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Tuesday, December 28, 2010

The Cost of Manufacturing Overseas

In New Zealand we are upgrading our rail system.  We have recently contracted the manufacture of new rolling stock to South Korea.  I wonder how much cheaper rail cars would have to be to make it worthwhile to buy them overseas.  Lets look at the downside of manufacturing overseas.*

*incidentally, we have an industry which says it is quite capable of building our own rolling stock. It needs some expansion and since we are planning to continue to expand rail over the coming years, this would be very worthwhile.  The present order from Korea is just the start of our need for new rolling stock.

The Primary Tax Take
First there is the primary tax take.  The rolling stock construction company and all its workers pay income tas and GST.  Some estimates are that approximately 50%* of a workers salary goes back to the government.  This increases the money available to the government to do its work.  This revenue has been lost to the New Zealand government.  Looked at another way, if the train company is a government company (SOE), which it is in New Zealand,  then the price of the rolling stock is automatically reduced by the amount of tax they rake back from it's manufacture.  Just as a thumb suck, would this be a fifth of the cost.  If so, based just on the primary tax take, you would have to be able to buy your rail cars for 80% of the  cost of manufacturing them in New Zealand to make it worthwhile to do so.

*33% income tax and 15% Sales tax (GST)

The secondary Tax Take
The carriage building company buys some parts in New Zealand and every person working to build our own rolling stock, patronizes the local retail outlets.  The parts suppliers where the company shops and the super markets, furniture stores, hardware stores etc. where the workers shop, all pay taxes.  Their employees of all these companies pay taxes.  This tax revenue is lost to the government. Incidentally, the extra revenue that super markets furniture stores etc would make from the car building company and its employees is 'on  top'.  It is after their fixed costs and hence at their marginal tax rate.

Some parts bought overseas have various taxes on them as they come through our borders.  This goes to the government.  Looked at another way, parts from overseas are tax free to an SOE and hence less expensive  than to a private business as they pass our borders.

The workers of the super markets, furniture stores etc. also shop and the companies they buy from pay taxes...........*

*The calculation is an infinite series with a finite sum. (remember year 12 math) Give it to your maths boffin.  In a back of the envelope calculation, I suspect that the secondary tax take is about equal to the primary tax take.  If my initial thumb suck is correct, just based on the primary, secondary and tertiary etc. tax take, you would have to obtain rail cars overseas for 60% of the manufactured-in-New-Zealand cost to make the purchase worthwhile.  We are now at 60% of 80% which equals 48%.

Cost of Borrowing Money
Contracting rolling stock overseas further worsens our balance of payments.  A poor balance of payments has a whole range of deleterious effects on our economy including raising our bank interest rates.  Sending our manufacturing overseas makes life more expensive for every New Zealander.

The Welfare Cost.
I don't know how many people are out of work because our rolling stock is being made overseas.  Say 50 for the sake of argument.  Jobs are not just waiting to be filled in New Zealand so these skilled people don't have suitable jobs in their professions they can go to.    We have  high unemployment so every manufacturing job we contract overseas puts people out of work.  This increases the number of people on welfare.  Various estimates put the number of secondary jobs lost for each core manufacturing job at between 2 and 5.

The Lost Technical Capacity
As new technology becomes available, it is incorporated into newly manufactured goods.  From the descriptions in the media, there are many innovations in the new rail cars.  We have given Korea the chance to keep up to date with these innovations rather than keeping our own industry at the cutting edge.  We have degraded our own capacity for future manufacture.  This cuts into our prospects for future earnings.

Lost Advertising
If we were to build our own rail cars,  tourist who ride our rail will see that our cars are 'Made In New Zealand'.  Some of these tourists will be business men.  Realizing that our rolling stock is made here, they will realize that they can get us to make similar products for them.  Seeing that the rolling stock is made in Korea, they will go to Korea.  We are showcasing another country.

The Lost People
When we send manufacturing overseas and put people out of work, we send them overseas to look for work.  This is especially so with  highly trained people who  are not hugely motivated to seek a job stocking Super Market shelves.  Many land up in Australia - others further afield.  Getting things manufactured overseas  not only exports our dollars and our technical capacity but also our best and brightest further degrading our capacity for future earnings.

