Dairy's role in sustaining New Zealand - Fonterra

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20 Dairy’s role in generating growth because of the currency appreciation caused by the growth in dairying. 4.2 Detailed results 4.2.1 Direct impacts 4.2 Detailed results The direct 4.2.1 impacts Direct are impacts the gains of the dairy sector over the last decade. Figure 8 shows that the dairy sector grew substantially between 1998/99 and 2008/09. Milk The direct impacts are the gains of the dairy sector over the last decade. Figure 8 shows solids output that the increased dairy sector grew by substantially 58%, use between of land 1998/99 grew and by 2008/09. 25%, Milk while solids total output factor productivity increased remained by 58%, usepositive of land grewfor by 25%, most whileof total the factordecade, productivitybefore remaineddropping, positive unsurprisingly, for most of during the decade, the drought before dropping, seasons. unsurprisingly, Productivity during growth the drought is likely seasons. to return to positive Productivity trend levels growth now is likely that to more return‘normal’ to positiveclimatic trend levels conditions now that more have ‘normal’climatic returned. The sector’s conditions employment have grew returned. by The around sector’s 7,500 employment FTEs. grew These by around gains 7,500 would FTEs. have These been gainslost if dairy remaining would have stagnant been lost if at dairy 1998/99 remaining levels. stagnant at 1998/99 levels. Figure 8 Dairy gains since 1998/99 Figure 8 Dairy gains since 1998/99 Source: Dairy NZ Source: NZIER 4.2.2 Indirect impacts on other industries 4.2.2 Indirect impacts on other industries A growing dairy sector indirectly impacts other industries. These indirect impacts can be split A growing into dairy the following sector categories: indirectly impacts other industries. These indirect impacts can be split into • Supplying the following industries categories: – industries that supply dairy with intermediate inputs are likely to benefit from a stronger dairy sector. Both agricultural services and the fertilizer industry • Supplying industries – industries that supply dairy with intermediate inputs are achieve significant gains, up 0.9% and 4.2% in 2009 versus where they would have been likely to benefit from a stronger dairy sector. Both agricultural services and the had dairy not grown over the last decade. fertilizer industry achieve significant gains, up 0.9% and 4.2% in 2009 versus where • they Household would expenditure have been industries had dairy – industries not grown that households over the last spend decade. money on are likely to benefit from increased income that comes through employment and wages, and increased returns to capital from a growing dairy sector. Retail trade and real estate are both up: 0.5% and 0.7% respectively. • Government industries – industries that rely on government funding are positively NZIER – Dairy’s impacted role in by generating a stronger economy growth 22 and bigger tax takes, as this increases the money available for the government to spend. Spending on hospitals, schools and police are up 0.6%, 0.7% and 0.2% respectively. • Competing export industries – industries that compete for resources (such as land and labour) with the dairy sector lose from dairy’s growth. Sheep and beef, in particular, grew by 10% less, crowded out by the growth in dairying. Similarly, apple and pear and the textiles industry both suffer from a higher currency that is a result of the growth in dairy.
Table 9 Indirect impacts 2008/09 Percentage deviation from BAU levels, selected industries Industry Type Impact Agricultural services Supplying 0.9% Fertilizer Supplying 4.2% Retail Household expenditure 0.5% Real estate Household expenditure 0.7% Residential property Household expenditure 0.9% Schools Government 0.7% Hospitals Government 0.6% Police Government 0.2% Apple and Pear Competing export -2.3% Sheep and Beef Competing export -9.9% Textiles Competing export -3.0% Source: NZIER 4.2.3 Macroeconomic effects The overall national result for the case study of the growth in the dairy sector over the last decade, relative to a case where it stagnated at 1998/99 levels, is a real GDP gain of 0.37% by 2009, or around $690 million. The result is positive for NZ Inc because of: • export, capital and productivity gains that accrued over the last decade within the dairy sector • positive flow-on impacts to supplying industries, household expenditure industries, and government funded industries. The NEB/welfare gain for New Zealand, proxied by private and public consumption (household and government spending respectively), is an increase of 0.8%. That represents a gain of $1.1 billion of consumption in 2009, relative to BAU. The NEB result is greater than the GDP gain for the same reasons given in section 3.2.3. An alternative way to think about the gains from growth in dairy production is through their cumulative effect. In each year there is an increase in consumption that is enjoyed by consumers. So far, we have measured that by giving the gain in 2009 of $1.1 billion. Examining instead the net present value (NPV) of the years’consumption gains gives a better picture of the cumulative benefit to the nation. 11 From the point of view of 1999, the NPV of the decade’s consumption growth to 2009 is $6.4 billion. That is to say the gains realised from 1999-2009 are equivalent to the nation’s consumption increasing by $6.4 billion in 1999, which would have been 4.3% of 1999’s total consumption. The significant export gains from dairying reduce the ratio of New Zealand’s foreign debt to GDP by over 1%. Together with the exchange rate appreciation, this saves the country $231 million in interest repayments on foreign debt. Across the decade, the NPV of the interest savings from the viewpoint of 1999 total $1.2 billion. These positive impacts are partially offset by crowding out of the sheep and beef and other exporting industries that suffer from a currency appreciation, and the decreased availability of resources (capital, labour and land). Our modelling captures the fact that land or labour not being used by a growing dairy sector could have been used by other industries such as sheep and beef. This dampens the impact of the growth in the dairy sector, but doesn’t fully offset it. 12 11. We use the Treasury’s preferred social discount rate of 8%pa. 12. We do not consider Crown costs associated with the increased greenhouse gas emissions resulting from dairy production. In our modelling framework, if dairy had not grown since 1998/99, other sectors would have soaked up the spare resources (land, labour, capital, energy, etc). These sectors would then have produced additional emissions. Ascertaining the net effect of this shift in production is difficult. Dairy’s role in generating growth 21
Page 1 and 2: Dairy’s role in sustaining New Ze
Page 3 and 4: Key points Dairy makes a very stron
Page 5 and 6: It drives many rural economies: “
Page 7 and 8: Contents 1. The current contributio
Page 9 and 10: 1. The current contribution of dair
Page 11 and 12: Table 2 Export values $ millions, 2
Page 13 and 14: Figure 3 Importance of dairy to reg
Page 15 and 16: Table 3 Farming industry structure
Page 17 and 18: 2. Modelling dairy’s economic con
Page 19 and 20: Figure 5 Change in milk solids pric
Page 21 and 22: 3. Milk solids price spike 3.1 Head
Page 23 and 24: Table 5 Indirect impacts 2010 Perce
Page 25 and 26: Figure 7 Gross regional product imp
Page 27: 4. Production growth over the last
Page 31 and 32: Figure 9 2009 Gross regional produc
Page 33 and 34: Appendix A CGE modelling framework
Page 35 and 36: Figure 11 The MONASH-NZ database Fi
Page 37 and 38: At the activity level, intermediate
Page 39 and 40: Table 12 IO vs. CGE multipliers Mul
Page 41 and 42: Appendix D References Bandara, J. S
Page 43 and 44: Farming Milk & cream Ice cream Chee
Page 45 and 46: Farming Milk & cream Ice cream Chee
Page 47: Appendix G Changing dairy export ma

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