9 May 1986 1986 Graduation Ceremony - Diploma speech by Professor Bruce Ross, 9 May 1986

In my remarks to the Graduation Ceremony last year I stressed the need for us to be able to adapt to change if we
are to survive , and hopefully thrive, in a rapidly changing world. The events of the last twelve months have really emphasised that message in dramatic fashion, in ways that have implications for almost all of the Lincoln College Diploma courses .

The deterioration in the fortunes of farming, and to a lesser extent horticulture, over the last year has had a shattering impact on the confidence of many producers. Those of you taking up careers in farming or horticulture, or the associated servicing industries, must have wondered many times over the last twelve months whether the industry you are entering is going to be able to provide you with the career you had in mind when you started your studies at Lincoln College. Even those of you qualifying in Parks and Recreation must have become more aware of the extent to which economic factors, such as the exchange rate of the New Zealand dollar, can affect the demand for the services of your industry, and hence your own career prospects. The effect of an over-valued exchange rate on the number of tourists entering New Zealand, visiting our National Parks and recreational areas, is just as real as the effect of that exchange rate on the prices received by exporters for the goods they produce for overseas markets.

There is no denying the pain currently being experienced by a number of sectors of our economy, but my message this afternoon is basically that in the medium term there is good reason to expect that the economic environment in New Zealand will improve, and those of you who are receiving your Diplomas today will be well placed to take advantage of that improvement.

One of the major reasons for the current economic woes of both New Zealand and Australia is the form of agricultural policy adopted by most of the industrial nations of the Western World—most notably the United States, Japan, and nations of Western Europe, including but not only the European Community. All these countries have adopted policies which involve high levels of assistance to their agricultural industries, and in most cases the assistance comes in forms which encourage farmers to produce commodities in quantities well in excess of those which can be absorbed by their markets at the prices being paid. As a result, countries which formerly imported commodities from low-cost producers such as New Zealand now import much less, or actually export some of their production with the aid of considerable export subsidies, thereby disrupting international markets and driving down the prices received by traditional exporters.

These policies are not going to change overnight, but the pressures for change are certainly building up. It is my belief that the next few years will present us with the greatest opportunity for more than a generation to halt the growth of agricultural protectionism, and to begin the process of freeing markets for temperate agricultural commodities in the way that markets for manufactured products were freed in the 1960s and early 1970s. The United States of America provides about the same amount of assistance to its farmers as does the European Community, and assistance in Japan is proportionately even higher. But the key to progress lies in what happens to the Common Agricultural Policy of the European Community.

The United States justifies many support policies for American farmers on the grounds that they have been excluded from their formerly lucrative markets in Europe, and are now having to compete on world markets with subsidised European exports, and the Japanese often justify their agricultural policies by saying that they are modelled on those which have been so successful in Europe. So what are the chances of a change in Europe? The policies followed in Europe were originally designed for a situation which is markedly different from that which prevails today. Europe was seen as a basically food-deficit area importing vast quantities of commodities, particularly grain, from other parts of the world each year, and the agricultural sector was seen as generally very depressed by comparison with the then thriving and rapidly growing manufacturing sector.

Today the Europeans face a situation in which an affluent agricultural sector produces more than enough to supply the local market in most temperate-zone commodities, and the surplus has to be disposed of in some way. Generally this is done by providing an export subsidy, with commodities being sold at the world price and the European Commission paying exporters the difference between the world price and the price which is guaranteed on the internal European market. The extreme example of product disposal under present European policies is probably the purchase by the European Commission of milk powders at high prices, in order to render them unfit for human consumption, ready for sale back to farmers at low prices to feed to their cows to produce more milk.

In a situation in which the Europeans have become worried about the slow growth of the non-farming sectors of their economies, and where unemployment in the enlarged community has grown to about 15 million people, the Common Agricultural Policy is increasingly being questioned by the Europeans themselves. Originally the agricultural policies in Europe were based on the idea that if imports were taxed when they entered the country, internal prices would be somewhat higher, which would be of assistance to farmers, and the levies collected on imports could be used to finance direct payments by the European Commission to the farming sector.

With imports of many commodities having been eliminated, however, the source of revenue has also disappeared, and the exports have become a direct charge on the exchequers of countries which were already becoming worried about the size of their governments’ internal deficits. When it becomes increasingly apparent to the average European that much of the assistance, for which they pay so dearly, goes to wealthy farmers—whilst the peasant farmers, for whom many of the income support policies were originally devised, receive a very small proportion of the total assistance—the political forces for change become substantial.

Work with which I was associated in the Organisation for Economic Cooperation and Development in Paris has indicated quite clearly that if agricultural assistance is to be reduced, then the effect on farmers’ incomes will be minimised if other countries can be persuaded to reduce their assistance at the same time. Over the last two years the attitude of European delegates to the OECD has changed quite markedly. As they see pressure building in their own economies for change in the Common Agricultural Policy, they have come to realise that if they are going to be forced to reduce the levels of assistance to their own farmers, the impact on those farmers will be minimised if they can persuade other countries to reduce assistance to their farmers at the same time.

A forum in which such a multilateral reduction in assistance can be negotiated will be provided by the round of negotiations under the auspices of the General Agreement on Tariffs and Trade, which is due to begin in September of this year. With the United States having sponsored this round of negotiations, with the stated aim of reducing protection provided to the agricultural industries of all members of the GATT, it is not impossible that the negotiations—which are likely to drag out over the next two or three years—could produce significant results. Any worthwhile reduction in agricultural protectionism would have major beneficial consequences for the New Zealand economy as a whole and the farming industry in particular.

Regardless of any longer-term benefits which may flow from a freeing of trade, however, the farming industry has some immediate problems at home, but they are not all without some silver lining. Many of those farmers who are in the greatest difficulty at the moment are those who purchased land at the greatly inflated values of three or four years ago. An examination of the record shows that in the early 1980s land prices rose at a rate which bore no relationship whatsoever to the prices of farm commodities. A correction of land values at some stage was inevitable, and whilst one has great sympathy for those who have seen their equity diminish or even vanish over the last two years, there is no denying that those entering the farming industry now or in the near future will have the great advantage of paying a price for their land which bears a close relationship to the earning power of that land.

Despite the Western world’s excess of production of farm commodities, technology has not been standing still, though it is interesting to note that European governments are increasingly questioning the rationale of high government expenditures on research which will ultimately lead to the government having to pay out higher support for production which is not needed. In the New Zealand situation, whatever happens to agricultural protection, it will be the technically innovative and financially adroit farmer who will enjoy the greatest success in the years ahead, and the knowledge that those of you studying for Diplomas in Agriculture or Horticulture should have acquired will stand you in good stead in the years to come.

It seems likely that you are entering the agricultural and horticultural industries at a very opportune time, with the primary industries, along with many other sectors of the New Zealand economy, being restructured in a way which will help to ensure their long-term prosperity. In the meantime we have to hope that the speed and form of the restructuring does not cause much more pain and suffering than has already been borne by the farming industry.

Those of you leaving here with other Diplomas have also acquired skills and knowledge which should enable you to enter careers of your choice. At the same time I hope you have all acquired a flexibility of outlook which will enable you to consider and undertake, if necessary, a number of different careers during the course of your working life. Training in recreation management, field or wool technology, or rural secretarial practice provides many basic skills which can be applied in many walks of life.

I congratulate you all on your success in obtaining your qualifications, and I wish you well in your careers.