NZ will handle global upheaval

Former diplomat and trade negotiator Tim Groser is upbeat about the red meat sector’s prospects, despite the global challenges. By Sandra Taylor.

In Business8 Minutes

Former diplomat and trade negotiator Tim Groser is upbeat about the red meat sector’s prospects, despite the global challenges. By Sandra Taylor.

Despite global economic and geopolitical challenges, this country’s red meat industry will be just fine, the former diplomat and National government minister said.

While Groser acknowledged the challenges the sector was facing, he said New Zealand’s agricultural export economy has dealt with far worse, most notably in 1973, the United Kingdom, which took about 50% of this country’s agricultural exports, joined the European Economic Community and its unreformed Common Agricultural Policy.

Groser told farmers at Silver Fern Farms’ recent Plate to Pasture conference in Christchurch, “we had nowhere to go as a country”.

“There were no rules applying to agriculture, it was the wild west out there.”

China wasn’t even on the radar as a potential market and there was deep concern across the political divide about this country’s future.

“Sure, we face global challenges and new threats, but we’ve made enormous progress over the last 40 or 50 years and I think we’ll get through it.”

The sector has shown enormous resilience over the years and he encouraged the industry to continue to invest in innovation, listen carefully to what the markets are saying and above all, keep the faith.

NZ farming sector has a first-class system that has proved time and again to be resilient.

“We have demonstrated resilience, we have faced new challenges and if I was to sum up the overarching conclusion, we will be fine, we will get through this.”

The challenges facing the sector can be put under two broad headings, the first is changes in the global macro-economic environment, which will affect NZ’s customers, and the second is sharp geo-political shifts, particularly the Russian invasion of Ukraine and the tough environment with China.

Looking at macro-economics, Groser said the situation was clearly heading south and will impact consumer demand.

“We just have to work our way through it.”

He doesn’t believe there will be a soft landing, but he acknowledged the work Adrienne Orr, the Governor of the Reserve Bank has done to begin the tightening cycle, well ahead of other countries.

Groser was dismissive of commentators’ “obsession” with the term peak inflation with the implication that inflation will fall rapidly once it has peaked.

“The real issue is the duration of the adjustment downwards and I think that’s going to take a little bit of time.”

Being in the food industry, he believes farmers do have some natural hedging, as do those in the energy sector.

Looking at geo-political shifts and their impact on business models and globalisation, Groser quoted Lenin saying there are decades where nothing happens and there are weeks where decades happen; one of those weeks was when Russian tanks rolled into Ukraine.

This has completely changed the military and strategic views of some of the world’s most influential players. This includes Sweden and Finland dropping their neutrality and joining Nato and Germany pledging to become a major military player again.

“This is a massive change.”

Similarly, Japan has talked about ending its strategic ambiguity policy towards the defence of Taiwan.

“The geo-political situation has become more difficult and more challenging and this will affect everything including traditional business models.”

Over the past decade, little thought has gone into the complexity of supply chains and their resilience (or lack of it) which has been costing some of the major companies of the world billions of dollars.

Not the end of globalisation

Groser predicted a move towards different business models and while the impact of darker strategic forces will accelerate this, it does not mark the end of globalisation.

“It is an evolution and a slightly amended version of it.”

Globalisation, he said, brought hundreds of millions of people out of terrible poverty, it created millions of new customers for NZ.

While acknowledging the glacial pace of the World Trade Organisation (WTO) Groser stressed the importance of this organisation to world trade.

There have been eight successful trade rounds since agriculture was included into the WTO system in Uruguay in 1986, which have resulted in massive liberalisation and the establishment of rules to govern deeply inappropriate trading practices

“Let me assure you that it is vitally important to NZ that that system doesn’t start to fall apart, even if we can’t move forward very much.”

There are no free trade agreements between the world’s major economies such as the United States, China and Europe and their trading relationships are all based on the WTO system.

Hundreds of millions of jobs depend on preserving that system.

“I think it’s extremely unlikely that people would be so catastrophically stupid as to untangle it.

“We can see some erosion around the edges, but the basic system will be in place and this is very important to us.”

Groser referred to successful trade deals NZ has forged over the years with countries including Australia, China, Japan, Canada and Mexico. He spoke of the frustration when, under the Trump regime, the US pulled out of the Comprehensive and Progressive Trans-Pacific Partnership, which was the closest NZ was going to get to an FTA with the US.

While disappointed with the outcome of the recent European Union FTA for the red meat and dairy industries, Groser said the results elsewhere were very positive.

“It would be a complete fantasy to think we were ever going to negotiate something comparable to what we have with the UK or Australia, but it has taken us forward.”

He refused to make judgement on whether the Prime Minister should have pulled away or not because it is impossible to know what exactly goes on inside these negotiations.

The number one priority now should be getting the Australian and NZ and UK FTAs through the British House of Commons and House of Lords.

“Those are two truly world-class FTAs which will give us a lot of insurance policy should China go south in the years ahead.”