I suspect I have only just touched the surface.  I'll update this blog as more disadvantages of manufacturing overseas come to mind.  Can anyone put a figure on all the above.  How much cheaper would  rail carriages have to be before it would be worthwhile to buy them overseas instead of making them in New Zealand. Would it ever be worthwhile.  We must start to look at the true costs of our actions, not just the immediate costs.  If a private company contracted manufacturing overseas, you could understand if not forgive it.  They have a very narrow focus which only looks at the immediate bottom line of their individual company.  For an SOE to do this is myopic to the point of  criminal irresponsibility.  Of course an SOE operates just like a private company unless otherwise directed by the political party in power.  The responsibility for taking a wider view rests, at present, with the National Party.

A Government Argument
One of the arguments by the government for obtaining our rolling stock overseas is that it can be produced faster than our local companies can.  This would seem to me to be a disadvantage.  We have got along with the present situation for years and now suddenly we need all this new rolling stock within, say, three years.  Nonesense.  Far better to produce a three car unit and a new locomotive, put them into service, iron out any bugs and incorporate the knowledge gained into the next units.  I understand that the first unit to arrive in New Zealand from overseas did not meet our requirements so are we now have a whole bunch of these units which need fixing because of the speed of overseas manufacture.

There is another consideration.  Suppose for the sake of the argument, we could buy all the rolling stock in the first contract off the shelf from Korea or China and they could arrive on the first ship coming our way.  I would be willing to bet that this would overwhelm our ability to absorb them and they would take a good deal of time to get into service.  How much better to put these units into service one after the other and upgrade the support service as necessary.  How much better to be able to give feed back to our own company and upgrade the units as the need becomes apparent.

Below is a reply I received from  Jim Quinn of the SOE KiwiRail.  He has kindly given permission to include his reply in this blog.  I am grateful to Mr Quinn for presenting the other side of the argument.

Thanks for your email.  I read your blog and understand your point however you seem to have ignored some basic points:
·         The gap in the price points between local build and foreign build is far more than the benefits you discuss.
·         We have never built electric multiple units in New Zealand so we have little knowledge of the complexity of the build.  Using your logic we should build cars, trucks and jumbo jets here- that debate has long been negated.
·         There would undoubtedly be some local spin off of any build but the vast majority of the parts would come from overseas if we were to build here and we simply have no scale to buy well and competitively.
·         If we were to build here we take all the warranty and cost risk in the build.  I have great faith in our capability but projects like these can go wrong & we can’t afford that risk.
·         As an SOE our responsibility is the best commercial answer.  Other people’s job is to evaluate wider benefits.  That is the appropriate split of responsibility.

The worst thing we can possibly do is create manufacturing capability here that cannot be sustained.  So long term sustainability and affordability must be our first test if not we are simply making short term bad calls and wasting money.

I have been told by an 'informed source' that in Australia the rule is 75%.  A product has to be obtainable for 75% or less of the local price or it will be sourced within Australia.

It has been brought to my attention that a study was commissioned on this subject by the RMTU (Rail and Maritime Transport Union) and the DCC (Dunedin City Council).  It was prepared by the economists, David Norman, Dr Ganesh Nana and Kel Sanderson.  To see the whole report, click here,  go to the bottom and click on the BERL report.  In summary:

1.  38 three car multiple units (114 cars)  and 13 electric locomotives are to be built in this phase of our rail improvement.  They would cost $375m to produce in New Zealand

2.  The work would employ 1270 employees for a period of 45 months or 770 employees for 69 months

3.  This would add between $232m  and  $250m to our GDP

4.  If you consider just the immediate benefits, we would have to obtain the cars for 29% less than the cost of making them in New Zealand.  If we consider the wider benefits (see the start of this blog and note that in the BERL report there are benefits I didn't think of) we would have to be able to purchase them for 62% less than the overseas cost (ie for 38% of the New Zealand cost).

5.  The BERL report only deals with the financial side of the question.  It doesn't examine the human side of the equation such as the gut wrenching decision families need to make to go overseas to seek decent employment, leaving elderly parents, friends and the environment they love in order to work in a land of floods and drought.

There is much more in the BERL report that I haven't dealt with.

Saturday, December 25, 2010

KiwiFruit Canker (PSA) in New Zealand

An outbreak of KiwiFruit canker has recently been discovered in New Zealand.  In fact, genetic studies have shown that we have two varieties.  This disease Pseudomonas syringae pv actinidiae (PSA) has destroyed whole KiwiFruit orchards in Italy and caused much damage elsewhere in the world.  Many of the farmers are blaming New Zealand bio-security for the problem.  I think they should look a little closer to home.  Possibly in the mirror.

