2.2  Productivity Growth

The primary sector continues to play an important role in the New Zealand economy. It directly contributed $8 billion (to the year ended March 2005 in 95/96 prices), or 6.6%, to the country’s real GDP. Of this, the agricultural sector contributed 77% to the primary sector, or approximately $6 billion (95/96 prices) to whole economy real GDP. The primary sector’s recent growth performance is outlined in Table 1 below.

Data Source: Statistics New Zealand.

Primary sector average annual growth for the period 1988-2004 has been similar in New Zealand to that in Australia (see Table 2 below). The agricultural sector has also shown a similar growth experience over this period for both countries, with average annual GDP growth of 2.5% in New Zealand and 2.8% in Australia.

In Australia, the primary sector contributed 3.4% of total GDP (to the year ended June 2004 in 2002/03 prices), with the agricultural sector accounting for 93% of the total primary sector.

Data Source: Australian Bureau of Statistics.

While the overall rate of growth of the primary sector in New Zealand has matched that of the economy as a whole, the productivity performance of the primary sector in New Zealand has been impressive (see Table 3). The primary sector had one of the highest average annual growth rates of labour productivity over the period 1988 to 2004 (with only the Transport and communications and the Electricity, gas and water sectors achieving higher growth).[3] This labour productivity performance was sourced equally from capital deepening and multifactor productivity growth, based on a growth accounting decomposition.

While the primary sector had one of the highest average annual labour productivity growth rates amongst industries in New Zealand (at 3.0%), this was still markedly less than primary sector labour productivity growth in Australia, which averaged 4.1% between 1988 and 2004.

We can also contrast the overall multifactor productivity growth for the primary sector of New Zealand and Australia. In New Zealand, multifactor productivity in the primary sector (comprising agriculture, forestry, hunting and fishing) grew at an annual average rate of 1.5% from 1988 to 2004 (see Table 3). In contrast, the comparable rate of growth in multifactor productivity in the Australian primary sector was 3.8% (Productivity Commission 2005). It is worth noting that this higher multifactor productivity growth in the primary sector was accompanied by a higher public R&D intensity in Australian agriculture (recall Figure 1).

Unfortunately, hours data is not available for the agricultural sector in New Zealand alone. Instead we have constructed a multifactor productivity series using employment numbers back to 1926-27 (see Figure 2). From 1988 to 2001 multifactor productivity in the agricultural sector grew by 1.3%, compared with multifactor productivity growth for the whole business sector of 1.4%. Over our entire sample period, average multifactor productivity growth in the agricultural sector has increased. Between 1927 and 1956, annual MFP growth averaged 1%, increasing to an average of 2.2% between 1957 and 1983. From 1984 onwards MFP growth further increased to an annual average rate of 2.6%.

The growth accounting decomposition is given by: Δln(Y/L)_t = ΔlnMFP_t + αΔln(K/L)_t. Here we have taken the average of each component in this decomposition over the period 1988 to 2004.

Figure 2: Agricultural Multifactor Productivity 1927-2001