https://t.co/tlXsLXZarK
26/06/2017 9:21 PM
RT @rethinkecon: 'Going Beyond Exchange' from @TheMinskys @HeskevanDoornen https://t.co/GVNeY8gyIQ
23/06/2017 8:53 PM
RT @ChrisGiles_: Hard or soft Brexit? The six scenarios for Britain https://t.co/Fk2hj8muah via @FT
23/06/2017 8:52 PM
This is worth a read: https://t.co/gjARfKQ6JB
20/06/2017 9:58 PM
RT @PositiveMoneyUK: ...and it’s almost impossible to reduce our debts without causing a recession - Welcome to the debt trap! https://t.co…
20/06/2017 9:49 PM
@Parker_Banking The pirates are in the accendency - on the pirate scale there is no difference between Trump and Pu… https://t.co/XbxmE9OJao
17/06/2017 1:11 PM
RT @PositiveMoneyUK: Why are House Prices So High? https://t.co/kYNWqTc6kP
16/06/2017 3:57 PM
@Omearanz Tax incentives point away from productive investments - asset price inflation is not productive of itself… https://t.co/zOCXPEj93U
15/06/2017 5:00 PM
@Parker_Banking People without income and assets cannot be consumers - superfluous to economy - superfluous to soci… https://t.co/EHIOqdcNXH
15/06/2017 12:18 PM
@Parker_Banking Full of rah rah platitudes: happened before no worries.Then machines replaced muscle/debt low, now… https://t.co/SMvdIfmpi1
15/06/2017 12:15 PM
Recent Post Comments
I am sorry but this comment section has been disabled due to spam. My contact details are easy to find, please contact me if you want to comment or discuss anything on this blog.

Print-friendly
22
OCT 14

Economic Diversity




For any economy, diversity in the things you make and who you sell to is important to lower risks and ensure a shock resistant and resilient economy. However New Zealand has generally been going in the opposite direction, relying more on a narrow range of simple products, milk powder, meat and logs, and single large market, China.

In the below graph, you can see that both processed and unprocessed primary have been improving strongly since around 2007. These sectors are less diverse and have been led by strong growth in milk powder, meat and logs – all of which were boosted by the China FTA, taking effect in 2008. In contrast, the simple, elaborate and miscellaneous manufactures (which covers from low tech, through to high tech manufacturing) have been stagnant, even decreasing over this time.


This risk of relying so heavily on a few large sectors is currently being demonstrated, with the substantial falls in dairy prices. Global dairy prices were high last season, but have fallen 45% since February, and the Fonterra payout has decreased from $8.40/Kg last season to $5.30/Kg, with potential to fall further. This is a real concern for many farmers, those who supply the industry and even the New Zealand economy, as this could see a loss of $5b to our economy (2.2% of GDP). A substantial minority of dairy farmers have very high levels of debt – and as the payout falls, and borrowing costs continue to rise, as indicated by the RBNZ, many may be running at a loss, having to borrow to service existing debt – Federated Farmers indicated nearly a quarter could be running a loss this season at a $5.30/Kg payout.

This is exacerbated by the failure of the NZD to autostabalise, that is, fall as the commodity price falls, making the reduction in prices worse for farmers, as well as keeping the pressure on exporters and import competing manufacturers.

Shock resistance follows from product and market diversity - China has been an impressive market for milk and logs, lifting our exposure to problems in that market.

Policy makers need to consider how to improve our economic diversity. While the success of our agriculture industry is vital for our future, it does not have to be the only source of growth. The correction of tax incentives and policy targeted at broad growth of our manufacturing sector can build resilience and make our economy stronger and more prosperous.


tags: diversity, exchange rate, currency, exports, dairy, complexity, manufacturing, trade, china
I am sorry but this comment section has been disabled due to spam. My contact details are easy to find, please contact me if you want to comment or discuss anything on this blog.