Zealand dairy scene, east of Rotorua: Output and
net incomes for the New Zealand dairy industry are higher
now than before subsidies ended--and the cost of milk production
is among the lowest in the world.
in New Zealand: Some
indicators of change
The information below came from a December 2003
meeting in England focused on establishing a future
for agriculture through market development and
the reduction of subsidies.
At the December meeting, Ian Warrington, professor
of Horticulture at Massey University in New Zealand
detailed the impact of farming without subsidies
on New Zealand agriculture since 1984.
Here is a summary of his findings, provided by
David Atkinson of the Scottish Agricultural College:
Agriculture in New Zealand, pre-1984, was built
on good demand for agricultural products, strong
commodity prices, compensation for costs and support
for exports. This was not sustainable; it increased
the production of low value commodities, insulated
the industry from the market, lead to inappropriate
resource use and inhibited innovation.
• The response to the post-1984 changes
varied: disbelief, anger, acceptance and positive
action all accrued. Initially, farm profitability
halved and lead to sales of non-critical resources
and a reduction in costs. The number of forced
sales however were fewer than might have been
• Changes eliminated subsidies--e.g., concessionary
farm loans, free advisory services--but did not
remove all support. Control of the inflation rate,
reduction of the Government deficit, liberalization
of regulations, reform of commercial and tax policies,
floating exchange rates, more indirect taxation
and increased public sector efficiency all helped.
SPECIFIC CHANGES IN MARKETING AND FARMING
• Since 1984 farming has become more efficient
and more responsive to market signals.
• Output and net incomes in some sectors
e.g. dairy are higher now than in 1980. Total
assistance, as a % of output, has fallen, from
30% in 1984, to 3%. Total lambs produced, lambing
% and lamb carcass weight have all increased.
The cost of milk production is among the lowest
in the world.
• Uptake of new technologies has increased
e.g. ICM systems, new crops, new varieties e.g.
kiwi fruit variants.
• Since 1984 horticultural exports had expanded
by a factor of 5 in value but also in terms of
diversity of products and destination; 10 countries
in 1980, 102 in 2002.
• Export was driven by availability of produce
wanted by the market, quality, value, innovation
and convenience. The New Zealand horticultural
industry now resembled NIKE in many respects.
“The New Zealand experience
strongly suggests that most of the supposed objectives
of agricultural subsidies and market protections—to
maintain the traditional appearance of the countryside,
to protect the environment, to ensure food security
at home and combat food scarcity abroad, to help the
family farmer and to slow the corporate take-over of
agriculture—are better achieved by their absence.”
||“Removing subsidies forces farmers
and farm-related industries to become more efficient,
to diversify, to follow and anticipate the market. It
gives farmers more independence, and gains them more respect.
It leaves more government money to pay for other types
of social services, like education and health care.“
Posted MARCH 20, 2003: What would the world
look like without agricultural subsidies? What would the United
States look like? If a crystal ball exists for those questions,
its name is New Zealand, one of the first and still one of
the few modern countries to have completely dismantled its
system of agricultural price supports and other forms of economic
protection for farmers.
Brace yourself: this is free-market faith to make Adam Smith
proud. But the New Zealand experience is pretty persuasive.
Well into its second decade of subsidy-free farming, New Zealand
enjoys a worldwide reputation for its high-quality, efficient
and innovative agricultural systems.
New Zealand agriculture is profitable without subsidies,
and that means more people staying in the business. Alone
among developed countries of the world, New Zealand has virtually
the same percentage of its population employed in agriculture
today as it did 30 years ago, and the same number of people
living in rural areas as it did in 1920. Although the transition
to an unsubsidized farm economy wasn’t easy, memories
of the adjustment period are fading fast and today there are
few critics to be found of the country’s bold move.
||“New Zealand agriculture is
profitable without subsidies, and that means more people
staying in the business: Alone among developed countries
of the world, New Zealand has virtually the same percentage
of its population employed in agriculture today as it
did 30 years ago, and the same number of people living
in rural areas as it did in 1920.”
A mini-history of Kiwi agriculture
So how did they do it? Where did the political will power
come from, and what was the fallout like? Here’s a mini-history
of New Zealand agriculture. Prior to European settlement,
the indigenous Maori cultivated kumara (Polynesian sweet potato),
taro and gourds in addition to fishing and hunting native
birds for food. Officially claimed by the British Crown in
1840, in the nineteenth century and for much of the twentieth,
New Zealand became Great Britain’s agricultural hinterland,
supplying first grain and wool, and then—after the development
of refrigerated shipping in the 1880s—meat and dairy
products to Britain and other parts of the British Empire.
As late as 1964, New Zealand sent 61% of its total meat exports
(lamb, mutton, beef and veal), 94% of its butter, and 87%
of its cheese to the UK. Disruptions of this pattern during
the First and Second World Wars, however, encouraged New Zealand
to adopt increasingly protectionist policies, placing tariffs
on imported industrial goods and establishing Producer Marketing
Boards for the major commodity groups from the 1920s, designed
to represent farmers’ interests and to act as single
sellers in the global marketplace.
