flow on impacts of a Greek implosion; a financial crisis in China; soaring global interest rates as the Federal Reserve begins to tighten; or a stronger NZ dollar TWI because the Fed fails to tighten," Toplis says.
"With this as a background, forecasters are trying to outdo themselves in having the lowest published cash rate expectation on offer. It’s easy to see why this might be the case but it’s equally as easy to see why such an assessment might be naïve. It is true that softening growth, probably accompanied by a rising unemployment rate, might argue strongly for significant future rate cuts but one can’t look at these factors in isolation."
"One must also take into consideration the starting point for monetary conditions, what the NZ dollar is doing and, of prime importance, what all this means for CPI inflation. In the current environment it’s hard to know where the neutral interest rate is so it’s equally hard to identify just how stimulatory current interest rate settings are. That said, surely the neutral rate is somewhere above the current 3.25% cash rate, suggesting that interest rate settings are already stimulatory and already set for a deteriorating economy that hasn’t yet arrived," says Toplis.
"What we can be a little clearer about, however, is the interplay between the NZ dollar and inflation and what that should mean for the Reserve Bank given its inflation mandate. As we write, the New Zealand TWI sits at 70.5. That’s almost 6.0% below where the RBNZ had estimated the currency would be through the third quarter and is, in fact, 2.0% below the level assumed for the second quarter of 2017. All things being equal the reduction in the NZ dollar, if sustained, will have added somewhere between 0.6% and 1.2% to the RBNZ’s published inflation peak of 2.1%. In order to offset this it will need reason to drop its non-tradables inflation forecast by between 1.2% and 2.4%. This means that the annual forecast for non-tradables inflation would need to drop to, say, somewhere between -0.2% and 1.0%," Toplis suggests.
This, he says, is conceivable because annual non-tradables inflation dropped to 1.0% in 1993, although this followed a fall in economic activity that led to the economy contracting at an annual rate of 2.2% off the back of a protracted downturn.
"Conceivable, yes, likely, no. We are sticking to our view that the RBNZ will cut its cash rate a further 25 basis points in July (to 3%). We also concede that the risk of further cuts, thereafter, is rising," Toplis says.
"But we can’t caution enough that the decision-making process as to where interest rates eventually go must revolve around the RBNZ’s forecasts for inflation. As at the last Monetary Policy Statement, CPI inflation was already forecast to rise to the mid-point of the RBNZ’s target band. The recent slump in the exchange rate must surely push that forecast higher. As the risks around growth falling to zero coincide with the possibility that CPI inflation heads to 3, the RBNZ will most surely have a fun time ahead of it. And that’s before it has to consider the macro stability impacts of a booming housing market."
106 Comments
The RBNZ so nearly had the cat in the bag. Then...it lowered interest rates! The price of money; the interest rate, is not the problem the NZ economy has. It's the malinvestment caused by those lower interest rates. "But the dairy farmers need lower interest rates to insulate them from falling commodity prices!" will be the cry. But if they'd had to contend with higher funding rates in the first place, perhaps they wouldn't have gone holus-bolus into overcapacity in the first place? The horse has bolted. The NZ economy is headed for pain. It's only a matter of how much,and not what the OCR is at any one time....
LOL - truthiness is generally not on the menu.
But I can foresee an explosive domestic debt issue while China attempts a controlled deflation of it's domestic asset bubbles. Read more
Nobody got (or misunderstood) the memo in NZ, just as we didn't when it came to Russia. Read more
How long before NZ is in receipt of an IMF letter replete with the following?
Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks. Assuming official (concessional) financing through end–2018, the debt-to-GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2022 Read more
You are wrong on this IMHO. "cat in the bag" by triggering deflation and a recession? not quite my view of success if that is what you infer.
Sure there is mal-investment but that is a) a side effect down to gamblers being greedy thinking they wont be caught in a downturn. b) if the RB doesnt cure the dis-inflation and ease interest costs we'll see pain in the SME sector in particular. "holus-bolus into overcapacity in the first place?" well yet more of the greedy thinking they'd get a tax free retirement payout with excessive farm prices propped up un-realistic expectations on the payouts. More greed than anything else IMHO (though at what point in the food chain is arguable).
Avoiding deflation and a recession is what I'd suggest higher funding rates would have achieved! When a company treasurer; a country has to consider the cost of funds, it makes them allocate their resources much more efficiently than if that imperative is removed from their shoulders. An efficient company; and efficient country avoids the mess that easy money can produce.
As a young money market dealer an older head schooled me in "Any fool can make money in a falling interest rate environment, son. It's making money when rates go up that is the real skill". And that remains as true today as it was 35 years ago.
Yet the evidence that higher rates cause a recession and dis-inflation is frankly over-welming. Just look at one great example, Sweden with economic models to back it up. So you suggestion is based on no evidence? no economic models?
Companies like households are not like a nation's economy.
"money market dealer" ah that would explain a lot. a) finance is a parasite if not opposite to main street and b) so you have never run a real business then? so you have no real idea how SMEs struggle?
"Any fool can make money " yet the pension funds and money managers seem to say the complete opposite, with inflation its easy to make an apparent profit, with none, no.
"Any fool can make money " yet the pension funds and money managers seem to say the complete opposite, with inflation its easy to make an apparent profit, with none, no.
Well, the Swedes have banked their lives on inflated shelter values, whilst denying themselves much needed income.
The data are relentless: house prices keep rising, mortgage burdens keep growing, disbelief keeps mounting.
“To say that it’s not a threat, not a potential problem, that would be totally wrong,” Michael Wolf, the chief executive officer of Swedbank AB said in a June 11 interview at his headquarters outside Stockholm.
Finance Minister Magdalena Andersson calls the development “worrying” and has assured Swedes the government is planning steps to tackle the imbalance. Those will include proposals to boost the housing supply. Swedish apartment prices jumped an annual 13 percent in May. In Stockholm, where household debts average 482 percent of disposable incomes, apartment prices in some areas soared more than 25 percent over the past 12 months.
The development follows years of low interest rates needed to revive inflation, with the central bank’s policy rate now at minus 0.25 percent. There’s also a sheer lack of housing as metropolitan populations in Scandinavia’s biggest economy continue to grow. At Swedbank, one of Europe’s best-capitalized, Wolf says credit is allocated with caution as worst-case scenarios are tested before loans are given.
Over the past decade, the price of an average Stockholm apartment has jumped about 118 percent. By comparison, disposable incomes in the Swedish capital have risen 39 percent since 2005, according to the most recent data. Read more
@ steven: You could be right on all of those matters. But I'll just add that, where we are today as a result of an almost religious belief in lower and lower interest rates isn't looking good! Or perhaps you believe we are on the edge of something truly unexpected and spectacular that will rescue us all. Maybe that unknow, unknow will save us after all! My view is that it won't, even if something does arrive, it will invalidate the dynamic system that we have used to great success over the last century or two. Change is ongoing and should be progressive. I consider what 'we' are doing today to be regressive. And as for Money Market Dealers being whatever you perceive them to be? You're entitled to you view on that of course. But where would we have been without them? As you write, companies are not countries, and equally neither are Financial Market professionals The Market, as it is portrayed. For those that have worked the horrendous hours that we did/do and shuddered at the decision that haven't worked out that cost millions of dollars at a hit, I marvelled at the capacity to 'have another go'. Until you've faced the consequences of massive loss from your decisions on yourself and your staff,( and the background families) it's difficult to convey the feeling. The profitable ones, have an excitement value that wears off very quickly by comparison. Have I run an SME? Several! And here's the tragedy for New Zealand in the pair that I did start-ups on here - the money, in the end, came for the 'profit' on the underlying real estate that enclosed them. Looking back, what was the point! I'd have been far better off financially to have avoided the employee responsibilities etc.
