When the Farm Gates Opened: The Impact of Rogernomics on Rural New Zealand
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When the Farm Gates Opened: The Impact of Rogernomics on Rural New Zealand
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Product Details
| ISBN-13: | 9781927322987 |
|---|---|
| Publisher: | Otago University Press |
| Publication date: | 08/30/2016 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 160 |
| File size: | 3 MB |
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When the Farm Gates Opened
The Impact of Rogernomics on Rural New Zealand
By Neal Wallace
Otago University Press
Copyright © 2014 Neal WallaceAll rights reserved.
ISBN: 978-1-927322-98-7
CHAPTER 1
Farming in crisis
Twenty-five years after the event, Beverley McCaw still doesn't know what drew her to walk around the farm truck parked in an Otago paddock. Maybe it was instinct that something was amiss. Before she started searching, she recalls thinking nobody was nearby. Despite that doubt, that initial impression that nobody was around, something drew her to look, to be fully satisfied she had checked it out.
Beverley was wrong. Sitting on the truck's running board was a depressed, dishevelled, unshaven and agitated man with a rifle resting across his knees. She would learn from a chance meeting several years later that the man had been just minutes away from taking his life, unable to cope with watching his family, farm and business wilting away from a deadly combination of drought and four years of economic reform. He told her that her timely intervention and support had saved his life.
Many farming families – like that Otago farmer's – were hit twice. In 1988–89 the South Island east coast was ravaged by an extreme drought. Coming less than four years after the most wide-ranging economic liberalisation and reform of monetary and fiscal policies ever undertaken by an OECD country, this had been instigated by Finance Minister Roger Douglas following the 1984 election of the David Lange-led Labour government. Agriculture, into which the previous National government under Robert Muldoon was pumping $1 billion a year through subsidies, grants and assistance, presented low-hanging fruit for reform of an economy on the cusp of collapse.
Many farmers were left financially and emotionally vulnerable as subsidies were wiped almost overnight, they were exposed to market-related incomes, and interest rates increased progressively. Then came both the 1988–89 South Island drought and, also in 1988, Cyclone Bola. The cyclone hit Hawke's Bay and the east coast of the North Island, dumping 900mm of rain in 72 hours and causing $111 million in damage from flooding and landslips. Many rural people couldn't cope. It fell to a network of Rural Support Trust coordinators like Beverley McCaw to offer them support and assistance.
To cut costs, groups of farmers began to pool their resources and labour for tasks such as shearing and haymaking. They became adept at doing their own engineering, plumbing, electrical work and carpentry to keep machinery going and costs down. As tractors, farm bikes and trucks were made to last a few more years, repairs and maintenance became an unfunded category on their annual accounts. They had to make do. They had to work smarter and more productively, but not all were successful. There was speculation that several thousand farmers would be forced from their farms. A 1986 survey by the government-owned Rural Bank, which held 40% of rural debt, estimated 8000 to 9000 of its clients were in financial difficulty. They left for multiple reasons: not only because of debt which was unserviceable or close to being so – though that was a common element – but also as a result of the compounding pressure of drought, falling incomes and rising costs. Some families were unable to survive this pressure and marriages dissolved or couples opted out before reaching that point. Others left their farms through a mix of coercion and encouragement.
It was soon obvious to the banks that if they were to take a textbook approach to the rural debt crisis, land prices would collapse, banks would end up owning the farms and their balance sheets would take a hit. An unknown number of farming families left with the approval and assistance of their creditors, the farm quietly put on the market in a controlled and orderly process that retained the dignity of the vendor and ensured land prices did not collapse under the weight of multiple sales. A New Start Grant scheme offered a cash grant so that farmers could start a new life. It began in 1986 as a sum of $10,000 but soon rose to $20,000. At the time of the 1988–89 South Island drought it was increased to $40,000 and then finally to $45,000. The drought would see a further 3000 farmers assisted through an Adverse Events Assistance Fund that helped with day-to-day living expenses.
More recent official estimates are that just 800 – about 1% of the country's 82,000 farmers – were eventually forced off their farms. The number would have been a lot higher, had the Rural Bank not initiated in 1986 a debt restructuring scheme for nearly 5000 farmers, under which creditors, mainly the Rural Bank itself, wrote off $229 million of concessionary loans in exchange for farmers paying market interest rates. It was difficult enough contending with the economic transformation that followed Labour's 1984 election, but the additional pressure of the drought broke some people and their families.