The KiwiFruit, otherwise known as the Chinese gooseberry is a fabulous fruit.  Original stocks were brought to New Zealand from China back in 1924 and something about our climate suits it very well.  It has become a major export item and a great help to our balance of payments.  You would think we would guard such an industry with great care.  For instance, you would think that as soon as it was apparent that a serious industry was growing around the production of KiwiFruit, we would stop importing any new biological material.  Even if there were no  known diseases or pests of KiwiFruit, you don't endanger such an industry just because you don't yet know of any diseases.  How much more important is it then to stop the import of biological material when you do know that PSA, for instance, has decimated KiwiFruit orchards overseas.

New Zealand is absolutely fanatical about blocking unwanted pests from getting into the country as we should be.  We are far enough away from the rest of the world to isolate us from many of the worlds pests.  If we can stop people bringing biological material into the country, we are reasonably safe.   So why did we not do this in the case of KiwiFruit. I think it must have been a combination of greed, complacency based on familiarity and a lack of foresight.

We have been bringing in KiwiFruit root stock, scions and pollen ever since the industry started and before.  One would  expect a country like New Zealand we would institute the very latest protective techniques.  For instance, if we had need of the genetic characteristics of certain root stock or scions we could have brought them in via plant tissue culture.

In tissue culture, you take minuscule pieces of the desired plant and grow it on agar and later transfer it to soil, producing a whole plant.  During the process, various techniques are used to free the material from bacteria and viruses.  Two of the uses of tissue culture listed by Wikipedia are:
  • The production of plants in sterile containers that allows them to be moved with greatly reduced chances of transmitting diseases, pests, and pathogens.
  • To clean particular plant of viral and other infections and to quickly multiply these plants as 'cleaned stock' for horticulture and agriculture  

Of course, this technique is much more expensive than simply bringing in root stock or grafting wood (scions) from overseas.

Another technique one would have expected to be used is as soon as it became available is genetic testing.  This has only been possible over, arguably, the last decade or two.  When used it will detect if there is any genetic material in imports in a tissue culture other than the KiwiFruit itself.  In other words it can detect bacteria and viruses.  Used in combination with tissue culture, one can be almost certain that no unwanted 'bugs' are coming in with new genetic material.

The really unforgivable import, though, is pollen.  I suppose it must be cheaper to produce pollen overseas than in New Zealand and if you only grow female plants in your orchard you need to artificially pollinate them.  No space is wasted with non producing male plants.  We could have grown orchards here of only male plants and produced our own pollen or we could have inter-planted male plants amongst the female plants.  Instead, we imported pollen from overseas.  I can just hear the industry saying "but we have no indication that pollen carries PSA or any other disease".  For the love of mike, you don't endanger a whole industry because of negative evidence - because you haven't yet found disease organisms in pollen.  This was complacency based on the fact that we had got away with it for a while and the pure greed of farmers wanting to make a little more profit. Have a look in the mirror, guys.

 I wonder  how many other agricultural industries are following a similar course.  How many other industries are importing biological material rather than going through the more expensive but far safer system of plant tissue culture and genetic testing.  We are very strict on individuals coming through our air ports and well we should be.  Why do we not apply the same or more stringent standards to businesses.  Our agricultural industries are far too important to allow this to continue.

Saturday, December 11, 2010

Fisheries Policy - Lets change tacks

Our history
We have shown conclusively that as a species we are not worthy of having dominion over the beasts of the field and the fish in the sea*. Every first people, when they arrive in a new land, wipe out whatever portion of the native fauna that their technology is capable of. When Europeans arrive, some time later, they wipe out even more.**

* I've always been rather puzzled at the attitude of devoted Christians.  After all in that passage of the bible, Dad was passing on the family business to us.  Presumably his hope was that we would look after his legacy, guard it and even improve it (sorry, that is not possible.  Anything God created is by definition perfect already).  Why then is it the religious people who want to mine, clear fell, drill, and over exploit virtually every resource we have while the non believers seem to be the ones that are trying to protect Gaia.  I just don't get it.

**read the chapter "Goodby" in Bill Bryson's book A Short History of Nearly Everything to get a taste of just how destructive we have been.  Better still, get a book by Schouten and Flannery titled A Gap in Nature.   Sea of Slaughter by Farley Mowat is also an eye opener.