Well we'll agree to disagree and very much so. Lets be clear here in response to your reply. As far as I am concerned we are in the mess and the mess has been made worse by the equivalent of religious dogma of the right wing school of "free-market" non-economics (or maybe Austrian on a good day).
Its funny that you consider economies are getting worse because of low interest rates? but this isnt not cause, greed and expensive energy is. The low interest rates are a response to the problems and not the cause of them. If you look at the evidence from the results of raising rates we see an economy is made worse, Sweden is a good case in recent history.
"rescue us all." nope, we are as an industrial global economy/society, screwed, going bye bye within 30 years if not 20.
Change is inevitable and for the worse when your economic and social system is based on consuming a one time resource, it will indeed be regressive.
So before the right wing school or "free-market" policies / rodgernomics you are saying the country was better off?
Economic woes in the early 1980s (from tepapa .govt . nz)
""
In the early 1980s, New Zealand’s economy was in trouble. The country had lost its guaranteed export market when Britain joined the European Economic Union in 1973. The oil crisis that year had also taken a toll.
Moreover, welfare costs had doubled since the 50s, with more people becoming eligible for support. From 1946, all mothers received the Family Benefit, not just those in low-income families. In the 70s, the Domestic Purposes Benefit, Accident Compensation for non-earners, and the National Superannuation retirement scheme inflated costs further.
Muldoon era
To keep New Zealand afloat economically, Prime Minister Robert Muldoon imposed strict restrictions on wages and foreign currency. Import tariffs protected local manufacturers, and farmers received subsidies.
But Muldoon’s harsh economic controls and abrasive personality provoked bitterness – in his own party and beyond. People also resented the state’s size and role in their lives. ........""
and from ssc .govt .nz
1984 - The view from the precipice
By 1984 the annual budget deficit was $3 billion and public overseas debt was above the $8 billion mark. The Government elected that year faced a number of crises. Most seriously, the country was bordering on bankruptcy and it appeared that the only solution was swift and radical reform of both the economy and the State. The economy was the first priority and the Government embarked on a programme of sweeping liberalisation which encompassed:
Yes, that's about how I remember it - but our celebrity economics columnist beats a different drum as he constantly re-writes history
New Zealand was bankrupt mid-1980's and goes to rock-star economy by 2010 - yet our celebrity columnist pumps it the other way
Twitter boy https://twitter.com/bernardchickey - Bernard Hickey @bernardchickey
Surely the reforms of the late 80s and early 90s made NZ much more productive? Not so much, as Michael Reddell explains:
http://croakingcassandra.com/2015/07/02/productivity-growth-worse-than-…
I'll think you find it all part of the lifecycle of an empire (Not just NZ, but most Western Countries)
The stages of the rise and fall of great nations seem to be:
The Age of Pioneers (outburst)
The Age of Conquests
The Age of Commerce
The Age of Affluence
The Age of Intellect
The Age of Decadence.
(e) Decadence is marked by:
Defensiveness
Pessimism
Materialism
Frivolity
An influx of foreigners
The Welfare State
A weakening of religion.
(f) Decadence is due to:
Too long a period of wealth and power
Selfishness
Love of money
The loss of a sense of duty. (ref- http://alfin2100.blogspot.co.nz/2013/01/the-life-span-of-empires-250-ye…)
Life Cycle of a Country
About the time our original 13 states adopted their new
constitution, in 1787, Alexander Tyler, a Scottish history
professor at the University of Edinburgh, had this to say
about the fall of the Athenian Republic some 2,000 years
prior.
"A democracy is always temporary in nature; it simply
cannot exist as a permanent form of government. A
democracy will continue to exist up until the time that
voters discover that they can vote themselves generous
gifts from the public treasury. From that moment on, the
majority always votes for the candidates who promise the
most benefits from the public treasury, with the result
that every democracy will finally collapse due to loose
fiscal policy, which is always followed by a dictatorship."
"The average age of the worlds greatest civilizations from
the beginning of history, has been about 200 years. During
those 200 years, these nations always progressed through
the following sequence
1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence;
8. From dependence back into bondage"
Professor Joseph Olson of Hamline University School of Law,
St. Paul, Minnesota believes the United States is now
somewhere between the "complacency and apathy" phase of
Professor Tyler's definition of democracy, with some
40 percent of the nation's population already having reached
the "governmental dependency" phase.
(ref - https://www.1215.org/lawnotes/work-in-progress/country-life-cycle.htm)
bw.... With interest rates... I think one can use the analogy of a drug addict and his "fix"... To get the same "buzz" he needs stronger and stronger doses.. He thinks a stronger fix will solve his problems...give him the "buzz' he needs..
Lower and lower interest rates are a sign of a chronically addicted economy... A sign of failure... a sign of sickness..
Greenspan once said it was a sign of a global savings glut...
Its' not.... It is a sign of the wreckage of Central Bank policies which resulted in the twisted form of Capitalism that richard Duncan has labled... "Creditism".
It requires more and more credit growth to generate the same %GDP growth... Each recession requires lower and lower rates to simulate aggregate demand.
There is an endgame to this...and the GFC gave us a glimpse... NZ might have learnt something ..but did not... We follow in their footsteps... ( USA, EUR, Japan..etc )
Lower interest rates offers nothing but a "quick fix".... to the longer term ill-health of the patient.
RBNZ said the neutral interest rate was now 4.5 %.. We did not even get there......
I think weaning ourselves off the drug is called austerity, which will involved weaning ourselves off chronic waste, misallocation of resources and shrinking the size of government. There will be pain in short term and some of the wasteful jobs we have created will cease to exist, but in time when as the real economy recovers "real" sustainable jobs will be created, The problem is that we may not be as well off in the future but we won't be spending the next generations money.
We have to start looking at making sure New Zealand people have the skills and resources to support and pay for New Zealand consumption.
No point being a globalised player if you've got no fish or steel to sell to everyone who can make it cheaper than we can (and already has stock piles paid for by ZIRP/neg interest)
Tell me what sweden will do when they face their next recession...?
Not sure why u chose Sweden as a great example.... Do u think they have conquered the business cycle..???
with 0% on deposits they are destroying savers....
Their future is as bleak as ours.. check out the level of Private sector debt.
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&language=en&pcode=t…
almost 250% of GDP.... .. no deleveraging happening there....???
if you believed in the business cycle then once we are recovered and into the next boom interest rates would go back up and hence drop in the next recession again.
No not conquered the next business cycle, there will not be any booms from now on but varying decline rates of economic shrinkage as we are forced off fossil energy.
not savers but the saved. I am a worker and hence I save but I can only save while I have a job. OAPs are the saved and live off the interest of their savings.
But consider this point, that interest is part of the profit a business made when it borrowed that money. If businesses are not making profits they do not borrow and hence no interest can be paid.
Lets keep going on the 'saved" front, basically they have consumed and bred at an un-sustainable rate for decades so there is no cheap energy left and raw materials is arguably on the same trajectory. So now the "saved" blame the workers for not being able to pay them enough, yeah right.
Unfortunately, all banks' (shadow included) on and off balance sheets are repositories of highly leveraged, hedged bets. That was the sole intention of QE - and we are not piddling around with a few $billion in the Auckland property market. Outstanding bond assets measure beyond 100+ $trillions globally. You need to grasp that securities defined as collateral are the new currency. Not everything revolves around your diminished and yet barely functioning world.
