The good, the bad and the ugly

This is written by Niko Kloeten and published in The National Business Review.

THE GOOD -- Fonterra’s second biggest payout

How many New Zealand companies can say they’ve just had their second best year ever? New Zealand’s biggest company can. Fonterra has posted its second highest payout, giving farmers NZ$6.10 a kg of milksolids and paying a dividend of 27cents a share.

For a farmer producing 100,000/kg, the 2009/10 payout provides a gross farmgate increase of NZ$117,000 against the 2008/09 year to NZ$637,000. There is also good news for the current season, with Fonterra firming up its forecast of NZ$6.60/kg, plus a dividend of 40-50 cents before retentions.

The rest of New Zealand’s economy is spluttering but the good thing about cows is ... they are pretty consistent, even if the prices paid for their product are prone to wild fluctuations. Barring major natural disasters, New Zealand’s farmers will continue to produce roughly the same amount of milk and if the payout is even higher than last year’s, it will be a major boost for the economy.

Even the projected 50 cents increase in the current season’s payout compared to last year’s equates to an extra NZ$600 million or so flowing into farmers’ coffers. This money, then, flows through the rest of the economy, which needs any extra help it can get.

THE BAD -- Greenpeace’s stupid stunt

Dairy cows in New Zealand. By Bloomberg/Brendon O’Hagan
If this week’s protest at Fonterra’s Auckland office is anything to go by, Greenpeace needs new leadership and a new focus or it will continue to dwindle into irrelevancy.

During the 1980s and 1990s Greenpeace found support fighting against imperialistic France using its south Pacific islands as a nuclear testing ground (not to mention blowing up a boat and murdering someone in the process).

There are plenty of issues a reputable environmental group could protest about these days. But Greenpeace chooses to ignore them and focus instead on issues that align with the views of the left wingers that make up much of its membership. According to their simplistic worldview, it is capitalists against the environment and anything that doesn’t fit that neat little script is not worth bothering about.

The palm oil issue is one that certainly follows the playbook, at least according to the way Greenpeace have framed it – nasty capitalists are chopping down trees and killing orang-utans!

What they neglect to mention is that palm oil is environmentally friendly compared to other vegetable oils because of its high yield, so it requires a lower acreage of crops to get the same amount of oil.

And as late economist Murray Rothbard would probably say to Greenpeace’s complaints about deforestation, “so what?”

If Greenpeace really cared about the survival of orang-utans they would advocate for them to be farmed and treated as commodities like cows and chickens, which will never be endangered species. Instead they target New Zealand’s biggest and most important company, which imports small amounts of palm kernel as supplementary feed.

While there is nothing wrong with peaceful protest and having the right to voice your opinion is a pre-requisite of a free society, private property must also be protected and respected.

The clowns who invaded Fonterra’s building are seen as a joke by many and need to be treated more harshly for trespassing and wasting police time, even though they may be relatively harmless.

AND THE UGLY -- GDP shocker

This week’s horrendous GDP result supports what the average person on the street has known for some time but ivory tower economists have been slow to pick up on – that New Zealand’s economy is still in the toilet.

GDP rose only 0.2% in the June quarter according to Statistics New Zealand, well below the consensus market forecast of a 0.8% rise. The Reserve Bank, the organisation in charge of centrally planning New Zealand’s money supply, was even further from reality with its guess of a 0.9% increase. And although it was the first annual rise in GDP since September 2008, the 0.7% year-on-year increase was less growth than what the boffins thought we’d see in just one quarter.

Traditionally, New Zealand bounces back quickly from recessions. But this time, it appears to be different.

There were a number of ominous signs in this week’s GDP figures, particularly the running down of inventories, which hints at a severe lack of confidence in market conditions. But those who are students of economic history shouldn’t be surprised that New Zealand, and many other countries around the world, are experiencing a slow to non-existent economic recovery.

The current prescription of insanely low interest rates, money printing and “stimulus” spending sponsored by government borrowing echoes the failed policies that turned the stock market crash of 1929 into the Great Depression.

In contrast to the huge hikes in government spending, massive deficits and make-work projects implemented by US Presidents Herbert Hoover and Franklin Roosevelt during the depression, the response to the 1920-21 recession in the US was a laissez-faire one. President Warren Harding and his government let unprofitable firms fail and concentrated on balancing the budget, while the Federal Reserve kept interest rates high at about 7%. Within three years unemployment had dropped from 11% to 2% and the recession of 1920-21, which was more severe than the one of 1929, was soon largely forgotten about.

If New Zealand is to fully recover, it needs the economy-distorting low interest rates to be hiked and the government to balance the budget and remove the many growth-retarding interventions in the economy.

But, to quote Sir Roger Douglas, the national government has its head in the sand.

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