Edmonds Judd

NZ economy

What can agriculture expect?

All three political parties that make up the governing coalition campaigned on the premise that agriculture is the backbone of New Zealand’s economy. Each party stated that the rural sector should be supported, rather than what they saw as being hindered by government, particularly in the areas of regulation, red tape and climate policy.

In this edition, we cover the proposed repeal of the Three Waters and resource management replacement legislation in the next article, but what else are we likely to see from this government?

 

The parties’ agreements

There are two separate agreements between the coalition partners – the National-ACT Coalition Agreement and the National-New Zealand First Coalition Agreement.  Both agreements should be read in conjunction with the other and, in the agriculture area, are quite similar in their aims. Both agreements contain commitments to:

 

  • Reduce red tape and regulatory blocks
  • Reverse the ban on live animal exports while still ensuring high standards of animal welfare
  • Reform the National Animal Welfare Advisory Committee
  • Improve farm environment plans so they are more cost-effective and pragmatic for farmers, and to be administered by regional councils and targeted at a catchment level
  • Replace the National Policy Statement for Freshwater Management to better reflect the interests of all water users, and
  • Liberalise genetic engineering laws.

 

Some differences in approach

There are some areas, however, where the coalition agreements aren’t exactly the same, but look to achieve similar outcomes. For example, in the National-ACT agreement, the parties agree to maintain a split-gas approach to methane and carbon-dioxide through to 2050, and to review the methane science and targets in 2024 for consistency, with no additional warming from agricultural methane emissions.

 

The National-ACT coalition agreement also contains a commitment to amend the Overseas Investment Act 2005 to limit ministerial decisions to national security concerns (to keep politics out of it as much as possible) and to make decision making more timely.  The National-New Zealand First agreement commits to incentivise the uptake of emissions reduction mitigations such as low methane genetics and low methane producing animal feed.

 

In addition, that document also contains an agreement to amend the National Environmental Standards for Commercial Forestry regulations to place a duty upon harvesters to contain and remove post-harvest slash.  Much of the regulation and red tape that has been criticised by the three coalition parties comes from a need to comply with international obligations. A change of government does not mean a change of those obligations and, for example, just in the last week or so the New Zealand government has signed up to the COP28 Declaration on Food Production and Sustainable Agricultural Adaptations. The Declaration seeks to protect the livelihoods of farmers while, at the same time, recognises that agriculture and food production has to ‘urgently adapt to respond to climate change.’

 

The UAE Climate Change and Environment Minister, Mariam Almheiri, said, “Countries must put food systems and agriculture at the heart of their climate ambitions, addressing both global emissions and protecting the lives and livelihoods of farmers living on the front line of climate change.”  Somewhat predictably, Greenpeace New Zealand responded by saying that this country needs to transition to a more organic farming system and that the New Zealand government should introduce policies that bring us into line with global commitments.

 

While the three coalition partners are indicating a new support for agriculture, and with the two associate Ministers of Agriculture both being farmers, a more practical approach to deal with climate and water issues is being signalled. New Zealand has international commitments that it must fulfil, as well as already recognised issues of water quality. These issues will not go away.

 

 

Looking ahead

It will be interesting to see, in practical terms, what is likely to happen in the agriculture sector over the course of this administration.  In terms of the immediate changes or focus on specific issues that are likely to arise, the government’s 49-point 100-day plan includes the repeal of the Water Services Entities Act 2022, the Spatial Planning Act 2023 and Natural and Built Environment Act 2023. The only other items that directly relate to agriculture are the government’s commitment to improve the quality of regulation, to cease implementation of new Significant Natural Areas and to seek advice on the operation of the existing areas.

 

Apart from those issues, there is a commitment to meet with councils and communities to establish reasonable requirements for the recovery from Cyclone Gabrielle and other major recent flooding events that have had a severe impact on some rural communities, particularly on the East Coast, Hawke’s Bay and the greater Auckland area.  As much as anything, we can expect to see a more collaborative approach to issues such as climate change and protecting the natural environment that, in the eyes of many in the agricultural sector, gives the sector (as one of the main drivers of our economy) the respect it deserves.