In North America a rich fauna of Mammoths, giant ground living sloths, a beaver the size of a black bear and many many other species disappeared soon after the first people arrived. Europeans arrived and a bunch more disappeared including the passenger pigeon and very nearly the American buffalo.  Europeans rounded off their orgy of destruction by  almost eliminating  the first people.  Europeans, when they arrived in North America were astounded by the abundance.  They had no idea of the incredible fauna that existed in North America before man arrived.  The abundance they observed was in contrast to their homeland where they had long since destroyed their own fauna.

In Eurasia, as the level of hunting technology improved and as Cromag's replaced Neanderthals, a fauna as rich as that of Africa vanished.*

*Read Jean Auel's book, Plains of Passage to see what we have lost. It is a novel but Jean did her homework.

In  Africa the Elephants, Rhinoceros and a host of other game almost disappeared.  At the 11th hour the Europeans realized that everything they held dear was about to vanish and, in a couple of game reserves in Natal Kwazulu they brought these species back from extinction.  Back under African rule, they are once more on the way out.

Here in New Zealand, almost within living memory, the Moa and a giant eagle were wiped out. Sea birds* which once abounded on the mainland vanished from all but offshore islands and many "dicky birds" were eaten to extinction.  Sea birds once contributed a huge supply of nutrients (guano) from the sea to the land.  That all ended.

*New Zealand was dominated by birds.  Our only mammals were bats.  Google Mike Joy, an ecologist from New Zealand's Massey University to get a feel for what is still happening today in New Zealand

In Australia, perhaps the greatest extinctions occurred.  The destruction began, following man's first incursions into that land forty to fifty thousands  years ago.  95% of Australia's large animals, mostly marsupials, were eaten to extinction.  So much for "the first people" - the guardian of nature.  Extinctions  continue apace with 'European man's' ever increasing ability to destroy whole ecologies.

But we don't have to go  that far back. In the oceans of the world, in my lifetime, or at most, in the lifetimes of me and my grandfather, animals which have come within a hairs breath of extinction include the seals of many lands, the whales, many fisheries including most of the tuna#, the salmon of Europe and North America, the cod of the grand banks*, the cod and halibut of the North Atlantic (Dogger Banks)  and most of the shellfish beds of the world.  On and on the list goes.  If we go further back, sail boats used to harvest more fish than our modern diesel powered trawlers just 150 years ago.  Fortunately most of these species have remnant populations and could possibly be brought back.  Once we thought that a simple cessation of fishing would be enough.  We have had a rude awakening in, for instance, the Grand Banks of Newfoundland which haven't recovered despite a fisheries ban.  There is some hope though.  Off the horn of Africa where the pirates have denied access to industrial fishing boats, the fish stocks have bounced back with a vengeance.

# It was announced on the radio in Oct 2013 that the Chinese are building a fleet to plunder the tuna of the south pacific, the last significant tuna population in the world.

* Note that it was reported in New Scientist (30 July 2011, p5) that the Grand Banks are finally recovering.  Of course what they call recovering is back to a state "remembered" since scientific man began to monitor the fisheries.  Scientific man isn't ready to use pre-scientific reports of the abundance that once was because it "isn't scientific".

How clever we are
  If a system is complicated, clever bureaucrats, lawyers, and businessmen will find a way to thwart the system. Think of taxation as an example.  If we are going to put in a policy to stop and reverse the destruction of our oceans, it has to be simple.  It should be able to be expressed on one side of a double spaced piece of A4 paper.  A simple system is far more difficult to rort*. A necessary partner to a simple system is that repercussions to rorting the system must be swift and harsh.  Of greatest importance, though,  repercussions must be inevitable.

* common Kiwi term for a scam, often political

The failure of the Commons
If we continue with the 'commons' no system will work.  We need to have the oceans divided up and in the hands of individual governments.  Only the country in question is responsible for their area and only they can fish in this area. If they destroy the resource: tough!!  That is all they get.  They must also be ready to use extreme force and sink pirate fishing vessels which fish in their waters.We have gone a good way toward this with the 200 mile economic exclusion zone measured from headlands and offshore islands.  The more of the ocean that is removed from the commons, the more likely we are to succeed in conserving our oceans.  If small nations which are being preyed upon by industrial fishing nations think that they are too small to do anything*, learn from the pirates# off the horn of Africa.  With modern shoulder launched anti tank weapons, a wooden proa becomes a very effective stealth delivery platform.