So called securities, bonds etc are frankly worthless is in real terms, just how do they get collected upon? "diminished world" yes I agree main street is indeed diminished if not being killed off by greed and mismanagement by the financial monster that is out of control. When it comes down to it however its one huge Ponzi scheme. Frankly I wonder if most ppl out here in the "diminished world" wouldn't be better off without so many parasites living off if not crippling them. Kunstler does I think nail the probable outcome for many such "financial whizzkids".
It's the homegrown academic, but nonetheless, basic social artificers that hoped beyond rational reality GDP and citizen well being could grow into created asset bubbles, underpinned by industrial finance techniques. Unfortunately that utopic vision never materialised. Now it's time for the not so academic "financial whizzkids" to regain control and tear down the attributed needs of social engineering underpinning our economic lives and dash the perpetrators upon the next available job downsize endeavour.
Everyone hope[d] (multi-generations of us) that we could continue to grow for ever exponentially on a finite planet, yet the math of that is very easy to understand and it tells us no. So in the meantime the financial whizzkids over the last 20~30 years have created debt instruments of size that even with BAU they couldnt be paid for, ever. Im not sure where you get the idea of utopia from, more like drug induced make believe.
"You need to grasp that securities defined as collateral are the new currency."
Yeah.... just like in Alice in Wonder land...
Just like the notes that the early Goldsmiths handed out against the gold they held.... Way more notes than there was gold.... Those notes ( securities) were currency... until they weren't...
The fickle wind of confidence..... showed that it is always the underlying asset, that in the end, has the real value...
A promise to pay.... is just that... an IOU note, that has a fickle value... that can be gold one minute and toilet paper the next.
it is always the underlying asset, that in the end, has the real value..
And those underlying assets have been pledged into a basket of 'securities' over and over and over again, if I understand the ponzi right. And then repackaged and traded over and over and over again, if I understand the ponzi right.
I can see a future calamity where your 'pledged' asset - no matter how much or little of it you own, is likely to be repossessed by some entity you had no idea had any sort of 'ownership' over it - unless you can buy it outright from them - at their price, of course.
That was happening in the GFC, under the too big to fail wool over the eyes.
The "too big to fail" had actually bought the securities from other semi-liquid finance institutions.
If the "too big" failed, then the securities would have been called !! Even though the mortgagees had never done busy with those institutions, and in many case the institutions were wholesalers and asset holders so didn't even have retail operations.
If those "too big" had failed and cashed up, the semi-liquid financing institutions that were semi-liquid partly because they had on-sold the securities (and factored some of the unsecured debt) would be caught in the middle as their customers got foreclosed despite making full payments !
Which would have collapsed the retail/commercial business of the semi-liquid financial institutions.
Putting all the loans and property on to a valueless market where no local or friendly buyers existed.
The _really_ annoying bit is it's exactly to stop that problem that the Fannie Mae organisation was created. (so that a "too big to fail" wholesaler couldn't take down all the mortgage security values.
Alice or not our dealers were seeking $3.1 billion at today's RBNZ OMO - just as the primary dealers and authorised money market funds pledged $392.60 billion cash at the Fed window to get SOMA securities in return on 30/06/15 to square their balance sheets for end of quarter auditing.
"The 75 Trillion Dollar Shadow Banking System Is In Danger Of Collapsing"
Though I think it has always been a certainty.
"the size of the global shadow banking system has reached an astounding 75 trillion dollars. It has approximately tripled in size since 2002. In the U.S. alone, the size of the shadow banking system is approximately 24 trillion dollars. At this point, shadow banking assets in the United States are even greater than those of conventional banks."
http://theeconomiccollapseblog.com/archives/the-75-trillion-dollar-shad…
and the kicker,
"In order to avoid a shadow banking crisis, what we need is for global financial markets to stabilize and to resume their upward trends."
but um not without a growing global economy that needs cheap and abundant oil, which it doesnt get long term.
So the Qs are,
a) What the impact of this tipping over?
Ans - effing huge I suspect.
b) Is there anyway possible to protect ones financal health?
Ans - for most ppl, no.
The RBNZ cannot go out of kilter with international interest rates and that is exactly what they did when they raised them and they raised them not on actual inflation but on predicted inflation.....this also held up the NZD.
The IRD should be investigating all employees on PAYE who have been buying and selling homes.....All real estate agents should be fully audited and any sales where people have signed "as agent" need to be investigated!!!
The Government needs to abandon its pathetic attitude and throw out the RMA.....it needs to concentrate on nothing else rather than allowing people to get houses built....If there was ever an issue of National importance it is house prices right now!!
Very good bw. Millions of NZ'ers are being forced, effectively, to subsidise c. 10,000 debt jockeys posing as farmers along with their bloated,inefficient, price gouging, last century monopoloy fontera. And there is a bit of history in the ANZ being among the loudest bleaters; they bought the National Bank and the National Bank had bought the Rural Bank years ago off the government. Hence they, ANZ, have a disproportionate high number of rural loans out.
We are pretty much in the shit then Cowboy as what the heck else can NZ actually do??
It is the costs that are crippling farming....it is the bureaucracy that is not sustainable!!
The backbone of the NZ economy is in trouble and all people can think about is paying more for blimmin houses in Auckland and buying more cheap imports!! Well that would have to be the fastest way I know to go down the gurgler.....it would be nice if the increases in Auckland house prices were from overseas investors as that would spread much of the risk in a downswing but I'm thinking a large chunk of that debt sits with kiwis who may not even have job security because they are not working in productive enterprise.
There are some very talented people out there inventing loads of stuff but very few inventions are breaking through to the big time. Start up business is too bloody hard in NZ (unless it is in an office setting) by the time you comply with all the regulatory hoops you have spend a fortune.....no economy can operate like this without morphing into something very nasty......and that something nasty could well be the big corporates get to take full control of the economy.....hence agreements like the TPP......lots of people are thinking TPP is the same as a FTA........I grimace at the ignorance.
Most of our NZ economy comes from SME that is what is holding the whole shebang together....if we make any more moves that destroy that glue and we will face enormous uncertainty and what little democracy we do have will be destroyed......so if we want a fundamentally self-sustaining economy then we had better take a very broad view and ensure the right foundation is in place.
People forget that NZ is very good at grass fed farming....the whole world is becoming increasingly concerned about farming systems and why are we not marketing our products off the back of these campaigns...we should be doing really well.....I blame the people in the likes of Fonterra...mass marketing any quality product along the same lines as mass produced crap is senseless.
https://www.minds.com/blog/view/100000000000201538/quite-possibly-the-m…
What can we do?
Well I just paid $375 to the council for consent to put a low profile solar hotwater system on to a single level, low profile dwelling. The top of line hotwater system comes to around $9000, professionally installed.
First up. NZ has thrived because we had a culture of honesty. Personally I have tracked such organisations as Freemasons and various churches to see they "got off the ground" and became major players. Simply put, they provide everything at quality, without massive overheads.
A brother always new a brothers goods or services could be depended on...but without ISO 2000style overheads.
Second. From infancy upwards as long as we've been valuing innocence and showboating over substances then that is the kind of people we'll get. Not only that but those people won't understand or value any kind of critical thinking. Without critical thinking as a cornerstone for society how can we ever expect to manage reasonable decision making process even in good times.
Third. Training. Many of our "teachers" are publicly funded children, many have never stepped outside of the sheltered cloisters of our education system and thus sing the song their masters set as if there was an exam for them at the end of it. Frankly, our modern world demands more resources and has more information about learning than our teachers are permitted to access. Most don't even know their own prejudices let alone how boys and girls learn differently. How can we succeed as a nation if we destroy most of our childrens' learning, thinking, and creative ability?
