The Fonterra crisis, and the real problem with New Zealand's economy

OPINION

The New Zealand economy is in damage control mode at the moment. Let me give you some stats to paint the picture.

New Zealand is a trading nation – we earn US$37.9bn a year from our exporters.

Dairy exports have risen from 5.9% of all exports to 13% between 1995 and 2010. In that same period, the number of dairy cows in New Zealand doubled.

We export most of our goods to Australia (21%) followed by China (15%) then the US (9%) and Japan (7%).

One company, a collective although really a multination corporation, accounts for most of that export revenue. Fonterra, which grew out of a merger of the New Zealand Dairy Group and Kiwi Cooperative Dairies in 2001, has lead that charge and now controls one third of the world’s dairy trade, exporting 95% of its output.

We are, as an economy, totally reliant on one company for wellbeing.

This, then, is the heart of the matter. Forget the grubby pipe and the botulism. Put aside the PR debacle of sitting on the news for months and then holding a press conference with no information.

That we are utterly reliant on one source for our income is the real catastrophe here.

In the same time period – 1995-2010 – the internet revolution came and swept all before it, yet ICT related exports are worth a fraction of dairying. How did we miss this opportunity?

Diversification is the name of the game and we as a nation, as an economy have, to mix my farming metaphors, put all our eggs in one basket.

This is the real issue revealed by the dirty pipe. Not that there’s an issue with process in one factory in the Waikato, but that we are utterly exposed to an issue with process in one factory in the Waikato. That we are utterly exposed to one industry for our place in the world.

We need to diversify. We need a concerted government-level drive to build up our other export earners.

Traditionally, New Zealand has made its money off the land and the sea. We’ve harvested trees, whales, gold, coal and seals. With the advent of freezer ships we moved into sheep and beef and yes, dairy goods.

We cannot simply remain reliant on the good weather and remoteness of our islands in order to survive. We have to do more and we have to do it now. Arguably we’ve missed the internet revolution and all that could have come from that, but I’m convinced it’s not too late, but we have to act and we have to act now.

Forget low-value manufacturing – we simply can’t compete with China or India. Forget mining – we love our clean, green (well, green at any rate) environment too much to dig up the national parks looking for oil and uranium. If there’s any one answer to this issue, it’s ICT.

(EDIT: Hattip to David Farrar at Kiwiblog for the above link to The Economist's piece on Estonia. We should be doing this) 

We need to encourage our students to go into ICT fields of study instead of accounting and management.

We need to build an export market that grows much faster than the 11% year on year we see today.

We need to encourage more investment and more entrepreneurship in ICT areas and not be too afraid of spending money on businesses that ultimately don’t succeed.

We need to change the tax laws to encourage ICT developers to do more.

We need to spend more on R&D (currently we are spending less than the OECD average. That’s no way to get ahead).

We need to invest more in our ICT infrastructure – from our national deployments of fibre infrastructure to our international needs with submarine cables, but also our electricity sector to power all these devices.

We need to do these things because the alternative is that our global economic output is entirely in the hands of a pipe cleaner in the Waikato earning, I’m going to say, minimum wage. I’d like it to be a touch more secure than that.

Paul Brislen is CEO of the Telecommunications Users Association, www.tuanz.org.nz