*New Zealand's Pacific Island neighbours, for instance 

#this one is tongue-in-cheek (isn't it???).  You can look up your own serious ones. There are lots of them on the net.

Fisheries Biology
Ocean biology is quite different from land biology.  On land, before humans arrived, the flora and fauna of the different land masses were very different from each other.  Compare, for instance the pre human fauna of Australia, North America, New Zealand and Madagascar.  They could have been on different planets.

The situation in the oceans is quite different.  If you have dived on coral reefs around the world you will have seen that with minor variations, they were all the same.  Sea animals send their progeny far and wide on ocean currents.  Even sessile animals such as oysters have pelagic larvae.  Even animals which guard their young such as the clown fish (nemo) send their young far an wide once they are hatched.  Because of this, if there are protected areas, they will seed unprotected areas.  If these areas are large enough, they won't only seed unprotected areas with larvae but with adults which have become overcrowded and are looking for 'fresh pastures'.

Our fishing methods
Our fishing methods over-fish resources and take the largest and the best instead of leaving them to breed* and produce the next generation. Bottom trawls destroy the environment that nurtures the fish we catch.  Within a couple of years of starting bottom trawling in a new area, all the bottom attached fauna has been removed leaving a sterile plane.

Drift nets catch huge amounts of 'by-catch' and when a drift net sinks, it continue to fish and deplete the fish stocks.

We allow floats to be set (FAD's) in the ocean to attract fish and then we harvest the whole lot.  This leads to a criminal level of 'by-catch' which is dumped back into the sea.   For a smart species, we seem totally unable to do what our own intelligence tells us  we should be doing.

*A nice land-example of selective pressure  is the reduction of the size of the ivory of the African Elephant.  We always hunted the 'tuskers' and left the elephants with small tusks.  A nice example of evolution in action as male elephants are now maturing with small tusks. What farmer in his right mind would harvest the biggest and best and leave the runts to breed.  That's what we do in the oceans.

Salmon fisheries are my favorite example of human stupidity.  All we have to do is to wait for the fish to return to the streams where we can harvest them.  We only have to leave enough of the biggest and best to spawn and fill the redds and harvest the rest.  Instead what do we do.  We send expensive, polluting, dangerous (to the crews) fishing boats to catch these fish before they are mature and  hence, fully grown.  We dam up rivers without adequate measures to allow the fish to bypass the dams on the way up and down, and worse still we allow fish farming along the salmon migration routs which trashes the natural fisheries (see link).  We don't protect the riparian environment and so degrade our rivers and we allow domestic, agricultural and industrial pollution to further degrade the salmon rivers not to mention clear-fell logging which silts up the redds.  So what do we need to do.

                        The solution 

1.  Firstly,  we need to put  as much of the ocean as possible under the control of individual governments.  The National Area is the only place in which they are allowed to fish and only they can fish there.  Fishing boats must be based in their country, owned by their citizens and must land all catches in their country.  Allowing foreign fishing boats to fish national waters* puts the citizens of the country out of work, reduced the tax take to the government and strangles businesses which would service the national fleet and in turn also pay taxes.  Allowing foreign fishing boats to fish your waters is as short sighted as sending your manufacturing overseas and is, economically speaking,  the same thing.  If a particular nation is unable to fish their waters, their whole area becomes a fisheries reserve.  They might opt to start a tourist fishing business, earning far more from their area than is possible from commercial fishing.  The choice is theirs.

*You would think that an educated, technological, modern country like New Zealand would fish her own waters.  Not so.  Since foreign fishing boats, with their abysmal labor laws and tiny wages can land fish cheaper than New Zealand boats, we allow them to do our fishing for us.  This takes jobs that could be done by Kiwis, lowers our tax take and obliges us to borrow more money as a country to keep ourselves afloat.  All the fishermen would also be shopping in local stores, raising the taxes they pay. Instead we leave our potential fishermen on shore and pay them welfare.

Nov 2013.  I just learned that we send our fish for processing to China.  Are we totally our of our minds.  I thought that at least we processed our own fish even though we allow foreign fishing.  Apparently not.

