Robertson Grant: Oral Questions — Questions to Ministers Questions to MembersText is incorporated into the Bound VolumeRobertson Grant: Oral Questions — Questions to Ministers Questions to Members[Sitting date: 22 July 2015. Volume:707;Page:5190. Text is incorporated into the Bound Volume.]5.GRANT ROBERTSON (Labour—Wellington Central) to the Minister of Finance: When did he first become aware that there was an international glut of dairy products and does he stand by his reported comments that he has no plans to take active steps to diversify the economy in response to falling dairy prices?Hon BILL ENGLISH (Minister of Finance): In respect of the first question around the same time as everyone else. One of the clear signals of expanded supply in the global dairy market was when prices started dropping in the global dairy trade. In respect of diversifying the economy I would say that first of all under the excellent leadership of the Hon Steven Joyce the Government’s programme through the Business Growth Agenda is encouraging a range of industries to develop in New Zealand. Secondly right now I would say the relative price signals for the dairy industry in respect of any other investment in New Zealand are probably doing a pretty good job of diversifying the economy.Grant Robertson: Did he miss the Goldman Sachs report in July last year that said there was going to be a 5-year international dairy glut or like his colleague the Minister for Economic Development did he just think that was a laughing matter at the time?Hon BILL ENGLISH: I would be surprised if I had not read that particular piece of commentary but of course there is always a range of opinions in the market and recent experience with the dairy price has been that almost all of that opinion has underestimated the extent of excess supply and therefore the short-term drop in the prices. But unlike the member we have a positive outlook for the dairy industry in the future. Unlike the Labour Party we do not believe that New Zealand has far too much dairy and that the industry ought to shrink which appears to be what that member thinks.Grant Robertson: Is he aware that dairy at 20 percent of New Zealand’s exports represents the same percentage of exports as iron ore is for Australia and given what has happened to the Australian economy does he not think he should be just a little bit more energised in his response to the collapse in dairy prices?Hon BILL ENGLISH: The fact is that if the dairy industry is 20 percent of exports—and actually it is a bit less than that—it is because it has been a successful globally competitive industry. It would be a bit like asking why New Zealand does not diversify from rugby because the All Blacks are too successful. We have got all our eggs in the All Black basket. The fact is that if it is a well-performing industry we would hope that it would keep performing. If you think that having too much dairy is a problem look what happens when you have a bit too little.Grant Robertson: In light of that answer does he therefore believe that today’s forecast from the BNZ of a payout of $3.80 per kilo for 2015-16 and a downside scenario payment of $2.80 per kilo represents a serious problem for the health of the New Zealand economy or is it like John Key said on Monday and it does not really affect 95 percent of people?Hon BILL ENGLISH: Of course it is of concern but this is an industry that has characteristics that the member would not be familiar with because he has always worked in the public sector and that is that it has developed the resilience and the flexibility to deal with commodity cycles. Unlike that member we have confidence that the industry will deal with the cash-flow problems—quite serious cash-flow problems—that flow from these very low dairy prices. In any case the lower exchange rate will cushion the effect on the dairy industry but also encourage the expansion of tourism in particular along with international education and underpin the profitability of meat and wool horticulture and the film industry—all industries that are succeeding reasonably well at the moment.Grant Robertson: Is it correct that the NZX dairy futures today predict a further 16 percent drop in August to a US$1550 a tonne price for milk solids—only $50 more than the price that would see a $2.80 a kilogram payout?Hon BILL ENGLISH: That may be the case and if that eventuality became a reality of course that would be of concern. But the member seems to be suggesting that the New Zealand Government can take some action about the price which it cannot because it is a world price. It is not a Fonterra problem or a Fonterra price; it is a world price. Secondly I would have thought that if the member is concerned about diversification in the New Zealand economy then the lower the dairy price the more likely you are to get diversification of investment into other sectors. That is pretty self-evident.Grant Robertson: So in light of that answer can the Minister of Finance confirm that his only path to real diversification of the economy is the collapse of the dairy industry?Hon BILL ENGLISH: No I am simply pointing out that unlike the Labour Party and the Greens we are not pleased about low dairy prices. We actually like our dairy industry to be big and strong and successful and in the long run we believe it will be. Alongside the market pricing the Hon Steven Joyce is leading a programme that is having a positive effect on diversifying the New Zealand economy. But the strongest signal for diversification is the uplift in profitability around tourism around horticulture and around IT which is occurring because of the drop in the exchange rate over the last 2 or 3 months.Grant Robertson: How does he think that the success of Steven Joyce’s great diversification strategy is reflected in the lowest levels of business confidence consumer confidence and employer confidence that we have seen in New Zealand in many years; how is that successful strategy going?Hon BILL ENGLISH: Of course prices go up and down and confidence goes up and down often in relation to prices and in relation to what people are reading in the media about the prospects for the world economy and the New Zealand economy. Diversification amounts to people making risky investments in new industries or expanding industries. Unlike the member they take a view longer than 2 or 3 months. In fact some of those investments have to be 20-year investments. That is how a good economy runs.