 

 

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Guest editorial by Miles Workman, Senior Economist, ANZ

In another of our occasional Fineprint guest editorials, we introduce the ANZs Senior Economist, Miles Workman, who has written on the state of New Zealands economy. It would be fair to say the economic outlook in the short-to-medium term is not massively rosy, but there is, however, some solace in that the Reserve Bank wants to contain inflation as much as possible.

Global and domestic inflation risks remain intense, but front-loaded official cash rate (OCR) hikes by the Reserve Bank of New Zealand (RBNZ) are mitigating against the risk that inflation continues to go the wrong way.

Many other central banks across the globe are now underway with their tightening cycle too and making all the right noises. ANZ Research fully expects them to tame inflation in time. The question is, how much tightening will it take and how much economic pain will it require?

War, high inflation, acute capacity constraints, falling house prices and weak consumer and business confidence all suggest downside risks to economic activity. But Covid-volatility is making it hard to separate the noise from the signal.

Provided New Zealand manages to avoid lockdowns in 2022, GDP data should settle down over the second half of the year (Q3 GDP data is released in December 2022).

That means Kiwis need to continue to look beyond GDP for a steer on economic momentum. And there are plenty of indicators suggesting underlying momentum is slipping.

Despite the very low unemployment rate, ANZ’s Consumer Confidence survey shows confidence is softer than during the 2008-09 recession, which is not a time retailers remember fondly.

While building consents are at high levels, ANZ Research’s Business Outlook suggests residential construction is poised to slow. Building cost inflation, construction delays and difficulty achieving presales as house sales and prices fall could very well see some of these consented projects scrapped. Anecdotally, that’s happening already.

There are other reasons to think tougher times lie ahead:

  • While New Zealanders are now free to travel abroad, international tourism isn’t expected to start picking up meaningfully until the 2022-23 summer – so tourist operators could have to navigate through a tough winter.
  • Conditions for key exporters are tough. Key export commodity prices are now slipping with global consumers less willing, or able, to pay top dollar for our produce. Soaring fertiliser prices along with difficulties in getting product to market and finding workers are also weighing on agricultural production.
  • Households are going backwards financially as inflation outpaces income growth. While ANZ Research expects growth in real (CPI-adjusted) hourly earnings will be positive by the end of the year, it’s a mixed blessing for the RBNZ that is, quite rightly, concerned about the possibility of a wage-price spiral developing.

All up, the drivers of economic momentum are particularly complex right now.

Overall, 2022 (which still has some Covid-related volatility to work through) should see GDP growth come in a little below trend (2.2% over the year to December), slipping further in 2023 (2.0%) and 2024 (1.7%). Risks to growth are to the downside.

Inflation will ease; it’s just a question of how high rates need to go (and for how long)

At around 7% year on year, CPI inflation is running at a 30-year high. While there are some significant inflation pressures stemming from global developments, domestic inflation is the primary concern for the RBNZ.

Non-tradables inflation (aka domestic inflation) is running closer to 6% year on year. This is the sticky kind of inflation that tends to be difficult to tame, and right now it’s far too high to be consistent with the RBNZ’s inflation target.

ANZ Research expects OCR hikes, supported by the general monetary tightening underway globally, will successfully take the heat out of inflation in time.

Given current inflation and capacity stretch, ANZ Research expects the RBNZ to deliver more out-sized (50 basis point) hikes in the near term, before pivoting to 25 basis point hikes from October, taking the OCR to a peak of 3.5% in November 2022.

It’s a fine balance for the RBNZ as it weighs up the risk of oversteering (engineering a hard landing for housing, economic activity and inflation) against ensuring inflation pressures don’t spiral out of control.

All up, the rebalancing act the RBNZ and other central banks are currently performing is riddled with risks and uncertainties. But the one thing we can be sure of is that they will be successful in taming inflation, it’s just a question of how high (and for how long) rates need to go.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650