2 Secondly and most importantly, instead of making tiny areas here and there into no fishing reserves, each country must designate at least half of their area a no fishing reserve.  Don't get me wrong.  The existing tiny reserves are extremely valuable.  They allow marine animals to breed  and seed areas far and wide with their progeny.  But just imagine the effect of putting at least 50% of the best fishing grounds off limits. In this way, you are not only seeding fishing areas with juveniles but also with adult fish as the reserve areas become  crowded and the fish look for greener pastures.  The catch per unit effort* in the permitted area would be incredible.  Imagine getting back to the productivity that was reported from the Grand Banks of Newfoundland and the Dogger Banks of the UK, of the huge densities of tuna that once existed, of salmon runs that are many orders of magnitude larger than our present pitiful returns.  The good part about this is that if we eliminate the commons and put all of the oceans under the control of individual countries, it would only be necessary for one country with a reasonably large zone of economic exclusion (guess who??)  to  institute this policy.  The results would be so spectacular that all the rest would follow.  As a species we are  sheep and  we  show a huge level of  ecological amnesia.  We hardly innovate at all and only advance as a species because we follow the few who do think outside the box.  We forget from generation to generation what 'was'  and hence what  'could be' again.

*"Catch per unit effort" is measured in various ways.  One of the most common is to calculate how many dollars are needed to catch a kg of the desired fish/prawn/crayfish/oyster.

Note:  If the only function of marine reserves was to supply tiny juvenile organisms to re-seed fishing areas, we could arguably manage with a few hundred small reserves of, say, 10 square nautical miles each, scattered strategically around our (New Zealand) coastline.  You only have to observe sport fishermen to realize the value of reserves to supply adult fish.  Fishermen cluster just outside marine reserves where the fishing is great.  In the reserve, fish grow up unmolested, outgrow their area and go looking for new areas with abundant food.  A marine reserve not only seeds areas with larvae but with adult fish.  Let half of the Economic Exclusion Zone be off limits for fishing and just watch what sort of fishing you have in the other half.  Better still, if the fisheries returned to pre-human levels, we could achieve huge catches with hook and line methods instead of destructive bottom trawls and drift nets.  This would further increase our fisheries as the bottom recovered from the abuses it has suffered to date.

3.  Thirdly, each fishing boat must carry a transponder AIS) which tells where it is at all times.  This is done with oil tankers (who often switch them off when engaged in nefarious activities)  A world wide computer system rings an alarm when a fishing boat is traveling at fishing speed in a no fishing area or if the signal goes off.  If after investigation, the fishing boat has been found to be fishing in a no fishing area, it is simply taken to a no fishing area and sunk* 
**.  No if's and's or but's.  The most important part of any regulation is the inevitability of the sanction.  The best place to sink such a boat is where  bottom trawling was once done.  This provides a snag for the nets of anyone who tries to bottom trawl in such an area.  The boat also becomes an artificial reef and provides niches for fish breeding that were destroyed by bottom trawling. No fair trying to make money out of selling the boat.  Each fishing boat we destroy is one less boat catching fish.  Take off the crew*** and send them home (first class with lots of presents and Kiwi memorabilia and their full wages), pump out the oil tanks and open the sea cocks.

*Such a policy greatly simplifies the policing and regulation of fisheries.  You almost get down to a one sentence fisheries regulation system.  If you fish the restricted area, we sink you. You almost eliminate the need for monitoring fish stocks (which won't make the researchers happy).

**Note that as of 1015, Indonesia has started to sink illegal fishing boats.  We need a few more countries to follow their lead to give them moral support and take the heat off them.

***Treating the crew really well will garner much good will and support from crews when other boats must be boarded. 

4.  Fourthly, all fishing boats must have an observer monitoring the catch.  This is done today in many fisheries and is very effective.  Observers must be shifted around between boats so that cosy relationships do not develop between observers and captains.  Stats are kept on catches vs which observers are on board.  Any curious 'anomalies' are investigated.

It is curious, in the case of New Zealand, that the abuse of foreign fishermen was not reported.  Did we not have observers on these boats* or were they in the pocket of the captain.  More likely, the fish processing companies that hired these foreign Charter Boats didn't want to hear anything that would effect their profits.

* In a news report after this blog was written it turned out that we did have an observer on the boat.  What was she doing???

5.  Fifth, all catches are landed and processed by the country in who's water the fishing is done.  The country then sells quality, value-added-products to the world and hence has the incentive to manage its fisheries well.  At least, New Zealand has this right*. 

*She did have.  If my information is correct we are now processing our fish overseas!!!!!!

