Globalisation: what it means for agriculture and New Zealand

By Ronnie Horesh, MAF International Policy

Note: These are the author’s personal views, and not a MAF statement.

There are different, overlapping, sorts of globalisation, including technological, environmental, political, cultural and economic globalisation. In this short article I will try to pick out the aspects of globalisation that I think are most relevant to those of us involved in agriculture in New Zealand.

Economic globalisation

Economic globalisation implies a diminishing role for national borders and the gradual fusing of separate national markets into a single global market place. As is generally pointed out, it’s a continuation of a trend that began after World War 2 and has sharply accelerated in the last two decades. Economic globalisation involves not only trade - the freer movement of goods and services - but also the freer movement of capital. Indeed capital movement, along with technology, may be the main driver of economic globalisation. Attempts to quantify the pace of globalisation have been few, but one recent paper[1] calculates that foreign direct investment jumped 27 percent in 1999 alone, to reach a record high of US$865 billion. Total cross-border flows of short- and long-term investments more than doubled between 1995 and 1999. For the US, cross-border flows of bonds and equities alone are 54 times higher now than they were in 1970, while such flows have multiplied by 55 times for Japan and 60 times for Germany. Trade growth has slowed in recent years, mainly because of financial crises that rippled through Southeast Asia, Latin America, and Russia in the late 1990s,but the underlying trend is upwards.

What does this mean for New Zealand agriculture? I believe that economic globalisation should, on balance, benefit the sector, for three main reasons: improved access to overseas markets, continuing growth of the world economy, and enhanced opportunities for our scientific expertise.

1 Improved access

Over the next few years, I believe, there will be increasing pressure for more liberal access to the US, the European Union and Japan. High barriers to agricultural exports remain an integral part of the massive array of ways in which these countries support their farmers. These support policies impose enormous costs on taxpayers and consumers; especially the poorest consumers for whom expenditure on food is a large proportion of total income. In the next few years a wholesale dismantling of these support policies is unlikely – Europe’s Common Agricultural Policy has been widely challenged and little changed for decades now – but pressure to make more than cosmetic changes will, I believe, prove irresistible.

The pressure will, I think, arise from two main sources. First, from within the rich countries themselves, where there is increasing exposure of, and distaste for, intensive production especially of livestock but also of crops and horticultural products. Market price support, buttressed by import barriers, is still the main means of support for the farmers of the rich world. This is despite the overwhelming evidence of its inefficiency and the stress it exerts on the environment, animal health and food safety. While there is little overt discussion about the role that imports can play in reducing this stress, any reductions in output-based support would be good news for food exporters.

A second pressure will be the increasing assertiveness of the developing countries, which have so far been poorly served by the multilateral trading system. There are preferential access systems for some poorer countries for some products. But the shameful truth is that the three sorts of products that developing countries can produce most efficiently – agriculture, textiles and clothing – are those against which the rich world discriminates most, with high tariffs and stringent import quotas. I think this will change, not so much because protectionists in the rich countries will suddenly attain enlightenment, but more because it is in their own interest to do so. Unless there are meaningful increases in access to the agriculture (and textiles and clothing) markets of the rich world, the developing countries will continue to deny access to their own markets, which, especially for services, offer huge growth potential. Governments of the developed countries may also realise that one result of the high barriers they impose on legitimate exports from the third world is the continued influx into their countries of illegal migrants and illegitimate products, such as pirate software and narcotics. It is, in my view, unlikely that the rich countries will get away from the next multilateral round, which it is hoped to launch in Qatar in November, without making significant changes to their agriculture support and import regimes.

The short-term benefit to New Zealand should not be overstated. For one thing, lower access barriers to agricultural products offer opportunities for all countries, not only New Zealand. But while globalisation offers opportunities for all countries, most developing countries are poorly positioned to capitalise on them. They will continue to be handicapped by, amongst many other things, the poor quality of their governance.

A bigger threat to New Zealand is that, as tariffs fall, non-tariff barriers to our agricultural exports may proliferate. Protectionist interests will press for the inclusion of labour, environmental, and animal welfare standards in multilateral trade agreements. Some of these standards are likely to be spurious, acting as unfair barriers to trade. I have written elsewhere of the irrationality that prevails in agricultural trade,[2] and I believe agriculture will continue have totemic significance. Agricultural imports will always remain vulnerable to protectionist interests, simply because they carry an emotional charge that other goods and services do not. Protests against the many companies who outsource their business support services to India[3] are unheard of, for example, but street demonstrations against food imports are still common in Europe.

Nevertheless, I do believe the major players will reduce the sort of open-ended support to farmers in the rich countries that has caused so much damage to New Zealand in the past. There is likely to be a significant reorienting of support to farmers so that it takes the form of environmental or landscape maintenance grants. Rather than stimulating overproduction such support will encourage rural dwellers to look after the landscape and help safeguard the tourist industry – whose contribution to the total economy can anyway be far larger than that of farming.

2 Continuing growth in the world economy

As globalisation proceeds the world economy will continue to grow, probably at percentage rates of between 1 and 3 per cent. There is nothing particularly startling about this: it is a continuation of the trend largely attributable to continuing improvements of technology and diffusion of existing technology. As world incomes rise, so will opportunities for New Zealand’s agricultural exports.