Fourth. Resource management. Income Inequality is the fever symptom of our age, and our temperature is near lethal levels. One of the co-factors in this disease is our super-corporations that require a top level employee with critical skills to demand heavy magnitudes of income, income that comes from sales revenue but also requires that company to use technology or capital to amplify that persons output a thousand-fold. Using Smith, we call call these people "super-specialists". that capital and its leverage cost also need to be recovered, as does the income, as per Smith's specialist. However modern Share systems require that such performance be improved year on year. Super behaviour can only come at cost to others in the market.
Fourth part two. Overheads. We are resource stripping the problem areas of our population - yet also giving them them no reason to improve themselves. When I was on Sickness benefit, it was made clear that it was the end of the line. I was literally told "we provide no funds or systems of rehabilitation". What I received from government was a stipend to keep me from embarrassing the government be starving/freezing to death unaided. From which Child Support and Taxes were deducted. I also received a "second class citizen card" which allowed me to discounts for my compulsory doctors visits...note it didn't allow enough discount should I need medical assistance.
This is pretty much the same as when I started my own businesses. Plenty of people telling me I needed a Lawyer and Accountant... if for nothing more than to do a Business Plan and a Budget, and the compulsory Employment Contract (and Terms and Conditions of Sale). Yet where were those funds supposed to come from? And then when the lawyer turned out to be incompetent (or more accurately negligent and his assistant incompetent) what recourses were available at the small business/start up level?
Every movement I made seemed to be made under Legal or Government assumption that I was a large corporation or well healed salaried "super specialist"
My business like thousands of other NZ businesses were starving peasants working their masters' orchards. We were surrounded by people crying out for jobs and income, with great skills and ideas, but simply no way to pay the masters overheads to be able to employ them, nor because of the risks and conditions the government and ACC assigned us we could do as older generations had done, and pay in kind, or risk unskilled labour in return for board and experience. Such systems have been used since earliest antiquity but our societies great progress prevent even that to us - we stood in a garden of thousands of years of boons, starving for we weren't allowed to touch.
Fifth. The big one. Responsibility. Real stuff, not overpaid courts people pointing fingers via taxpayers money and expensively dressed barristers. How can an employer take a chance on an employee if they can't get rid of them if they're useless or the funding dries up. How can we mark one company from another if they all carry the same qualification, yet we can hold none of the employees responsible for their actions.
And by responsible I'm talking making good damage done.
The nanny state has shifted all decision making to certifiers and people further up the chain (eg in education). there is a good in this that it reduces loss and brings up quality. But what is the price?
That $375 I just paid for consent? that's a lot of my labour gone with no return. The nanny state system stops the bad performers...which are still out there...by punishing the good. There is no value add, as it's a variation on the Broken Window fallacy - one that effectively says "if we hit everyone up for the price of two broken windows flat rate, then everything will be better". Well it isn't because the customer still has to cover the sale revenue for the flat rate broken window but on every case, not just the occasional poor area. This brings us back to the income inequality problem, as none of shopkeeper, vandal, customer, glazier come out ahead in the nanny state...only the nanny state gains and they add no value !
What can be done?
first. up forget the free market. That pile of bricks WILL NOT turn itself into a house by itself.
second. forget the socialist state. The needy require need to spur them to make the effort to improve themselves.
third. People are not your greatest asset. they are your _only_ asset. everything that happens for humans happens because a human makes it happen. Even the berries on the bushes won't be harvested unless someone goes and gets them.
fourth. humans have different abilities and needs. Some of us will get old, some sick, some tired, some will only be motivated by the praise of their fellows or by appearing above them, others will only be satisifed by pulling others down. Any system which does not recognise the individual will fail the society eventually. If you don't mind failing other parts of society then any human force will work for those in positions of privilege.
fifth. make sure your success is not just due to privilege. Privilege is a weird thing. some women complain that they only get a fraction of what a man would get paid...I wish I was accorded the privilege over being able to survive on such a budget. I don't receive that privilege so I must work until my body and mind fails and then I go cold and hungry until I can earn a man privilege income. Point being whereever you're sitting, it's on your privilege. Make sure you use it to improve the lot of others.
sixth. Educational and economic reform. Responsibility is the prime value. Nothing can occur without it. without responsibility there is no reason for a person or society to change. IMO a -sentient- being can only be consider -sentient- when they take up personal responsibility for themselves and become aware of the affects they have and derive from others. Any being that cannot or does not do this is merely an animal. There are a lot of human animals out there. Only caring about themselves and theirs.
Sixth part two. Historically tasks, now called jobs, required little training. And example is a washer woman. 10-16 hours on a scrubbing board or a rock. Apart from learning not to eat the lye, there wasn't much to it. On job training was given to minors, they added their value to the collective. Now we need a factory to make the machine, financiers and miners to provide raw materials, hundreds of patents fees, wholesalers, distributors, warehousers, trucks, plumbers and sparkies to put in the support equipment..... is it any wonder our culture cost structure is well out of tune with the ancients. Yet for all that extra cost how much does each person in the chain profit? Less than the do it by hand person, who could get a whole days support from a single households clothing!!
This ties back to the education because all the modern steps require different complex skills and different industry nannies to look after them.
Gone are the days where Dad taught you to drive the truck. Or Granville had a bicycle.
so with all that expensive training paying for schools and organisations how much does it increase our spending power? How can it work to purpose a new or recycled worker?
In the past it wasn't a big deal because medium education was only required by a few, and higher education by much less. Therefore as a portion of the working tax-take the support of that education segment was cheap. My college was overwhelmed - we had 25 seventh form students, their previous maximum had only ever been 8. Their system was overwhelmed. Yet now it is -required- for all 350+ students not in work or other tertiary education to attend for their seventh form. And the material they learn is even less useful and less advanced. Massive overhead and no added value to the society paying for it. Where is the responsibility for getting a ROI? We get accused of importing foreign labour for menial tasks, yet force students to valueless expensive study until age 18??
What should be done?
- Education costs reduced.
- Government removed from the nanny state position that takes from everyone with no responsibility (Broken window) and replaced with a Headmaster with mentorship rights
- Compulsory oversight on high leveraged businesses.
- Employees, especially State, able to be sued by customers and bosses in Small Claims style _court_ proceedings. (did you know currently the Small Claims Tribunals do _not_ have to adhere to NZ Law and Statute!? and only have to be guided by it, if the case is in their jurispudence).
- Release and support of employees to be far easier
- Push to make education a supportive process rather than a factory style operation. Many more _low_ level assistance to make sure students learning styles are taken into accounts.WTF train them if they are unable to process information in that way?? Teach for _practical_ ability, so students can utilise the teaching they are given (eg most teachers do not understand how to apply mathematics in real life, how can they get students to learn what they themselves don't understand !!)
- Sitting judges to only sit on cases that they have practical knowledge about. If you don't understand physics why are they sitting on a car collision hearing, or without even basic business or finance skills sitting on Trust or Company cases. Sure someone hires experts...which means justice is only for the rich. Lets start making sure everyone gets justice by paying this greedy people much less. It might help deflate some of their egos too, and help them relate to challenges other people actually have.
- remove entry to workforce difficulties. We NEED unskilled and semi-skilled to find something productive to do. Employers need to be able to afford to put these people in various places without massive financial or legal barriers.
- And FFS, stop stealing everything a poor person makes. Do this by the heavy hand - get the low wage employer to pay (without the usual threats and shitty paperwork) to an account handled by WINZ. Get those low paid people into income budgetting systems. Test them for reading and numeracy problems. Get them their birthright into the modern world - by making it available for everyone then no need to sell or steal it. I recommend public kiosks covered by cameras.
