Output Performance
The sector’s recent output growth performance is outlined in Table 1 below.
| Sector of NZ economy | Annual % growth 1978-2005[7] | Annual % growth 1978-1989 | Annual % growth 1990-2005 |
|---|---|---|---|
| Whole economy | 2.5% | 2.0% | 2.8% |
| Primary sector | 2.6% | 3.0% | 2.3% |
| Made up of... | |||
| Agriculture | 3.2% | 3.9% | 2.6% |
| Fishing | 2.5% | 6.5% | -0.4% |
| Forestry and logging | 3.5% | 4.3% | 2.9% |
| Mining and quarrying | 0.1% | -0.8% | 0.8% |
Source: Statistics New Zealand, GDP by Industry
The primary sector’s output growth has outperformed the wider economy, particularly through the 1980s.
As Table 1 demonstrates, the primary sector performed particularly well relative to the wider economy over the period 1978-1989. This was driven by the growth of agriculture in the second half of the 1980s, the growth of forestry and logging, and the stagnation of the wider economy from the mid-1980s as economic reforms were undertaken and the sharemarket crashed. Conversely, the wider economy performed better than the primary sector over the period 1990-2005, because of the wider economic recovery from 1993 onwards, and as primary production growth (with the exception of mining) eased.
Figure 4 below shows the growth in real GDP for the primary sector and the whole New Zealand economy for the period 1978-2005 in more detail. Over this period the primary sector has grown faster than the wider economy, with a particularly strong relative performance from the mid-1980s through until the late 1990s. The gap has closed in recent years. Primary production has clearly been much more volatile than that of the economy as a whole, which reflects the impact of shocks such as droughts and floods, plus the primary sector’s greater exposure to exchange rate and commodity price cycles.
- Figure 4 – New Zealand’s Real GDP Growth
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- Source: Statistics New Zealand, GDP by Industry
The contributions of the various sub-sectors of the primary sector (agriculture, fishing, forestry and logging, and mining and quarrying) to primary sector growth are shown in Figure 5 below.
- Figure 5 – Components of Primary Sector Output
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- Figure 6 – Primary Sector Real GDP Growth by Sub-Industry
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- Source: Statistics New Zealand, GDP by Industry
- Agriculture TFP increased relatively steadily, by 3.9% per annum;
- Fishing and hunting TFP increased by 0.3% per annum, but this masks a steady increase to 1987 and a steady decline thereafter;
- Forestry TFP increased by 6.4% per annum, though this appears to be in part attributable to the labour data series used (the reported hours worked almost halved in 1988, which may reflect significant redundancies undertaken in the Forestry Service at the time).
- Figure 7 – Total Factor Productivity
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- Source: Ministry of Agriculture and Forestry
- [7]The choice of time period can have a significant effect on average annual growth rates. Primary sector output contracted at the start of this period, as can be seen in Figure 4 below. If this period is excluded, the figures for the whole economy and the primary sector are 2.5% and 2.8% respectively.
- [8]See page 38.
- [9]The similarities and differences in approaches, data and results are outlined in Black et al (2003) on pp. 11-12.
- [10]Black et al (2003) report average multifactor productivity growth over the period 1998-2002 for the primary sector as 1.4%. Ministry of Agriculture and Forestry data on agriculture and forestry and logging, two of the component parts of the primary sector, show growth across that period of 1.9% and 1.4% respectively.
Source: Statistics New Zealand, GDP by Industry
Agriculture has played a key role in this strong output growth performance.
Clearly agriculture is the dominant component of the primary sector; this dominance has increased through the period due to agriculture’s relatively high growth rate. Agriculture’s share of the primary sector has increased from 57% in 1978 to 67% in 2005. This has been at the expense of mining and quarrying, whose share has fallen from 26% to 14%.