Given their comprehensive electoral victory, Lange and Douglas had a political mandate to begin reforming an economy that had endured six years of authoritarian governance by Muldoon, who steadfastly refused to address major issues facing the economy. Instead, he adopted a policy mix,seen as reactionary and interventionist, that ignored problems of rising debt, inflation and a lack of competitiveness. This approach had created a balance-of-payments crisis and pushed the economy close to collapse. Subsidies for farmers and support for selected sectors were central to Muldoon's policy mix and served three purposes. Since agriculture was by far New Zealand's largest export industry, Muldoon believed that by increasing then selling that extra agricultural production, the economy would be pulled out of its trough, and the best way to expand the sector was through targeted support. But he ignored the fact that the world did not want much of our extra production. Government assistance was also compensation for the protection proffered to manufacturers and industry by tariffs and licensing. This protection resulted in higher prices for goods and services but nurtured a domestic manufacturing industry and jobs. Such favourable treatment also served to ensure a loyal pool of support for the National Party at the ballot box every three years.
In the years leading up to 1984, Muldoon heavily regulated the economy. The government controlled interest rates, lending policies, the exchange rate and the availability and use of foreign currency. It subsidised industry, restricted imports, and froze wages and prices for nearly two years from 1982 in a desperate attempt to curb inflation. This all contributed to a high current account and budget deficits while inflation was kept artificially low by the wage and price freeze.
Douglas, along with his Labour caucus colleagues and Treasury, saw economic liberalisation as the only answer to New Zealand's problems. The November 1984 budget started the country down this path by removing the $1 billion a year earmarked to support agriculture. In the next four years, before the very public spat that forced the resignations of both the Finance Minister and then the Prime Minister, Douglas would also deregulate financial markets, float the exchange rate, remove wage and price controls, reform the tax system, restructure government departments and privatise several state-owned enterprises. In short, a politician from a traditionally left-wing party affiliated to Socialist International and the British Labour Party was pursuing New Right political philosophy of market liberalisation and a reduced role for government.
Douglas talked of transforming New Zealand into a world financial capital, the Switzerland of the South Pacific. In a quip that would come back to haunt the government and galvanise farmer hatred towards the Prime Minister and the Labour Party, Lange underscored this philosophy by describing farming as a 'sunset industry'. Trading banks, which then had about 10% of rural debt, well behind the Rural Bank at 40% and family at 15%, bought into this idea of economic transformation, with trading banks writing to some farming clients to say they were no longer lending to the sector. All these forecasts of the demise and declining relevance of agriculture would eventually be proved wrong. It was the toughest of tough love for farmers. Not only did they lose about a third of their income overnight with the ending of government support, but concessionary interest rates trebled to 18–20%, with some nudging 30%. Product prices halved, and farmers were hit again when the dollar was floated and confounded all expert opinion by rising instead of falling, reducing export income when transferred into New Zealand currency.
Farmers have never been known for expressing their emotions, and the psychological cost of grappling with the reforms became the silent destroyer of families and individuals. Some clammed up, refusing to talk to anyone or leave the sanctuary of their homes; some found it changed their personality, reducing their patience when handling everyday farm situations such as dealing with stock. Many struggled to accept the changes, and figures from the Chief Coroner show the total number of suicides rose from 334 to 396 from 1983 to 1984, then fell to 327 in 1985, before sharply rising to 415 and 498 for the next two years. The number of suicides ranged from 498 and 477 between 1988 to 1992 before falling to 391 the following year. There is no reliable information to prove that all or even most of the increase was among farmers or rural people, but the New Zealand Provincial Support Group knew of 52 farmers who committed suicide in one calendar year. These farmers were known to be in financial trouble but could not be helped in time.
Family, banks and community workers were openly concerned at how farmers would respond to the pressure they were under. Wives would panic if their husbands were home later than expected from working on the farm. Many would no longer follow the time-honoured practice of sending sons or daughters in search, for fear of what they may find.
Many men did suffer from what would now be diagnosed as depression, although in the 1980s males – especially stoic, fiercely independent men of the land – would never talk about such an illness, let alone take steps to have it treated. But there were many instances of farmers falling into a deep psychological hole worrying about debt and how to feed and clothe their family and despairing about their future. Some would spend days or weeks in bed or on the couch, bereft of motivation and hope. On their darkest days they would reason that because they didn't have any fuel for the motorbike or farm truck to go and shift their stock, it was not worth the bother. Such irrational reasoning compounded upon itself: their animals weren't worth much anyway, so why worry?
Others handled stress in different ways – some unorthodox, many tragic. A young Canterbury farmer bought land with money borrowed from both a bank and his family. He lost his farm when he couldn't pay the mortgage; his marriage collapsed; and his family lost their savings. A North Island farmer, emotionally and psychologically paralysed by stress, was contacted by his bank and asked why his accounts had not been touched in months. It turned out he could not face the task of trying to reconcile falling income with rising costs, so was putting all his mail – unopened – in a box on a high shelf out of reach of his wife.
