Gatt Collapse: Not So Bad

Gareth MorganEconomics

Gareth Morgan, Director of Gareth Morgan Investments

The failure of the GATT to produce significant cuts in agricultural protection is an opportunity for Ni’s agricultural industry. The news holds little cheer for our producers of agricultural commodities, but they’ve been a drag on Ni’s economic performance for decades so no need to ball on their behalf4 It is critical that these producers receive signals that steer their production away from base commodities and towards the agricultural based goods and services that command an ongoing price premium in global markets1 This reality simply reflects the global surplus of agricultural commodities That surplus is going to get much worse irrespective of the GATT.

Rolling back protection of the EC farmer would provide him with a strong signal to acquire economic efficiency or lose all income4 His present. high technical efficiency may become irrelevant in a market where output prices can’t justify Rolls Royce inputs. A free market will force supply increases of agricultural products presently in shortest supply~ the market niches in which the more-attuned Ni agricultural producers are presently commanding premium prices. This contrasts with the situation today where CAP rules don’t provide incentive for EC farmers to differentiate between what products the market values most, and what is most convenient to produce. De-protected, their production of commodities might fall) their production of farm product and service would not, Such competition in the higher end of the value chain would make life tougher for our agricultural innovators.

Of most threat to NZ commodity producers is the promise that Eastern European agriculture is going to swamp world markets. For example, there are no food production shortages in Russia. There is a chronic collapse of the distribution system. As capitalism spreads and those bottlenecks are cleared, Russia and its former satellites have the potential and the incentive to annihilate world agricultural commodity prices. This threat should be spurring Ni’s agricultural sector to concentrate efforts on exploiting competitive advantage in agriculture, rather than cruising on ephemeral comparative advantages. The latter are being rapidly eroded via economic liberalisation of other agrarian economies.

The comparative advantages of our capitalist system, and economies of scale that our long history of commercial farming have conferred, will be rapidly eroded over the 1990s by capitalism being unleashed elsewhere. It is vital for Ni to secure competitive advantage through agricultural product and service differentiation, market segmentation and distribution control. Investment, both by farmers and associated manufacturers and distributors is the only strategy that will offset this erosion of advantage. Within a decade NZ agriculture will not be competitive as a low cost producer. But with appropriate strategic intelligence we could become competitive in the global markets for agriculturally-derived products and services.

Roll on agricultural protectionism. the longer the EC farmer is kept from market realities, the more time Ni agriculture has to secure competitiveness beyond the commodity level. An opportunity – but have we the commercial wit to seize it before our commodity mentality ensures Ni agricultural incomes reach peasant proportions?

Gatt Collapse: Not So Bad was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.