The growth performance of the sub-sectors of the primary sector can be seen in Figure 6 below. Forestry and logging in particular performed strongly through the period, with growth surges in the late 1980s and late 1990s relating to favourable commodity prices and exchange rates. Fishing recorded strong, steady growth of around 7% per annum until 1989, after which point real output remained reasonably static. Mining and quarrying is notable for its poor growth performance, with a growth surge in the mid-to-late 1990s saving the sector from having no real growth across a quarter of a century.
Mining’s poor growth performance is despite the sector having significant growth potential. As is described in more detail in Annex Two,[8] it has been estimated that New Zealand has $86 billion of metallic mineral stocks, but much of this cannot be accessed as it is on land of high conservation value.
Productivity Performance
Looking at output growth of a particular sector tells only part of the story. If, for instance, extra output is the result of subsidies that artificially inflate the value of production, higher growth rates can have negative consequences for the economy as a whole. Likewise, if output growth is solely attributable to increased inputs, growth rates are unlikely to be sustainable. With this in mind, examining the primary sector’s productivity performance can provide insights into the sector’s performance.
Using an index number approach, Diewert and Lawrence (1999) estimate New Zealand’s total factor, labour and capital productivity across the period 1972-1998. The total factor productivity (TFP) performance for the economy as a whole was poor from 1972-1982, reflecting reduced outputs and increased inputs in the economy. After that point, TFP improved through until the end of the period, driven largely by labour productivity increases. Across the total period TFP increased by 0.8% per annum.
The primary sector’s productivity performance has also been strong...
Diewert and Lawrence also investigate productivity performance at a sectoral level, though data are presented for a narrower period, 1978-1998, and significant issues with data reliability are highlighted. In that period, segments of the primary sector performed relatively well:
Using a broadly similar index number methodology,[9] Black, Guy and McLellan (2003) examine New Zealand’s productivity performance over the period 1988-2002. They find that New Zealand’s multifactor productivity growth increased significantly after 1993, from 0.1% per annum for the period 1988-93, to 1.3% per annum 1993-02. The biggest contributors to this increase came from transport and communications (6.8% 1988-93 and 5.5% 1993-02) and the primary sector (-0.5% 1988-93 and 2.5% 1993-02). While this paints an impressive picture of the primary sector’s relative performance, data limitations temper the results. As the authors point out, the analysis uses data on labour and capital as inputs to production but does not include any measure of land use or natural resource depletion, factors that would be of particular importance to the primary sector.
… though there are some data limitations.
Data on agriculture and forestry and logging productivity, maintained by the Ministry of Agriculture and Forestry, are consistent with the story above.[10] Figure 7 shows the TFP of these sectors for the period 1972-2003.
TFP in agriculture increased by 2.6% per annum across the period. TFP in forestry and logging was slightly better at 2.8% per annum. As Figure 7 shows, a key factor in forestry and logging’s TFP performance is the rapid growth over the period 1985-1991 (13.8% per annum), which may be attributable to significant changes in the forestry labour force.
Research and development, innovation and economies of scale have driven primary sector productivity.
The relatively high productivity growth in the primary sector has been driven by research and development (coming up with new ideas), innovation (practical application of those new ideas) and economies of scale. These factors are described in more detail in Annex One as they apply to particular parts of the primary sector.
New Zealand’s spending on research and development is relatively low compared with other countries. However, the bulk of the primary sector’s production is in large-scale, homogeneous products such as milk, so research and development investment in this sector tends to be widely applied across a large volume of products and/or processes. As a result it can have a large effect for a small investment.
The government invests in public research and development to address potential market failures around knowledge creation and diffusion. Public research and development is carried out largely by Crown Research Institutes (CRIs) and universities (with Massey and Lincoln being of particular importance for the primary sector). A contestable funding model is used for much CRI funding, with the aim of ensuring that science investment is aligned with government priorities. The Foundation for Research, Science and Technology, a Crown Entity, receives funding from the Crown for science priorities, and science providers compete for funding through tender rounds. This underlying research and development infrastructure has been a key support for primary industries.