6.  Sixth, for all the fisheries of the world, we stop bottom trawling and drift netting.  Once the fish resources have recovered, the fishing will be so good that such methods will not be necessary for economically viable fishing**.  With recovered fish stocks, long line methods will result in great catches and there will be no need for the various destructive methods of fishing.

**Note that on Jan11, 2012 in an interview with Dr Callum Roberts of York University in the UK, he gave some figures for the catch with just hook and line in the 1800's when the Dogger banks were still full of fish.  The total catch, percent of hooks with fish and the size of the fish caught were astounding.He would make a great advisor to the New Zealand government.

7.  Seventh, off great importance, we change the quota system in our areas of influence.  A fishing boat should be licensed to catch a certain number of kg of fish*.  They must keep and process whatever they catch.  If the catch is what they consider trash fish, too bad.  None of this nonsense of throwing back a net full of fish because the concentration of the desired species is too low.  The on-board observers must see to this.  Why on earth do we insist on catching and keeping the largest fish who are the breeders and likely to be the best genetic stock and throwing back the young and the runts.  If we had always utilized the biggest and best in our farms,  our cattle, sheep and other livestock would now be tiny scrubby little things instead of the magnificent animals they are.  No sane farmer would behave like this.

* In a later news report it turned out that the Korean fishing boat that was abusing their crew caught a particularly valuable net of fish.  Lacking room in their holds they tossed the earlier catch overboard to make way for the new fish.  Why would we have expected anything else from a company that treated their workers the way they did.

8.  Eighth, I suggest that the island nations of the Pacific declare themselves the United Island Nations of the Pacific.      The only common policy they need to have  is Fisheries.  In all other matters they are sovereign.  There is a precedent for this.  Many of the Pacific Nations already run a shipping company they own in common, The Pacific Forum Line.

For fisheries policy, the Pacific Islands draw their zones of economic exclusion from 200km beyond the border of a line drawn between the outer most of their islands.  They then negotiate which areas are to be fished by which islands.  No foreign fishing boats of any outside nation are allowed in the exclusion area.   No foreign boats are licenced.  All catches are landed and processed on-board or on one of the islands . All fish, processed at sea are landed on one of the islands.  Any foreign fishing boat found within their territorial waters is sunk.

9. We must stop the harvesting of  whales.  It turns out that whale poo made from deep water prey and even surface prey is a major resource for the primary productivity of our oceans. Whales are not just a nice thing to have around, not just valuable for tourism.  They are vital to the productivity of our oceans.  Just imagine if we could stop the whale fishing nations of the world from killing whales so that once again we had as many "whale pumps" enriching our surface waters as there were in pre-whaling days. 

The potential productivity of our oceans is immense but not unlimited.  As usual, the problems are not technical but of vested interests.  The necessary technical measures are obvious and simple.    Let's use vested interests by having the long term vested interests of the  whole country the determining factor rather than the short term vested interests of companies. We have seen conclusively, recently, that unregulated capitalism is very destructive (crash of 2008).  We need sensible regulations that take a wider view than the immediate bottom line of individual companies*.  The true function of governments is to take this wider view.

* We vitally need a wider-view set of policies in many other aspects of our economy including our lumbering industry, acquisition of new rail stock and our selling off of our farmlands to vertically integrated foreign companies.

As a young lad, ocean products of all sorts were inexpensive and readily available.  Whenever my parents took me out for dinner in Vancouver in the 50's,  I had a choice of ocean scallops, oysters, top quality salmon, halibut and so forth.  Just in my short lifetime, they have become rare and expensive.  It doesn't have to be this way.

One last thought.  Perhaps the most important function of fisheries reserves is that it allows us to reset our baseline.  Each generation has a base line of the number of fish, the size of oyster reefs, the ease of catching a meal and so forth from their youth or at most from tales from their fathers.  Scientists are trained not to accept anecdotal evidence so if in an old book from the 14th century someone talks about the abundance of fish in some area, the information is not trusted.  A fisheries biologist needs numbers; catch per unit effort, Lobsters counted on a standard transect and so forth.  The trouble is that this sort of information has only been generated over the past 50 years or so.  A marine reserve allows us to get a little closer to what once was.  It may only be a shadow of what really was if bottom trawling has trashed the breeding ground of fish but it is far closer to what once was than the tales of our fathers.  Given time, even the bottom environment will re-establish itself and we can really see what was.