Like the US, New Zealand suffered a major economic depression
in the 1930s and enjoyed a boom period in the 1950s, as post-war
consumption levels rose and war-time technologies found new
agricultural applications like fertilizer and pesticide production
and improvements in transport. (On New Zealand’s rugged
landscapes aerial topdressing of pasturelands was widely adopted,
and helped boost productivity.)
Several factors threatened the comfortable prosperity of
NZ agriculture in the 1970s. The independence of the Pacific
Island of Nauru in 1968 spelled the end of New Zealand’s
supply of cheap phosphate rock, mined there and on other so-called
‘phosphate islands’ since the early part of the
century. Four years later, in 1972, Britain’s decision
to join the European Economic Community (now the European
Union) signaled a major realignment of global trading relationships,
in which New Zealand’s position as a Commonwealth country
would no longer guarantee special consideration for its agricultural
products. Finally, and again as in the US, rising world oil
prices triggered a period of escalating inflation, making
it increasingly difficult for farmers to secure good prices
on the international market.
Governmental policy at this time exacerbated the situation
by seeking to boost agricultural production based on the hope
of greater returns—farmers were offered subsidies to
purchase more fertilizers, and tax breaks for increasing herd
sizes—further depressing commodity prices through oversupply.
In part because of the recognized importance of agriculture
within the national economy, farmers were also offered price
supports, low-interest loans, disaster relief, weed-eradication
subsidies and special training programs to get them through
the hard times. As the laundry list of farm support programs
grew, it became an increasingly impossible burden for this
small national economy to bear, threatening to further undermine
the stability of the whole system.
Talk about shock and awe: farm leaders
in New Zealand among the first to advocate an end to subsidies
Interestingly, farming leaders were among the first to recognize
the absurdity of the situation and to propose alterations,
although they stopped short, at first, of advocating the total
elimination of agricultural subsidies. In 1982, Federated
Farmers of New Zealand (New Zealand’s leading farmer
organization) submitted to the government an economic position
paper declaring that controlling inflation, rather than compensating
farmers for the consequences of inflation, should be the national
priority. They reasoned that a key cause of inflation was
the budget deficits required to fund farm subsidies (among
other programs), so that more subsidies only made the problem
While most of the Federated Farmers’ specific recommendations
were rejected by then-Prime Minister Rob Muldoon, the cat
was out of the bag: economic analysts from across the political
spectrum began to the debate the effects of subsidies and
other forms of market intervention, and when the Labour Party
won a landslide election in 1984 (defeating Muldoon and the
National Party) the country was ready for reform.
Because most NZ farmers were traditionally National Party
members, the process of reform was to some extent bipartisan.
Agricultural reform was also part of a larger package of economic
restructuring that included the scaling back of import tariffs;
deregulation (or partial deregulation) of public utilities
and transport systems; implementation of New Zealand’s
first ‘goods and services’ tax (or GST—similar
to the US sales tax); and floating of the NZ dollar on the
global currency exchange. Further reforms were implemented
after the National Party was voted back into power in 1990.
All of this was not achieved without some controversy, and
there were a few casualties, both political and economic.
It is estimated that around 800 farmers—or 1% of the
total number of commercial farmers in operation—were
forced to leave the land. Sheep farmers, who as a group were
the most heavily subsidized, were (not surprisingly) hardest
hit by the elimination of subsidies. Those farmers who were
heavily in debt at the start of the reform period were hit
hard by rising interest rates, and a transition program was
negotiated to ease their situation. Farm-related sectors like
packing and processing, equipment and chemical supply, and
off-farm transport also suffered, but this was regarded as
evidence of their previous inefficiency. Overall the ‘transition
period’ lasted about six years, with land values, commodity
prices, and farm profitability indices stabilizing or rising
steadily by 1990.
Ever since then, the New Zealand experiment has been gradually
gaining attention—and respect—around the world.
NZ agricultural leaders are invited to speak to international
audiences about their country’s experience dismantling
subsidies, and foreign officials come to New Zealand to inspect
the results first hand. Analysts in Europe scrutinize the
NZ example as they draft proposed reforms to the EU’s
Common Agricultural Policy (CAP). In 2001 Alistair Poulson,
chairman of NZ Federated Farmers, told the BBC News that the
average New Zealand farmer’s advice to his or her colleagues
in other countries would be to “get off the subsidy
gravy train as soon as possible.”
Why New Zealanders don’t like
According to the Kiwi outlook, the ill effects of subsidies
- Resentment among farmers, some of who will inevitably
feel that subsidies are applied unfairly.
- Resentment among non-farmers, who pay for the system once
in the form of taxes and a second time in the form of higher
- The encouragement of overproduction, which then drives
down prices and requires more subsidization of farmers’
- The related encouragement to farm marginal lands, with
resulting environmental degradation.
- The fact that most subsidy money passes quickly from farmers
to farm suppliers, processors, and other related sectors,
again negating the intended effect of supporting farmers.
- Additional market distortions, such as the inflation of
land values based on production incentives or cheap loans.
- Various bureaucratic insanities, such as paying farmers
to install conservation measures like hedgerows and wetlands—after
having paid them to rip them out a generation ago, while
those farmers who have maintained such landscape and wildlife
features all along get nothing.
