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
• 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 expected.
• 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
• 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
• 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.
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
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
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 worse.
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
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 subsidies
According to the Kiwi outlook, the ill effects of subsidies include:
- 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 food
- The encouragement of overproduction, which then drives down
prices and requires more subsidization of farmers’ incomes.
- The related encouragement to farm marginal lands, with resulting
- 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 for
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 assistance
• Today 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 businesses.
• 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% a year.
• 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
• 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 agricultural research.
• 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
Laura Sayre has been working on organic farms and writing about
agriculture since 1991.