There were innovative ways of trying to survive the crippling economic conditions – some encouraged by banks. One scheme to avoid high interest rates arranged for farmers to finance their loans offshore. For some this worked well: they paid 6% interest instead of 18% or 19%, but they also had to factor in exchange rate movements. This meant that for some who tried to gain by playing rate shifts off against each other, things came badly unstuck. One South Island farmer financed his $900,000 debt in a constantly changing mix of foreign currencies, all to his detriment. His debt eventually ballooned out to $2.4 million and he lost his farm as he tried unsuccessfully to manipulate the currency denomination of his debt to his advantage. On one memorable day he was on the wrong side of a currency depreciation that increased his debt by $350,000 in three and a half hours.
There was no shortage of farmers willing to speculate their debt on exchange rate movement, but those who won tended to put half in US dollars and half in another currency, locking it away in their top drawer and leaving it untouched. Like most farmers of this era, the currency-trading South Island farmer had rallied to Muldoon's call to increase production, borrowing money to develop hill country, install irrigation and diversify, but he lost it all. However, after the trauma of losing his farm, the farmer was not bitter towards Douglas; in fact, 30 years later, he was still a supporter of his policies. He said Muldoon's attempts to guess trends and insulate the economy, rather than face economic reality, had created huge distortions. In contrast, he said, Douglas had the conviction to face the country's issues, to do as much as he could as quickly as he could. The order in which he addressed these economic issues, this farmer said, was secondary.
Many farmers needed help but would not admit it. These men (predominantly) were putting their problems in the 'too hard' basket, wanting to be left alone and unable (or unwilling) to address the problem of falling income and rising costs. They would occasionally open up to friends and neighbours over a beer and be surprised to learn they were not alone. But many became loners, spending their days on menial jobs that didn't really need doing. There was plenty at stake, and it wasn't just money. It was their professional reputation, which was often questioned during debt discounting meetings with banks, and it was the emotional and financial weight added by the responsibility of intergenerational farm ownership. There was community tension too as urban cousins passed on comments that the reforms were deserved, that farmers had had it too good for too long. There was some irony, however. The sharemarket nouveau riche, perceived as the country's future wealth generators, would bail out some struggling farmers by paying above-market prices for deer and goats, the new fashionable livestock industries of the time, injecting badly needed funds into cash-strapped families. This allowed some farmers to survive and others to exit with dignity and cash.
Economically, although Muldoon was an autocratic interventionist, he had liberalised some areas, such as delicensing the meat industry, extending shop trading hours, making union membership voluntary and negotiating the Closer Economic Relationship with Australia, which opened up the economy to competing products. But the economy was still being suffocated by regulation, including a 20-month freeze on wages and prices. This whetted the appetite for change, and that came with the 1984 election. A window of opportunity, as Douglas called it, had presented itself domestically and internationally. In the 1970s the policy tide in western societies shifted from the political and economic left to the right. Politicians and the general public had also started to reject belief in the power of collective action, as society became more fragmented. Increased violence, economic stagnation and constant disruption by unions eventually led to the emergence of the That cherites in Britain, the supply-siders in the US Republican movement and even, locally, the New Zealand Party, formed by Wellington businessman Bob Jones to unseat Muldoon in 1984, which had at its core free-market principles.
New Zealand was also redefining its own identity after Britain joined the European Economic Community in 1973, ending a century-long relationship where New Zealand's farms were effectively Britain's farms. This was replaced by the increasing pull of the Pacific and eventually Asia, cemented by our geographic position and role in the region during World War II. New Zealand society was also becoming independent. It was growing in confidence, expressing itself through arts and crafts and wine production, fostered by the emergence of a new generation of entrepreneurs raised in the most affluent period in our history, a period of stable moral and social order. They were less concerned than their parents about security, were prepared to take risks, thought internationally and were impatient with controls and regulation. Not only was this societal change expressed through the embracing of Douglas's economic reforms, but it was also seen in the support for the Labour Party's anti-nuclear stance, which resulted in the demise of the Anzus military treaty with the US, an agreement valued by older generations but seen as subservient by those younger. The reforms also underlined another major societal change: rural New Zealand no longer had the privilege and political influence it had previously enjoyed. Farmers' lack of clout was reinforced by the eventual sale of the Rural Bank, which had been used by Muldoon to implement farm policies and had bankrolled the sector. Power and influence were moving from the nation's farms to the cities and within 30 years became concentrated in Auckland.
(Continues...)
Excerpted from When the Farm Gates Opened by Neal Wallace. Copyright © 2014 Neal Wallace. Excerpted by permission of Otago University Press.
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Table of Contents
Contents
Front Cover,Title Page,
Copyright,
Dedication,
FOREWORD Jeff Grant, former chairman, AGMARDT,
Preface,
CHAPTER 1 Farming in crisis,
CHAPTER 2 The rise of the free market,
CHAPTER 3 A party desperate to govern,
CHAPTER 4 Unsung heroes,
CHAPTER 5 It could have been ugly,
CHAPTER 6 Out of the kitchen,
CHAPTER 7 A region changed forever,
CHAPTER 8 Conclusion,
APPENDIX Key schemes and subsidies,
Notes,
Index,
Back Cover,