The latest Fonterra debacle holds many lessons.

One is that all companies chasing profit screw up, whether they build dams, frack for oil, mine coal, or create software. Why? Corners get cut. And not necessarily because of deliberate malevolence. Rather, because the competitive pressure is so intense — do it faster, cheaper … bury mistakes.

But perhaps most importantly, the Fonterra mess exposes the enormous risk inherent to a country — and, by analogy, a province — being so dependent upon a single source of economic wealth.

For New Zealand, the silver bullet is dairying, which represents 13% of our export value. We annually sell about $2 billion in dairy products to China. As a columnist in the staid National Business Review observed today:

“We are, as an economy, totally reliant on one company for wellbeing.

This, then, is the heart of the matter. Forget the grubby pipe and the botulism. Put aside the PR debacle of sitting on the news for months and then holding a press conference with no information.

That we are utterly reliant on one source for our income is the real catastrophe here.”

The danger of being what some call a ‘one trick pony’.

And that doesn’t even speak to the damaging spillovers as the NZ brand is tarnished globally across the board. Here are just three accounts, from literally over 4 million found when one googles ‘Fonterra botulism China’, that illustrate the reach of this body blow. From The Guardian, the New York Times, and China Daily.

Here in Hawke’s Bay, whenever one attends an official forum on regional economic development, 99% percent of the discussion is consumed by hand-wringing over the perilous state of our farming-led economy and ways to save it (or conversely, blue sky fantasizing over its limitless future … if only we had a dam).

The recent Winder report on Hawke’s Bay’s socioeconomic performance advised that the region could be more prosperous if it were able to “diversify and significantly deepen its economy” and “insulate itself to some degree from the cyclical nature of primary production”. By “cyclical” he was talking about things like commodity prices and the weather.

But perhaps we should add the foibles of Fonterra pipe cleaners and the edicts of alarmed Chinese politicians.

An investment of probably $300 million in a CHB dam (which requires an additional $300 million in CHB farmer investment — read borrowing — to hold water) is a bet on the one trick pony.

It’s not at all clear that a dam serving perhaps 150 farmers (assuming 100% uptake) is the best way to advance the region’s farming sector or make it more resilient, let alone serve as the best way to invest in growing a more diversified and sustainable Hawke’s Bay economy.

But leaving aside the critical need for diversification and higher paying jobs, just consider the goal of more farm production.

Some make the case that a more modest investment in land care in the region would deliver more bang for the buck, improving food production and quality while naturally increasing the water storage capacity of our soils.

Or, consider what’s happening in Palmerston North, where $250 million will be spent over 12 years to create a new food science hub called “Food HQ”. This is an imaginative collaboration between Massey, AgResearch, Plant and Food, the Riddet Institute, private companies and two local councils. I’ll bet the researchers at Food HQ will be paid heaps more than our packers and pickers.

Our Regional Council has no such imagination … hey, but we do have a MOU with Massey!

Time to re-boot. ‘Same-old’ ain’t going to get the job done.

Tom Belford

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3 Comments

  1. A bit trite, I know, given the seriousness of the Fonterra debacle, but I wonder if HBRC councillors are listening to the commentaries on “perceptions” … While they might argue that perceptions are not reality, we have market commentator, Arthur Lim, on RNZ’s Nine to Noon, stating the perceptions in China are that Fonterra (the front for NZ) is perceived to have made a massive ‘botch up’ and is calling for heads to roll.
    For China, food integrity is paramount, he says. “the damage is profound”. He further states “the whole world is watching and reading. Social media is extremely powerful and this is a major, major story. NZ is not ‘getting’ what is required to communicate with this market”
    “They have every reason to hammer us” Arthur Lim says. “With one pronouncement, the Chinese government can strip the shelves of NZ dairy products. There is a lot at stake”
    Just add oil & gas & fracking, and we could wipe NZ off the world market as one of a very few sources of reliable ‘clean and green’ producers!
    Does anyone ‘up there’ understand what is at risk? Could we think about being known as innovative; smart; and a world leader?
    We could, if there is a will.
    HBRC councillors – take note of the power of “perception”

  2. You’re stretching a long bow by applying the disastrous Fonterra melt-down to the Hawke’s Bay economy Tom. But every cloud has a silver lining and there just might be one in there somewhere. If you are worried about a “province being so dependent upon a single source of economic wealth” – that is, a ‘one trick pony’ – then Hawke’s Bay is definitely the place for you. We have the most diverse land-based economy in the country!
    True, no doubt you will say, it’s land based, but what have these industries otherwise got in common (not necessarily listed in order of importance)? Meat, wool, milk, pip fruit, stone fruit, a whole range of annual process crops, viticulture (including its tourism dimension), fresh crops like squash and onions, grain crops, radiata softwood? Producing these products is our strength, the result of our land, climate, water and – most importantly, though something you will never emphasis – skilled practitioners and those who service them. So developing and expanding upon them is a compelling commercial cause.
    In fact, dairying is a small player in this region’s economy. We have just 3% of the national herd, and much of that is in the Taupo District, and all processing done in Taranaki. Only Gisborne has fewer dairy cows.
    Actually, talking of Taranaki; in recent times it has done better economically than Hawke’s Bay with it’s two – trick pony, dairying and petroleum, the two industries that you love to hate.

  3. Ewan,

    Something you apparently simply can’t comprehend — or won’t — is that I never under-value the importance of HB’s land-based economic sector. In fact, I argue regularly in BayBuzz and other forums that we could get even MORE value out of the sector with smarter and more sustainable farming.

    That said, there’s no rationale whatsoever for NOT pursuing broader diversification of our region’s economy. It’s plain common sense.

    We can have more — and better paying — jobs in HB AND protect our environment. But facilitating that will require more imagination from the Regional Council than you and your fellow incumbents have shown.

    Taranaki? Success to copy? The verdict’s out on that.

    Today’s paper reports that Taranaki has one of the worst health care profiles in NZ. Maybe if folks over there weren’t spending so much time waiting for medical treatment, they could squeeze out more oil & gas ‘wealth’ out of the ground.

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