3 Capitalising on our expertise

Better access and rising world incomes, and the continuing integration of countries into the global economy: these offer opportunities for all would-be agricultural exporters, including existing and potential competitors. But that need not mean that New Zealand agriculture will lose out.

One incalculable advantage we have over potential competitors is our social capital. An important, but rarely acknowledged, aspect of this is political and legal infrastructure and the culture of personal relationships that govern our business environment. Being, for the most part based on trust and free of corruption our social infrastructure is more favourable toward productive investment and enterprise than that of many of our would-be competitors.

More obvious are our excellence in research and development into animal and plants, and our expertise in all aspects of agricultural production, processing and marketing. There are two facets to this. First, it will continue to ensure that New Zealand maintains its competitive advantage in the temperate agriculture (and forestry) industries. And second, while many countries, notably in Latin America and North Asia, will expand production they will also become customers for our agricultural expertise. Indeed, it is likely that our agricultural research and development expertise will continue to evolve and expand into a significant sector in its own right, perhaps eventually overtaking agricultural production as a contributor to our Gross Domestic Product. In a global economy natural advantages will count for less than social capital and concentrations of expertise. London, to take one example, remains the world’s financial centre long after the original reasons that made it so have vanished. So it may be that in a few decades New Zealand’s prosperity depends not on its comparative advantage in agricultural production, but on the accumulated experience and expertise of its agricultural researchers, scientists and technologists. Of course globalisation means that these people will be in demand throughout the world – we shall need to make a conscious effort to retain and attract them.

The downside

If globalisation is beneficial, even as mildly beneficial as I indicate it might be, why do so many people get so upset about it? The ‘anti-globalisation’ or ‘anti-capitalist’ protestors at Seattle in 1999 or at Mayday demonstrations in Europe may have captured the headlines, but many people share an uneasiness at the pace and effects of globalisation. And while some groups of protestors have mutually conflicting aims, it would be wrong to reject all anti-globalisation sentiment as muddle-headed and economically illiterate.

I believe the serious objections to globalisation fall under three broad headings:

Unequal distribution of the gains. Many of the reasons for ‘anti-capitalist’ protests are directed at economic growth as much as globalisation, and have to do with the perception that the global distribution of income is becoming ever more unequal, both within and between countries. This perception has some basis in reality and should not be dismissed.^[4] Take for example, trade liberalisation. In economic theory, and on all the evidence, it is well established that national income rises when a country lowers its import barriers. It rises so much that it is theoretically possible to compensate those who lose as a result of being made jobless, so that everybody is better off. But much of the resistance to imports arises because people aren’t generally compensated.

Imaginative policy can help, and one straw in the wind is the innovative Transitional Assistance Program introduced by the US Government for those who lose their jobs as a result of NAFTA.[5] Such a policy, implemented in New Zealand would, I believe, have an obvious economic and ethical appeal, especially as a relatively equal distribution of income and wealth has much to do with our identity as New Zealanders.

Globalisation of environmental problems. We have always, as a species, been able to solve environmental problems in the past. For most of our history these problems have been localised, and if we made life impossible for ourselves in one place, we or our cousins could start out again somewhere else. But globalisation means that option has vanished. And, more immediately, the worst effects of such global problems as changing weather patterns are generally felt in the developing world, whose capacity to adapt is minimal.

Loss of national sovereignty. Lower trade barriers, the free movement of capital and other features of globalisation do involve the loss of a country’s sovereignty; or in some cases the voluntary pooling of national sovereignty. This is not done lightly – governments do it because it invariably benefits their economy as a whole. But, quite separate from the likelihood that some individual policy taken overseas will be unfavourable to a country, is the remoteness of the decision-making itself. In a global economy executives in Seattle or Tokyo, or central bankers in Washington or Frankfurt can, and frequently do, make decisions that affect New Zealanders directly. Something is lost with this increased distance between people and the makers of decisions that affect their lives.

Conclusion

Globalisation, then, does mean an increasing interdependence between the economies of the world. In that respect it is a larger version of what is happening within countries. As economies become more complex and specialised, so we become more dependent on each other, often in ways that are difficult to identify. The loss of national autonomy that results from globalisation parallels the loss of personal autonomy that we experience as participants in a complex economy. Agriculture, for instance, has changed so radically in recent decades that it is more accurate these days to speak of an agri-food industry, which has most of the features that industrialisation implies: vertical and horizontal integration, large scale, market concentration of processors and retailers, greater use of contracting, use of a widening range of risk-reduction and risk-shifting tools, and of course a global scope, with multinational companies playing a big role. Farming today is little more than one stage in the food production process.[6] Increasingly, farmers, are living by urban values, and experiencing many of the problems of their urban counterparts. And many of these problems result from the interdependence and alienation inevitable in a complex economy.

This then is the dilemma of globalisation: it goes hand-in-hand with specialisation and economic growth. And while these trends have generated unprecedented levels of wealth enjoyed by millions worldwide, they have also taken away much of our personal autonomy. They have frayed our social fabric and eroded our sense of community. As farmers, growers and professionals involved in agriculture, we are poised to reap more financial rewards from the continuation of these trends. But as human beings and social animals many of us see globalisation as a destructive force against which we feel powerless. Mastering this force, so that it serves humanity in all its aspects, may be our biggest challenge.