However that will require public responsibility education.
Tell me, how many MBIE and WINZ mean salaries would it take to have basic food distribution centers throughout new zealand?
What kind of work and lifestyle requirements do we expect from the lowest people in our culture, taht they can have self respect?
What services can schools and universities offer as basic low cost upskilling, instead of feeding peoples brains with commercials that most people don't buy from and reality TV?
If we take a scammer or fake tradesperson off the street, what would it take to repurpose them to do something they're good at.
Our current system breaks people, then smashes the broken pieces until it bleeds.
There isn't a cap on labour that can be done, only what we can afford to pay.
Rather than say "from each his ability" why is the system not asking "how can we help this person achieve better than yesterday".
When we analyse the right question we will find the answer right in front of us.
Cowboy, NZ has got incredibly expensive. My oven blew it self up, only 10 years old and German, 4 years out of warrantee. I hunted around but got one local to support the local business. The oven wasn't too expensive but then the shop told me they are no long able to fit them and I had to get both an electrician and a gas fitter, I'm only 5 minutes out of town so no big deal. The oven cost 2k the Electrician and gas fitter with all their forms to fill out, $738.00. I blew a fuse as my brother in law ,who I'm staying with in the UK is just putting a new furnace in and the guy that fitted it came out and did brilliant job, lots of new wires, fittings etc and charged us £70. He also drove 45 minutes to get here.
Thats why primary industry in NZ will be up against a wall for the foreseeable future. Costs are so close to income for most of us, the envelope we operate in so delicate, that one wrong move spells a loss and then 3 good years to get out of the red and back to where we were.
No one in their right mind should be thinking about running a business in NZ with the present cost structure, unless you have some kind of government sanction its just too risky.
Sitting around the table tonight with my daughter who works in London and on Skype with one who lives in Norway. They were talking about their friends in NZ and how hard they are struggling. She rents a flat in London for £350 a month her friends in AKL are paying $400 a week for a one room apartment. My daughter earns much more in London than she could in NZ.
My daughter in Norway vacations in Spain three times a year and then skis with good friends in Austria in the winter. The flights re so cheap that all of the flights combined work out about the same cost as a return flight from Napier to Auckland she tells me.
I don't think the dollar is going to help my rates are going up %6.8 percent every year for the next 3 years. I'm sitting on the sidelines watching with interest, how far can we go till we hit the tipping point, dairy is there now.
Look at this news out of the USA.
With China largely on the sidelines, demand for milk
powder is starting to languish. End users have had ample
opportunity to stock up on milk powder at historically
low prices, and they have done so in volume. Now that
their warehouses are full, buyers who were already
opportunistic can be downright stingy. It will take
increasingly lower milk powder prices to attract much
interest. This week the California Weighted Average
Price for NDM dropped to 90.5ȼ, its lowest level since
August 2009. But apparently this was not low enough.
Sales volume fell to just over 10 million pounds, a four month
low.
NZ is going to get a royal rodgering. More of us will be forced to cut spending so we can afford our non discretionary costs. The entitled are not going to give up easy. Communities will suffer, inequality will stalk the land, people will become disillusioned and angry.
Also my fuel bill is cheaper here ( diesel car £ 1.17 liter, 47 mpg) and a trolly of food only came to £70.
The reason you were charged so much for your oven repair is due to a skills shortage. Governments response to this has been immigration which actually creates more demand while New Zealanders find it easier to invest in property ponzi than grow business. As Cowboy points we need to train our semi skilled. I disagree that people should not run a business in NZ. We should be encouraging business training youth in relevant industries.
In NZ it's hard to set up a business. Just when things are going well, provisional tax catches up with you.
Then the IRD is unforgiving and time consuming. My Brother in law is doing his VAT, late. I asked whats the fine, he said it's OK, they will give him a weeks grace. Thy that in NZ. I my rural town there are very few new businesses starting up, the odd auto- electrician changes hand, maybe a builder or two, not much else.
I have a vineyard I want to expand, the money is the same as it was 10 years ago, the tax breaks are not good, costs have gone through the roof, so it's just limping along.
Some Napier friends ripped all their vines out. took 3 or 4 years to get them established, even had their own wine that was more than half decent. But the local grape buyer had a glut so cancelled their order - turns out they just string the private growers along in case the big label owned farms fall short on target. So the private growers take _all_ the risk. Guess what...didn't say that in the brochure... the sell for the contract was all about huge demand, big processing, "drops in the bucket" "room for everyone" and "endless demand" ...sound familiar.
Grape farming is even more demanding than dairying. Cows don't mind a frost, and no pruning each moo simultaneously. Yes there's a constant watch for disease or rot in both cases but at least the cows look a little bit different ! And you nurse those baby vines along...to get told to turn it into pig food?
It would be so much better if there was more product range that consumers would like, and could afford.
With regards to the logistics (memory fails me for the correct word). Builders, electrcians, brick/mudders are propotional to population (so many population require $X to to support each one, and so many population that can be supported by each one). Likewise more money into a location, which creates good inflation, means more people can spend into those business for more than survival level consumption (eg nice houses, not just cheap houses).
I was hoping to put together a "System of Equations" on the dairy farming while I was in the business, to help frame the boundaries and evaluate the business models involved. Sadly I was too busy chasing breakdowns, animals, and compliance related tasks to have the time or energy left to do the job.
I could do it for housing rentals I suppose but their are few variables, and the tenants are the major factor that outweigh everything else. So not very interesting.
A major part of the difficulty with rural towns is that the low velocity of money via taxes and interest proves to be a constant drain. It also means higher end jobs (ie less survival) aren't economical viable as all the "cream" has been skimmed into the cities. The result is rural areas bleeding to death, while cities live beyond their means.
that's one reason property is such a warning area - if cities are living beyond their means, then they have means to pay premium on residence - and if things go pare shaped and the cities start failing they'll resemble the rural towns...and rural towns having a roof over your heads is one of the few things that will return a yield. (food gives yield but is perishable, transport is also needed but fuel prices are hard set from cities so no yield). That's why rural regeneration is so important. Rural regeneration leds to spending in small towns which offer services not available in rural communities; all of which are what feeds money and demand "export-wise" into the cities. Kill the rural towns, kill your economy, it's that straight forward.
And if you're late filing your GST in NZ you will receive a late filing penalty and interest on balance owing.....and the IRD don't pay you for collecting their taxes!
Being in business in NZ is bloody terrible.....you're nothing more than the bureaucracies gravy train!!!
I don't think it is all down to a skills shortage Alioop....it is all the paperwork that has to be completed and filed that costs the money in NZ....and loads of people simply don't want the hassle or then there is the issue of someone can come in to NZ under a certain criteria due to their qualification and there being a shortage and then NZ authorities do not recognise those qualifications......hence you have Doctors driving taxis etc.....
I won't encourage people anymore to go into business in NZ....all it does is keep Nanny State in business....being self-employed is enslavement to the State in every way possible!! It ends up the few carrying the can for the rest.......You'd have to be a narcissist to encourage people into business ...the compliance and costs of compliance are hideous.......plenty of people I know running SME's and everyone of them feeling the pressure from all the box ticking......it is so pathetic in NZ that you can comply with one piece of legislation/policy and in doing so be deemed non- compliant in another area by another jurisdiction!! And if you bring this to the pathetic administrations attention they just go "not my problem".
When one has to now record every conversation that takes place between a bureaucracy and your business you know there are problems and how many people in business actually have the time and money to do all that recording!?!?
The one issue that Cowboy hasn't discussed is the issue that some people do not want to educate themselves nor do they want to partake in further skills/learning.......you can lead a horse to water but you can't make it drink!!
