Outsider perspectives

By Eric Crampton 28/03/2015 1


It’s interesting to contrast Alan Bollard’s take on New Zealand with Daniel Davies’s.

Bollard’s address for the NZ Initiative at PWC last week highlighted what the APEC Chair and former RBNZ Governor thought about the place: too little investment in the higher value R&D and marketing activities, too much hewing of wood and drawing of milk. Oliver Hartwich’s summary is good.

I asked him there what’s stopping Kiwi businesses from picking up the $20 notes laying on the sidewalk if there are such great returns in those activities: whether Kiwis are just stupid; whether there are regulatory impediments to their being able to realise returns; whether they’re already innovating and he’s not noticed it; or whether a lot of that work is really better done elsewhere and that pushes for value-added here might not be value-destroying.

He noted that Fonterra is constrained by its cooperative structure and that capital markets here might not be deep enough. I note that Fonterra is investing into Chinese dairy to have better understanding of and access to Chinese markets, that they’re already doing a lot of milk processing beyond straight powder drying, and that opening to greater foreign investment seems a decent idea. I’m pretty agnostic about Fonterra’s governance structure, but that too would seem a $20 note on the sidewalk: if they could be so much more valuable under a fully corporate structure, they will eventually convince their farmer-members of it.

Tyler Cowen points to Dan Davies’ review of New Zealand. One relevant bit:

The key to understanding the economy of New Zealand is that it’s an industry cluster, and the industry in question is agriculture. Or, and this might be a bit more controversial, the industry in question is agriculture marketing, the most perfect example of which being the way in which the Chinese gooseberry was renamed the “kiwifruit” and production ramped up exponentially to meet US and European demand. At some point, if they can transport them without bruising, I’d guess that they’ll have a go at doing the same thing with the Feijoa, a kind of South American guava that’s very popular domestically. Marketing isn’t looked down on as a frivolous activity for people not clever enough to do science in New Zealand, as far as I can see – farmers, if they want to enjoy middle-class incomes, have to be very aware about the difference between the stuff that comes out of the ground or off the animal, and the sort of thing that people want to see in their shops.

They are really very snappy about working out what the world wants and how to give it to them. Australian wine starts selling in the UK? Bang – New Zealand plants a load of vines. The Marlborough region develops a brand premium for Sauvignon? Bish bosh, ship truckloads of chardonnay grapes from Hawke’s Bay down to Marlborough and you can sell Marlborough Chardonnay too. Craft beer, did someone say? New Zealand agriculture is on the case, digging up the less successful vineyards and ramping up on a dozen new specialty varieties of hops. It is one of the few agricultural industries in the world which has basically no subsidies or tariff protections, and as a result they are just so much sharper and more responsive; it’s a perfect example for anyone wanting to talk about X-inefficiency in their economics class.

What’s interesting is that the general level of awareness of agricultural matters, and of the trends and fashions in global foodstuffs, is very widespread and very detailed. Over a barbecue, my brother-in-law asked me why I thought it might be that Europeans were prepared to pay such big money for manuka honey these days, and mentioned that a friend of a friend had been putting in more beehives. He had no real personal interest in apiary as far as I could see – he has a good job helping to keep the dairy giant Fonterra’s vast logistics chain of tanker trucks moving. It’s just the sort of thing that one makes conversation about in New Zealand, same as I might, six months earlier, have asked someone at a similar party what they thought about house prices. House prices are a common topic of conversation too, by the way, it’s not a totally alien culture.

From Singapore, Bollard’s current home, New Zealand can seem lacking for want of the kinds of things that Singapore is very very good at. But Davies’s take is more like mine. Some of the kinds of innovation here undertaken would have been next to impossible in supply-managed Canada.


One Response to “Outsider perspectives”

  • Eric thanks for an interesting post. What seems to me to be the underlying issue here is that because New Zealand is a political entity, people think it must needs be an economic one. There are ways this has to be true, but in most ways it is an illusion. As it stands New Zealand is surprising good at capturing some of the 91 per cent, but it is also good at recognising when it can’t and shouldn’t. Icebreaker for example, moved part of its design/marketing team from New Zealand to Seattle to be close to the main market that will wear the goods – whose wool is grown in New Zealand, processed here maybe to some degree, and finished off in China*.

    Dr Bollard’s larger point is perhaps not well represented by a jacket but an idea. All these elements he talks about are not linked to any single thing. They can be employed in lots of different physical or service industries and those who come out on top and stay there will have fingers in any pie that tastes good. That’s what is important seems to me: to be intimately insinuated in the global economy in every way possible. I reckon NZ generally is doing ok at this and if more trade barriers come down, will do even better.

    *This is from memory and might not be totally accurate but if it isn’t the point remains the same.