Productivity improvements in the rural sector are being held back by outdated restrictions and regulations that are no longer relevant. And that is a conclusion of Wellington officials

A bit more than two years ago the NZ Productivity Commission (NZPC) released its report on how it saw the state of New Zealand firms and sectors. It was not particularly flattering of most sectors within New Zealand and included agriculture among these.

It saw the greatest benefits for improvement coming from the adoption of technologies and in regard to dairy, although this could also be applied to the red meat sector and perhaps horticulture, the incorporation of ways to smooth out income to producers and take away some of the uncertainty that has always plagued these industries at least since the end of SMP’s in the 80’s.

Now, at the Government's request, a follow up review of the April 2021 report was released. Dairy (Fonterra) was specifically focused on in the initial report and so it follows that it was also in the follow up. Unfortunately, no ideas of how to remove income volatility from sectors incomes was included. However, one of the 2021 reports’ recommendations (10.2) was that:

“The next review of the Dairy Industry Restructuring Act 2001 in 2024 or 2025 should include an assessment of the effect on Fonterra and the wider dairy sector of the removal of Fonterra’s obligation to accept the re-entry of its farmer supplier shareholders who have left the cooperative to supply another processor and then wish to return”.

This recommendation was made in the belief that increasing Fonterra’s powers would weaken competition and ultimately weaken the New Zealand dairy industry.

However, at Fonterra’s behest that is exactly what happened. In fact in 2022 the Government further reinforced Fonterra’s position (over its competitors) by putting amendments in the recent DIRA bill (2022) which sought to mitigate the further risk that Fonterra substitutes higher milk pay-outs to farmers (above a fair market price) for lower dividends to its farmer shareholders – thus further worsening the competitive position of other commercial users of raw milk.

Yet even these measures – to make the process of setting the base milk price more transparent and independent of Fonterra – got weakened through the legislative process.

While farmers may welcome this, it does not necessarily help to create a healthy industry.

Fortunately, some of the other areas Fonterra was criticised for in 2021 have improved with a lowering of GHG emissions through the phasing out of its coal fired boilers and its participation in the Centre for Climate Action on Agriculture Emissions. Perhaps on the recommendations of the NZPC the government has fine tuned the Research and Development Tax Incentive which provides a 15% tax incentive for eligible business R&D activity incurring eligible expenditures. Fonterra has been successful in being eligible and is using this to help in its R&D projects.

The report also spends some time on the RSE scheme (largely for Horticulture) and highlights the fact that an MBIE review is due to Government sometime in June. Despite this review still to come, the Government went ahead and relaxed some rules, largely on the back of the disruptions created by Cyclone Gabrielle. The report does criticise the use of ‘cheap’ workers as while they are available there is less need for firms to invest in replacement technologies which may improve productivity.

The role of genetic modification technology

In the earlier report some discussion was made on the need to review the regulation of genetic modification (GM), to ensure it is fit-for-purpose and supports domestic innovation. Currently MFE is in the final throes of completing a report as is Te Puna Whakaaronui which published a report on the current state of genetic technology earlier this year with the follow up report due later this year.

The general tenor seems that New Zealand’s conservative approach is not helping its productivity and the risks of incorporating managed GMO’s is minimal and would do very little harm to New Zealand’s reputation.

The Aotearoa Horticulture Action Plan released by the Government in February 2023 includes an action to “lead formal discussion on the role of advanced breeding techniques” with the primary sector to assist in leading what could be a new approach.

The 2021 report said that the lack of a more modern plant “Post Entry Quarantine” (PEQ) facility was preventing access to new potential beneficial plant species. The latest update shows that while funds have been budgeted and the business case done the new facility will not be operational until 2028/29.

Regulation relevance

Another area relevant to agriculture was the observation that government regulations needed to be kept up to date and relevant.

Since then Treasury has provided guidelines to government departments. This resource outlines nine topics with discussion prompts intended to help departments undertake some structured workshops or conversations about aspects of the state of their regulatory stewardship practice and the performance of their regulatory systems.

Farmers in particular may see this as a double-edged sword as the pace of changing regulations has been a major part of farmer criticisms of the latest government.