China awash with corn.
"Analysts expect Beijing will be left with more than 120 million metric tons of corn estimated at more than eight months of consumption AHEAD of the domestic harvest in October, as weekly state corn sales have been hurt by poor demand and cheap imports."
http://www.agweek.com/event/article/id/27115/?utm_content=17571372&utm_…
From the outside I dont think farmers are "bloated and inefficient" and Fonterra? not sure on that either I would take convincing its that bad. In terms of price gouging, yes insisting NZers consumers pay international prices is indeed gouging, so in effect we are indeed subsidizing farmers. However that is similar throughout the retail/consumer sector as there is no real competition and when it occurs it is stopped by vested interests.
"drought hits production following an El Nino event which the Southern Oscillation Index predicts will happen, "
Is happening I believe,
http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory…
but El Nino's dont last for ever. However on top of that 2015 for the Northern hemisphere is breaking records with heat waves so summer here could indeed be very dry.
What QE had achieved was wasted, ie buy time to sort the banks out push shareholders etc to take losses etc, instead it was used as a pretend and extend.
So we should have done what? kept interest rates up and collapsed the important parts of the economy like businesses that make something so the financial parasites carried on doing OK? I think not.
It will be interesting to see how much the drop in the exchange rate causes some increase in inflation. The benefit of the drop should of course in theory be that domestic related costs will become more competitive in price than imported goods. For that to happen, and given NZ is a small country with a very high traded sector in imports and exports, some inflation in the imported sector would seem best tolerated. As such I would expect the RBNZ to contemplate the 3% upper band of their CPI target being threatened before they panicked at any threat of inflation.
Meanwhile given the world seems still to have huge over capacity in many products, I expect many foreign exporters into NZ to continue to price to the market, rather than price cost plus. They enjoyed high margins when our exchange rate was very high. They may well tolerate some lower margins now the exchange rate has dropped, thus not causing rapid inflation.
Time will tell.
For that to happen, and given NZ is a small country with a very high traded sector in imports and exports, some inflation in the imported sector would seem best tolerated.
Hmmmm!
As a nation one of our most enduring myths is that we live in a small, trade-dependent nation, geographically distant.
For all its use as a way to describe everything from our devotion to free trade deals to our self-congratulatory ability to "punch above our weight" to our "little battler makes it on to the United Nations Security Council" it seems only one of those - the end of the earth thing - is really true.
At least that was the point made by German Institute of Global and Area studies director Patrick Koellner in his presentation at Otago University's Foreign Policy School.
He argued that, looking at New Zealand from an outsider and European perspective, the "small, trade-dependent nation" was arguably a self-defining myth. Read more
Stephen,
Good link, showing NZ's exports/imports as a share of GDP at 57.8%. That is apparently not exceptionally high by world standards, but I would argue is still very high. That most other countries are also very high explains perhaps the currency wars going on the last few years, and at which in the Euro construct, the Germans have been absolute world masters, noting also that the author of your linked article is German.
To my original point, multiplying the 57.8% by a 12.5% drop in the TWI exchange rate from its recent peak, would give 7% inflation all else being equal. Local margins on imported goods would likely halve that, while I agree with one tenet of your linked article, we are big enough that exporters into us will want to protect sales and market share, so many will price to the market, bringing that effect down further. Nevertheless you could easily get to 2-3% from the exchange rate effect. To force that back to say 1% would need enormous pressure on the domestic economy. A corollary is that if we are concerned about the current account effect of lower dairy prices (and I believe we should be, as the current account drives the extra net debt of NZ Inc), then we should tolerate/welcome a drop in the exchange rate, even if it pushes inflation to the upper band or even beyond the target range, just as a super high exchange rate was partly responsible for going below the range.
When trade is 57% of your economy, and with a volatile floating exchange rate, a 1-3% band may be too narrow.
There is a tremendous amount of inflation, including asset bubbles, that does not fit into the orthodox treatment of it because it was the orthodoxy itself that wrote the intentionally narrow definitions that are supposed to apply here. If you think the CPI is the full extent of inflation, then everything that has been done since 2009 is consistent with that idea – including the utter confusion engendered by all the “stimulus” with no tangible economic result. If, however, you see inflation properly defined you cannot go anywhere without experiencing its destabilizing effects; “dollar” included. Read more and more
Why not let the agri sector and banks take a hit? This may bring asset prices - farm land back into alignment. The rbnz move in trying to protect farmers and dumb lending by the banks agri divisions will drive / stimulate more house speculation, and lift inflation unnecessarily. Once assets have corrected, lift the asset risk weighting on farm land to where it should be to reflect the yield and risk, and make the banks hold more capital in the process. The same should happen to other industries / bubbles – ie housing where the fundamentals are at historic highs. This would keep the fundamentals in check without penalising the entire economy for one sector that's running rampant. the rbnz has the tools it just needs to grow some balls
OK lets get some things straight here.....where do you think the money comes from to pay for imports??
Maybe you should think about if there were no exports.....how are YOU going to pay for your imports?
Where are you going to keep getting money from to keep paying for your regular imports?
Thinking about your concept further....you'd rather see 10% of the mainly new entrant farmers perhaps go under and the first thing the banks that hold those debts will do is sell those farms....and who do you think is going to buy them if kiwi's can't afford to.....so what you are really wanting is for NZ assets to be sold to off-shore entities.......
Tough day at the office notaneconomist
The economy, more of late foreign property investors. Export sector. etc. etc.
who pays exorbitant domestic prices for milk - nzers. who retires with massive capital gains off appreciating farm land. Who pays a premium on residential mortgages? Who now is paying higher prices for goods and services to absorb the agri sectors problems?
Do you seriously think that every other business, nzer operates in isolation to this – the rbnz dropping rates to soften the agri sector woes affects every other business, and individual in the country in some way or another – many completely unrelated to the sector. Some won’t have hedged exchange risk, some will go under. Others will pay the price for this through increased premiums elsewhere. Importers will suffer. They don’t have the luxury to cash in the farm – many will be lucky to walk away with the shirt on their back
What makes the agri sector impervious to everything that all other businesses have to deal with – do you think it’s too big to fail?
I agree,How many existing farmers took on new debt during the good times instead of paying off debt and improving the environmental consequences of the farm. How many purchased the neighbours farm also and geared up to the max, Even now with so much pain in the dairy industry, dairy farm prices are in bubble territory.
"Prime dairy land in New Zealand fetching over $NZ60,000 a hectare"
http://www.abc.net.au/news/2015-06-10/new-zealand-agricultural-real-est…
There was a lot of deferred maintenance still left over from the drop post $7-payout (and it's "$7 is here to stay" rhetoric).
Many accountants and consultants pointed out the benefits of upgrading and automation (feed bins) and the propaganda is always full of stories promoting high-input systems. There's a constant shove from experts, government, fonterra, and young staff to increased capture of unused data and pressure to impliment technology.