Removing subsidies, on the other hand, forces farmers and
farm-related industries to become more efficient, to diversify,
to follow and anticipate the market. It gives farmers more
independence, and gains them more respect. It leaves more
government money to pay for other types of social services,
like education and health care.
Down-under advocates for a new future
New Zealand has a strong interest in trumpeting subsidy-free
agriculture, of course, since NZ farm exporters are at a disadvantage
on the global market with respect to their subsidized counterparts
in Europe and the US. Almost since the reform process began,
New Zealanders have been doing just that.
New Zealand was a founding member of the Cairns
Group (named for Cairns, Australia, the location of the
group’s organizing meeting), a consortium of agricultural
trading nations that banded together in the mid-1980s to lobby
for liberalization of trade rules on agricultural products.
Cairns Group countries—the other member states are Canada,
Brazil, Colombia, Argentina, Uruguay, Chile, Fiji, Australia,
the Philippines, Malaysia, Thailand, Indonesia, and Hungary—depend
heavily on agricultural exports to maintain their balance
of trade, and they argue that agricultural subsidies and import
tariffs in places like the US, the EU, and Japan are unfair:
industrialized countries have grown rich through free trade
in manufactured goods, and are now using that wealth to block
less-industrialized countries from bringing their (agricultural)
goods to market under similarly liberal terms.
As Brian Chamberlin, president of NZ Federated Farmers in
the late ‘80s and a vocal advocate of free-market farming,
has written, “It is not an exaggeration to say that
for every rural school kept open by European sheep subsidies
in Scotland, Wales, or France, one is closed in a rural area
somewhere else in the world.”
Save family farms? Eliminate subsidies,
suggests New Zealand experience
The New Zealand experience strongly suggests that most
of the supposed objectives of agricultural subsidies and market
protections—to maintain a traditional countryside, protect
the environment, ensure food security, combat food scarcity,
support family farms and slow the corporate take-over of agriculture—are
better achieved by their absence.
How the farmer was impacted by lack of government
New Zealand has around 80,000 farm holdings on 15.5
million hectares (38.3 million acres). The number
of farms has held steady since subsidies were removed;
land area has fallen slightly as marginal land has
been turned over to forestry or allowed to revert
to native bush.
• Since subsidy removal the agricultural
sector has grown faster than the rest of the economy.
Agriculture’s contribution to the New Zealand
gross domestic product (GDP) has risen from 14.2%
in 1986-87 to 16.6% in 1999-2000. Agriculture
accounts for 11.4% of the total workforce.
• Rural population has kept pace with national
population since 1986. Employment on farms has
fallen somewhat, but these losses have been balanced
by increased rural employment in tourism-related
• The number of forced farm sales directly
resulting from the removal of subsidies is estimated
at 800, or 1% of the total number of farms.
• Agricultural productivity has gone up
5.9% a year on average since 1986. Prior to 1986
agricultural productivity gains were about 1%
• The total number of stock units on New
Zealand farms has fallen by 9% since 1987. Sheep
numbers are down by 29%, but cattle numbers are
up by 35%. Sheep farming was the most heavily
subsidized sector within agriculture.
• In 2001 governmental assistance to agriculture
was equal to just 1% of the value of agricultural
output, compared to an average value for developed
countries of 31%. Remaining assistance in New
Zealand is primarily in the form of funding for
• Around 90% of New Zealand’s total
farm output is exported. These exports account
for over 55% of total merchandise exports. Most
food consumed in the country is domestically produced.
Data summarized from “Life After Subsidies:
The New Zealand Farming Experience 15 Years Later”
(2002), Federated Farmers of New Zealand (Inc).
Keep a basic social security framework for farmers as for
urban residents, keep funding for agricultural research, the
Kiwis argue, keep environmental barriers like measures to
keep agricultural pests from leaping around the world, and
do away with the rest.
Many, if not most, ‘alternative’ farmers in the
US do not benefit from the elaborate system of protection
and assistance represented by our enormous bi-decadal Farm
Bills. Perhaps it’s not surprising, then, that much
of the agitation for reform of agricultural funding in the
US is just that: reform, not abolition, trying to figure out
how to stop funding the forms of farming we don’t like
and secure more funding for the forms of farming we do like.
It’s tempting for organic farmers in the US to look
longingly over at the EU, where countries like Britain, Denmark,
and Germany have been paying farmers to convert to organic
but organic farming is growing fast in New Zealand, too, without
the direct help of the government. Instead they relied on
farmers' ability to follow the market and decide the best
future for his or her farm.
Interestingly, advocates of sustainable farming in the US
tend to be hostile toward the idea of international trade
liberalization for agriculture—remember the heated debates
surrounding the Uruguay Round of the General Agreements on
Tariffs and Trade (GATT) in the late ‘80s and early
‘90s? The strange thing about discussions of free trade
is that they tend to bring out contradictions in people’s
thinking. Like I said, this is free-market faith to make Adam
Smith proud. But the New Zealand example is pretty persuasive.
Laura Sayre has been working on organic farms and writing
about agriculture since 1991.