Friday, December 10, 2010

Selling off New Zealand Farms

Recently I got a blast from the host of a New Zealand radio talk back program for suggesting that New Zealand farms should not be sold to overseas concerns.  We were cut off by the news and I tried to get back to him by e-mail.  Unfortunately, when you want to e-mail this radio station they provide you with one of those little boxes which is about three words wide and 4 lines deep.  I refuse to try to present a reasoned argument in such restricted space and I sent a short message asking for his e-mail address.  So far no reply.  The host is not widely known for listening to opinions that run counter to his own.  I am quite passionate on the subject but would very much like to hear counter arguments.  Put them in comments and I will publish them anonymously or under your name as you like.  I'll try to present fairly the argument of the host.

He said quite rightly that if sales to overseas concerns were stopped, the price of farms would drop.  No argument there.  Supply and demand is a harsh mistress and with reduced demand, farm prices would surly drop.  This would be added to the present drop in farm prices due to this little  economic glitch* that we are going through.

*if you think this one is bad, just wait for the next one.

I replied that it is a zero sum game.  What a buying Kiwi gains a selling Kiwi looses and vice versa, depending whether prices are going up or down.  Besides, the price of your farm is of no interest unless you want to sell it.  Of far more importance is the revenue you are earning from the farm.

He quite correctly pointed out that the loans you can get from the bank depend on the equity (perceived value) of the farm.  Banks for the past few decades have been loaning vast amounts of money to the farmers based on the valuation of their farms.  In other words, the next owner was expected to pay the running costs of the present owner.  Basing loans on equity rather than earnings is part of the reason that we are in our present pickle but that is another story.  From an item on National Radio, it would appear that the banks have recognized the folly of linking the amount of a loan to the valuation of a property* and are now lending on the far more fiscally responsible basis of the projected revenue from the farm.

* there is no choice when making a loan for a mortgage on the family dwelling.  It has to be based on the  value of the house.  A rental property is another matter.   A loan to buy a rental property, a business or a farm can and should be based on its expected revenue.

My main point though, which the host very much disagreed with, is that when you buy a farm, you generally have to borrow some portion of the buying price from the bank.  It is a rare individual who can simply reach into his pocket and find the full purchase price.  The higher the price, the more you have to borrow.  The more you borrow,  the greater your capital and interest repayments. These  repayments  come out of your revenue.  You end up  working for the bank. The money you earned is going into dividends for the shareholders of the bank and into the bonuses of the bank managers.   They, a service or enabling industry, end up taking a large portion of your earnings which should be going into your pocket.  You earned it.  This revenue would be much more usefully applied to reducing your loan, improving your financial security, improving your farm and simply having money for a vacation from time to time.  Instead you end up working to make profit for the banks (most of which are Australian, by the way).  

I live in the middle of a wine producing area.  Talking to some of the owners, they maintain that the only time they make a profit is when they sell the farm.  They depend on ever increasing farm prices to leave the industry when they retire with something in their pocket to show for their labor.  I very much sympathize with them in wanting to have farm prices continually increasing.  However, why do you think that they have not made a profit during the operation of the farm.  A good part of the explanation is the fact that much of their profit has had to go to pay off the loan they took out to start the farm.  I'd much rather see a system in which farms sold for  their original buying price plus, of course, inflation and improvements.  Much better that the farmers earn a profit during the operation of the farms.  Much better that they can pass on a debt free farm to their children.

Incidentally, one implication of the host's position that we must have overseas purchase of our farms to keep prices up is that the only way we can make New Zealand profitable is to continually sell off the means of production.  We will eventually end up being tenants in our own country.  This is no way to run a country.  The other implication is that all our farmers remain slaves to the banks.

As the rest of the world depletes her ground water, expands her cities over fertile farmland, exhausts the fertility of her soils and sends their soils down their rivers, and just generally trashes her food production capacity, it is the beginning of an agricultural boom for countries that can produce food.  This is New Zealand's main industry and we produce very high quality food.  What earthly sense does it make to sell off our means of production to countries who are going to be buying our food.    Why do we want to trade a small economic gain now for a sustained economic gain far into the future.  We are talking about farms here but the same applies to SOE's, Air Ports, Sea ports and so forth.  Is there some vested interest amongst the people making these decisions.  Is there some hidden Winebox underlying these decisions. Do they have shares in the banks. Perhaps if we could understand the motivation of the decision makers it would become clear why they are so hell bent to sell off our family jewels.