On top of that there was real _legal/council_ pressure to spend money fencing off waterways, replace or purchase travelling irrigators, build road underpasses, put in effluent ponds, upgrade water sources, replace sanitisation systems. None of these things could be avoided as the organisations inflicting them have no interest whatsoever if they are economic or affordable.
http://www.smh.com.au/business/comment-and-analysis/milking-it--when-yo…
And this comment quite interesting:
"Suggest Australia is just as much in the kitty litter as NZ regarding our mutual overreliance on China. Ditto Brazil and other nations riding a commodity boom. The NZ government has flagged China as an economic risk to NZ (Australia too). I'd add the TPP as its been hijacked by Nth American / Japanese interests. The never ending Greek tragedy ain't nothing yet if /when China cracks wide open. A new acronym to replace GFC will be required such will be the scale.In NZ's favour, our govt has the second/ third lowest govt debt to GDP in OECD (38%) allowing headroom to borrow. As for commodity prices such as coal, ore and dairy, they are being strategically driven down - the goal being to down to an economically unstainable level over a sustained period of time to create distressed vendors? How? Achieved through previous stockpiling, asset acquisitions. Why? Bidding down global commodity prices to control the market long term. The end game of a certain large country to our north is to buy up these commodity producing assets cheap. We've seen 21 farms here in NZ pass into chinese hands all in one go. Reference 'the Crafar farms' debacle courtesy of a clueless milk baron overextending himself with (aussie) banks. Money laundering an overvalued McMansion in Sydney/ Auckland is one thing but quite another to sell a revenue generating asset like land."
Yes I think it could be political suicide for Keys government to sell a third of the countries farm land to China, at a cheap price. I personally don't think it will happen, i wonder if the Chinese economy could tip over before we do. They are volatile, all their markets seem to be bubbles.
What about these guy's?
http://www.stuff.co.nz/business/farming/dairy/9893270/Dairying-fuels-Ng…
Competition is too fierce offshore for that. They will end up like Landcorp, with billions of dollars of assets making little no return or even a loss. Land can be very illiquid if things go tit's up and you need to raise some cash. Family farms will always out perform you, lower costs and more connected. They also are exposed like the rest of us, to relentless cost increases , compliance costs and regulation in NZ.
They would be better off investing in their people directly.
It's worth remembering the dangers of being a single-commodity country. (SMH 3/7/15) http://tinyurl.com/o2ywg7f
"There’s so much milk flowing out of U.S. cows these days that some is ending up in dirt pits because dairies can’t find buyers. Domestic output is set to be the highest ever for a fifth straight year.... Supplies of raw milk are topping capacity at processing plants in parts of the U.S. and compounding a global surplus ......Globally, production will rise 2.1 percent to a record 582.52 million tons as top exporter New Zealand sells the most ever and the European Union ends limits on dairies that had been in place since 1984." (Bloomberg 2/7/15 ) http://tinyurl.com/oeohnde
as usual this government denying reality
Stephen joyce
" "We shouldn't talk ourselves into a funk"
it's going to be bumpy" but "we should be very careful not to talk ourselves down too far."
they think by just saying nothings wrong with their governance that the sheeple will believe all is good.
who they going to blame this time Greece.
they have had 7 years to grow our exports and regional NZ and nadda
what is there legacy until now
rampant immigration
housing out of the reach of young born aucklanders
96 billion in debt
17.1% youth unemployment
and the good stuff
some motorways
some cycleways
a convention centre to be still built
helped make a movie
paid tiwai to stay open( might still downsize)
tax cuts
On The Nation this morning Joyce also said that the 10yr average payout was $4.50. Implying dairy farmers are used to receiving low payouts. What he failed to also state though was how much costs have gone up in those 10years - especially central and local government costs for farmers.
CO, I thought costs were going up %8pa, mine have gone up more than that, more than doubled. Ok with record payouts but if we go back to the payouts of 10 years ago...
I was talking to my bank manager in April, talking about costs, he was shocked at the inability of farmers to control costs, meaning, out of their control. Last year costs were up %8 again and there appears to be no end insight until someone defaults. He could see a situation in the near future when there would be a crisis of some kind.
Remember in 2008 when Waikato council had a large portion of its rates in arrears?
I was looking into more sustainable soil use, use of capital investment (effluent handling, automation) to reduce consumable expenses (fertiliser, electricity). Looking at ways of improving animal health have a direct benefit to the bottom line but also come through in increased production as that allowed slightly lower stock numbers for same production which had it's greatest effect in winter feed requirements - as winter feed is expensive, in man and machine power as well as direct cost.
none of that matters though if the tide of costs is rising and the mass distributor can't get equitable prices. Looks like customers finally worked out how to run the gDT as a "dutch auction".
What many smart family operators are doing is looking for the value add products direct to a boutique market. sadly that does still rely on the local economy still having purchasing power, but 100kg butter a week direct sold (by product going to a local pig farmer, who is grateful for the cheap feed) returns equivalent to $20/kg MS. Organic raw milks also bring in a front gate price that is impressive, so much so that it wouldn't surprise me to see someone with a web page nouce to setup a subscription service and contacts with a local supermarket to take the place of the old milk truck. I think supermarkets are already looking at having "picker" services via internet, so it's not much more to add, and a subscription service is far more reliable and less time consuming than individual accounts
Grazing costs is one of the things chaps around us are looking at. They have gone up quite a bit in the last three years. Interestingly, the dairy cockies don't blame the sheep chaps for putting the cost up - the dairy guys realise that the sheep/beef folks actually have options now.
Had an interesting chat with a young farmer recently. They were saying that alfalfa in the US is $70US a ton. They were wondering if it would be possible to import it here - from a biosecurity viewpoint. Aj do you know if that would be possible?
CO, I've moved to Cornwall. However, yes the export market for Alfa alfa is huge. The best Alfa Alfa is grown up by the high desert for irrigated land where they only get 3 cuts a year. It's what the dairy farmers like. The stuff from the Valley has lower protein and not as valuable. It is shipped down to Turlock where it is compressed and loaded into containers. Then shipped back up north to Oakland. Most goes to China. The other option would be buying feed out of Perth WA. A few years back i looked into their export market in Japan. They were selling a lot of animal hay especially Oats. I will do a search for you. Water could be a problem this year. The rice hay is rubbish, although I heard they were now watering after harvest to turn it green again so the hay had some food value.
http://www.bordervalley.net/products-2/alfalfa-hay.html
I drive pass they guys often and could ask them next time I'm over if you want.http://www.haykingdom.com/company.html
WA
http://gilmac.com.au/about-gilmac.php
I have contacts in the hay business, if you want I can pass on their contact details.
Much appreciated reply Aj. :-) Cornwall is a lovely place. Bit traffic constrained in the summer at times. ;-) All the best for you and your families 'new phase of life'. I hear the UK summer is off to a stunner so far Hope it keeps up for August. ;-)
Will pass this on.
Lucerne is a major export crop ... to China
Do be careful though, it is a glactophage (increase mammary output via hormonal stimulation naturally occuring within the Lucerne) but those same hormones _do_ have a hormonal contraceptive effective.
In the US it's not so bad as they calve all year round when it suits but you'll have to be careful with your hormone levels in NZ since we tend to use an intensive "window" technique for mating.
Considering the real cost of operation for a low input production model is around the $5.00 mark, that is not good news. And it would also line up with what I experienced in the industry. Many people are only really doing it for cashflow and capital gain, not retained earnigns/business growth which is diabolical news for our economy (as dairy was our leading economic pillar...and it was being propped up by leverage against capital gain.... (instead of sustainable profitability) )
I think it's time for cuts in government jobs, get rid of half of the stupid costs for dairy. The idea of selling off our best dairy farms to foreigners is crazy. I think this government has lost the plot. Profits from our best farms going overseas in the future, i wonder what it would be like to move to Aussie, i'm sick of this government, they are dreadful.
I feel sorry for the rest of the dairy farmers if they start selling the farms to foreigners, do you think the Chinese will start paying good prices again if they think we are in trouble and will have to continue selling farms to them. The civil servants will bankrupt NZ!
If the Chinese or any other country, can get milk products vertically from their own sources, then other suppliers such as the rest of NZ or Fonterra just become the last resort bidder praying for shortfall.
