Dairy's role in sustaining New Zealand - Fonterra

4. Production growth over the last decade
4.1 Headline results
At the national level, the growth in the dairy sector over the last decade has resulted in:
• New Zealand’s 2009 GDP increasing by $690 million, relative to what it would have been
had the dairy sector stagnated at 1998/99 levels. While labour and land can switch to
alternative uses should dairy have stagnated, productivity gains and capital accumulation
within the sector are net gains to the economy.
• New Zealand’s 2009 welfare as proxied by private and public consumption being
$1.1 billion higher than it would otherwise been. From the point of view of 1999, the
cumulative net present value (NPV) of the decade’s consumption growth to 2009 is $6.4
billion.
• The dairy sector’s strong export growth over the last decade has improved New Zealand’s
balance of trade, and allowed for increased consumption spending. This export growth
reduced New Zealand’s net foreign liabilities to GDP ratio by over 1%. Together with the
exchange rate appreciation, this saved $231 million in interest repayments on foreign
debt in 2009, or cumulatively $1.2 billion from 1999.
• Real wages in 2009 increasing by 0.9% as increasing incomes means increased demand
for goods and services, which in turn results in higher wages for employees.
Significantly, the gains from the growth in the dairy sector, including wage rises, are not just
felt within the sector itself, but more widely throughout the economy:
• Growth in the fertilizer and agricultural service industries, which supply the dairy sector
with intermediate inputs, are up by 0.9% and 4.3% in 2009, relative to what they would
have been if dairy stagnated.
• Industries where households spend their income, such as retail and housing, also benefit
from the growth in the dairy sector, with activity in 2009 0.5% and 0.9% higher than had
dairy not grown as experienced.
• These positive flow-on impacts have further flow-on impacts to the tax-take of the
government. Increased tax revenue coming in means more money to spend on essential
services such as schools, hospitals and police. In 2009, these sectors are 0.7%, 0.6% and
0.2% better off because of the growth in the dairy sector.
• Conversely, there are industries that have lost from growth in the dairy sector, most
notably the sheep and beef sector which competes for resources. Our modelling
suggests that this industry would have grown by an extra 10% over the last decade,
had dairy stagnated rather than grown. Similarly, other export industries such as textiles
and apples and pears suffered from a higher exchange rate, down by -2.3% and -3.0%
respectively.
Regionally, the results favour those areas where dairy farming has grown the most:
• Canterbury and Southland 2009 regional GDP levels are 1.4% and 1.3% higher than they
would have been had dairying not increased the economic activity within their districts.
• Hawkes Bay, with a strong dependence on fruit and horticulture, is 0.3% worse off
because of the currency appreciation caused by the growth in dairying.
Dairy’s role in generating growth
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