The stab in the back that did us a favour

Call it treachery or a slap in the face, but whatever the label, Britain's decision to join the European Economic Community was a huge jolt to New Zealand.

Britain's intentions were well signalled, and the pain was eased by export quotas.

However, after years of taking almost all our agricultural exports, the reality – including the tightening of visa and residency privileges – was always going to hit with a thump.

The government enacted farm subsidies and a dairy board was established to counter worries our agricultural exports – the lifeblood of our young country – would struggle in volatile world markets.

And so it was, not helped by subsidised European and United States products being dumped in New Zealand's potential new markets.

The pain was intensified as the 1984 Labour government under David Lange pulled the country out of virtual bankruptcy and scrapped farm subsidies, enabling our trade officials to more effectively call on other countries to lower tariffs and dismantle trade barriers.

Forty years after Britain officially joined the EEC in 1973, New Zealand has an organised and efficient agricultural sector which looms large on the world stage.

Fonterra is the world's largest dairy exporter and New Zealand's largest company.

Given the fierce lobbying over the Trans Pacific Partnership negotiations, the US is obviously wary of our Fonterra-led dairy industry – despite New Zealand farmers having similar production costs and our industry being a fifth of the size.

There is still much work to do to eliminate farm subsidies in Europe and North America, but New Zealand agriculture seems in good heart.

In the 1960s such a thing was hard to imagine.

'We've walked away'

"It certainly was something 40 years ago we looked at with a fair bit of trepidation," DairyNZ chairman and former agriculture minister John Luxton told NBR ONLINE.

Earlier this month, he told the prestigious Oxford Farming Conference in Britain only 0.2% of New Zealand's $13.9 billion dairy exports in 2012 went to the UK.

Compare that to the 1950s, when Britain is thought to have taken about 96%. 

"It really means we've walked away from that market and developed other markets around the world with other products. It's no longer the butter and cheese that we largely built our dairy industry on."

Farmers were the "tail-end charlies", he says, scraping a living out of whatever was left after the processing, shipping and marketing costs of the exports were paid.

They were forced to continually innovate to survive during periods of low prices.

"Most of the innovation in farm systems and milking technology has been developed out of New Zealand as people have looked at ways to do things smarter." 

It is hard to believe it is only 200 years since the Rev Samuel Marsden bought the first two cows and a bull to New Zealand from Sydney.

Now, Mr Luxton says, New Zealand's dairy industry is a third larger than the UK's industry, based on last year's milk production figures.

Friction over subsidies

Brian Chamberlin's book Farming and Subsidies: Debunking the Myths chronicles the dismantling of this country's agricultural subsidies and its painful move to the free market.

It says Britain's embrace of Europe caught New Zealand exporting a narrow range of goods to virtually a single market.

Subsidies seemed a natural protection against volatile overseas markets, but they led to friction between farmers, as those raising sheep received more aid than their dairy counterparts.

It also pitted town against country and government costs increased, which fuelled inflation.

Subsidies designed to increase livestock numbers and develop land instead pushed up prices.

Eventually, when no new markets were found for the huge numbers of sheep, prices collapsed and the meat was rendered down for fertiliser.

Mr Chamberlin, a former Federated Farmers president and international trade diplomat, says the dismantling of subsidies and scrapping import licensing and reducing tariffs allowed New Zealand to negotiate more effectively at world trade talks.

Impact of GATT deal not understood

Under the Uruguay round of the General Agreement on Tariffs and Trade, settled in December 1993, European countries agreed to restrict production in exchange for keeping their high internal prices.

"That left the growing Chinese and various Asian markets virtually to New Zealand, Australia and one or two other countries.

"I don't think the impact of that GATT settlement has been been understood. We certainly have gained terrifically from that."

Subsequent free trade agreements with China and Australia have also been important.

However, he says some matters agreed in the Uruguay round have lapsed and have not been replaced, leaving New Zealand vulnerable again.

Landcorp ceo Chris Kelly, a former Dairy Board manager, says a sheep meat quota agreed before Britain joined the EEC meant New Zealand continued to rely heavily on Britain and Europe – although the country has not filled its lamb quota for three or four years now.

"In my personal opinion, the sheep and beef industry has been somewhat slower to develop new markets outside of Britain and the EU, largely because they were propped up by what were and still are, to an extent, quite lucrative quotas.

"You can understand that."

Mr Kelly says Britain cutting New Zealand loose has been painful but has ultimately done us a favour.

However, he is fearful the world will turn more protectionist, given progress on international trade reforms have been "glacial, at best".

Supply lags demand

New Zealand agriculture's outlook is generally positive, Mr Kelly says.

"The world's increasingly short of protein. Urbanisation is gobbling up available land for agriculture.

"As economies are becoming more Westernised and more sophisticated – I'm talking now about China and India and Sri Lanka and Malaysia and all those places – and the taste for high-quality protein is increasing.

"So generally, we're facing a world where supply is less than demand which is good for us."

University of Waikato Professor Jacqueline Rowarth, from the Waikato Management School, says farmers are more adaptable and innovative than they were 40 years ago.

"What they do want is a fair price for their product – their high quality, sustainably-produced product.

"And that is going to take a great deal of work in terms of assisting the consumer in whatever market to understand what it takes to produce food."

Mr Chamberlin says exporters might complain about the high New Zealand dollar today but it is not sending huge numbers of farmers to the wall.

Most farmers successful

His book might have been published in 1996 but Mr Chamberlin's sentiment still applies today.

"The position of farmers is not perfect," Mr Chamberlin writes. "Some are doing very well, while others are struggling with difficult world markets.

"Many would like to see the New Zealand dollar rather weaker than it is at the moment.

"Most farmers, however, are farming successfully without subsidies."

The United Kingdom is rethinking its attachment to the European Union but in some ways it is too late.

A torrent of EU passport-wielding eastern Europeans have already moved there and find it easier to work and live there than many New Zealanders and Australians.

British Prime Minister David Cameron's government has already spent billions of pounds bailing out basketcase eurozone countries such as Spain, Portugal and Greece.

A second visit to New Zealand in as many years by British Foreign Secretary William Hague shows the far-flung empire country is back on the Mother Country's radar. 

In hindsight, however, Kiwis might think cutting us loose in 1973 was the best thing Britain could have done.

dwilliams@nbr.co.nz