Just as I mentioned to Andrewj about my grape growing friends whose contract turned out to be dependent on the big labels own farms falling short. Dairy will go same way if sold to any big business/distributor/retailer - small operators will have to go boutique or niche, otherwise they'll always be last in line (such as those selling to Woolies in the old days, or to Amway corporation)
without margin you can't do anything.
with a slim margin, you really have to use some form of added value to increase the per unit margin,
move to a subscription service (pays margin regards of cost+plus model, eg advertising, sponsorship,add pay per view or tourism to increase value on existing assets)
create new tranches, this is a step further than the above (eg one neighbouring sheep farm re-did his entire business into a tour bus stop & petting & 4 wheel motorbike drive experience). Not just more value for his wool, but entire new business on top of the old commodity supply. Tough part here is it requires entirely different skill sets and priorities.
Or with a small margin, reduce cost and increase volume - two things which tend to physically oppose each other. and it does rely on your target market not changing or developing further in it's lifestyle.
No amount of levergage or accounting shell game or deferred expenses can overcome drop in gross margin.
In retail you can look at advertising (primary to raise interest in the product or services : eg Interest.co.nz creates primary advertising in finance, investment, and economics); but secondary advertising in specific brands or companies on site and via it's own valuable subscriber section).
Also examination of stock turnovers is critical - Postie Plus stores carried a huge amount of old stock from previous years, but due to the way the fashion market segment works they can't put that stuff on the shelves otherwise it stops this years product selling, and they can't give it away or it would collapse the value of the whole market segment !
Places like furniture stores are competing with JIT systems and the willingness of people to travel and demand delivery. But like the linen stores which have been steadily collapsing over the last 10 years, we're seeing poverty mentality bite into NZ. How many new houses get new furniture? How many young couples, or "mortgage now paid off in 7 - 10yr" types inhabit the NZ market? The consumption just isn't there anymore due to income inequality. the rich are few so need few goods, and shop only in certain brand shops but some are feeling the pinch outside Auckland. the poor just make do, and everyone in the middle is leveraging or going broke. The consumer dollar only goes so far. and if goods decay rapidly (an old system of increasing the length or re-purchase in the purchase decision cycle : see https://books.google.co.nz/books?id=M4h_WCGC_EkC&pg=PA23&lpg=PA23&dq=ad… ). such lack of durability eventually just leaves people poor and willing to put up with poor quality assets rather than re-purchase.
In some cases - hire systems have proven more cost effective, as they keep stock moving, so holding contacts and floor stock to encourage purchasers, most whom can be directed to JIT deliveries of higher quality product (often on rewarding finance products) - an offer of discounted delivery (via drop ship ;) ) can be an incentive.
they have already started building huge farms, they are taking what they are learning in NZ and other countries back and creating huge farms
http://www.agriland.ie/farming-news/video-inside-the-biggest-dairy-farm…
They always have.
Its the official system. find someone doing something that kind of works. Get a worker or consultant in the door, or invite them to run a business locally. Then duplicate it on 100 to 1000 times the scale.
If the bureaucracy wasn't so inefficient they would already own the world, however bureaucracy by it's nature is persistent.
Can you blame them for a system that works?
vs the quislings who thought themselves immune or profiting from giving it to them (esp. cheap).
It's that experts like Fonterra who donate huge mounts of capital to cash out their competition so the competition were well financed to set up in opposition with the most modern advantages. It's a business model that I just can't fathom.
Government backflip or was it the plan all along to get the people to accept the chinese buyout of Crafar farms, when at the time there were nz buyers who wanted those farms.....so landcorp sharefarming with Shanghai pengxin is over and out. Landcorp have moved on. So where again was the benefit in selling those farms and others to overseas interests?
Once they sell %20 of the farms to them, the rest of the farmers may line up trying to sell. My suggestion is to get out of dairy if you can and go into beef. The price is more driven by america. The other option would be dairy support in areas close to the chinese regions of NZ.
now bill English saying it wont happen and we should be able to have more tax cuts
how about getting a budget surplus first one without selling something to get it over the line
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11476138
The biggest credit bubble in history and we are going to get a mild recession?
The World Bank has a timely warning for Chinese President Xi Jinping: Don't let all that money go to your head.
The World Bank's admonishment was amplified by a fascinating milestone the Chinese economy reached this week -- one that presents Xi's government with a complicated image problem. China's 90 mainland stock traders now outnumber its 87.8 million Communist Party members. This changing of the guard, if you will, is taking place the same week the party celebrated its 94th anniversary -- hardly what Mao Zedong had in mind when he led the Communists to power in 1949.
http://www.bloombergview.com/articles/2015-07-02/china-s-boom-has-world…
http://www.japantimes.co.jp/news/2015/07/01/national/social-issues/japa…
Importantly, even after six years of recovery I still do not see the backdrop for a sustainable U.S. Credit up cycle. In fact, Credit growth slowed sharply during Q1 (to 2.8% annualized from 4.9%). The Credit slowdown is consistent with weakening corporate profits. Stock buybacks and financial engineering have lost much of their previous punch. For now, with financial conditions so loose, M&A booms, as asset prices generally maintain an inflationary bias. Things look somewhere between ok and good only so long as asset markets remain inflated.
I believe enormous amounts of leverage continue to accumulate throughout the securities markets. Actually, I view borrowings to finance M&A, stock buybacks, and leveraged speculation in bonds and stocks as the prevailing (unrecognized) source of Credit fuel inflating this Bubble. This type of Credit is inherently susceptible to reversals in asset prices. I suspect as well enormous amounts of finance continue to flow into U.S. asset markets from faltering Bubbles (and currencies) around the globe (China, Europe, Latin America and the Middle East). This flow of finance is similarly unstable.
As such, I discern a much greater degree of market vulnerability than the complacent consensus. Greece and China could easily become catalysts for the most serious bout of market risk-off since the financial crisis. There will come a point when markets come face-to-face with the reality that policymakers do not have things under control.
http://creditbubblebulletin.blogspot.co.uk/2015/07/my-weekly-commentary…
Indeed, the only other well recorded bubble which was SMALLER than today's led to the 1930s Great Depression and WW2.
"In November 1930, before anyone knew how Great the Depression would be, Charles Persons published an article in the Quarterly Journal of Economics called “Credit Expansion, 1920 to 1929, and Its Lessons.” His thesis was stated forcefully in the first paragraph:
“The thesis of this paper is that the existing depression was due essentially to the great wave of credit expansion in the past decade.”
http://houseofdebt.org/2014/03/15/household-debt-and-the-great-depressi…
or,
"People forget that the Wall Street crash of 1929 was actually the last gasp after a 2 year decline. The market lost 87% of it’s value from the high of 452 to the bottom of 58. If the Dow loses 87% of it’s value from the August 2007 high of 14,300, we will bottom at around 1,859. THAT is really possible. It is actually more LIKELY than a turn-around. The reason it’s more likely is because the numbers are WAY BIGGER than they were by comparison in 1929 numbers. Our bankers and businessmen, with the help of the Bush administration and congress, have REALLY DONE IT this time."
http://investmentwatchblog.com/us-1929-great-depression-vs-2008-financi…
"I think it is pretty clear that we are in a very precarious economic situation that is highly similar to the Great Depression. Getting out of this economic situation is going to be very hard. It will take a lot of national pain as our economy transitions from a consumption based, high-debt, low-growth debtor nation into a manufacturing and exporting nation once again. We will see how that all plays out in the next 10-20 years."
http://www.forbes.com/sites/quora/2011/11/08/how-does-the-current-econo…
Of course there wont be the oil to do it with.
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