Torn Between Two Worlds

In the run-up to Christmas, the Treasury
published its December Economic and Fiscal Update, the Reserve Bank published its end-year Monetary Policy Statement and held the official cash rate at 6.5 percent, and the Government introduced the legislation that will set up superannuation fund. Each of these events had obvious implications for our economic future and that of our businesses.
Perhaps not so apparent is the economic importance of the work being done by the Royal Commission on Genetic Modification, which is hearing evidence on matters that overwhelmingly smack of science tempered by elements of morality and ethics. But they are highly relevant to the nature of the economy New Zealand will build over the next few decades and the commission’s recommendations and the Government’s translation of them into policy will have enormous effects.
Chances are these decisions won’t result in immediate shifts, up or down, in the Kiwi dollar, interest rates or business confidence, but they most certainly will affect the country’s longer-run rate of growth and the quality of that growth. For example, if the commission were to recommend ban on genetic modification in this country, or urge measures to severely constrain GM developments, scientists are likely to leave the country to advance their careers overseas and the rate of increases in investment in key industries will slow. If the commission were to enthuse about the potential of genetic modification, and the Government acted accordingly, there would be contrary effects.
The economic importance of the commission’s work can be gauged by checking who has been making submissions and what they are saying. At the heavy-weight export end of the primary industry production chain, the Dairy Board and meat industry representatives have argued that the biotechnological revolution is an important part of the knowledge economy; at the grass-growing end, the New Zealand Worm Federation declared its opposition to genetic modification of agricultural production in New Zealand “until sufficient research has been done”.
The Hamilton City Council pointed out that the Waikato region is home to significant dairy, horticulture and thoroughbred industry and about 25 percent of New Zealand’s science research is undertaken in major life sciences research cluster in or near Hamilton city. “This emphasis on life sciences makes the issue of genetic modification and robust biotechnology regime (ensuring the continued health of New Zealand’s economy, society and environment) of paramount importance to Hamilton City and the Waikato region,” the council said.
The Grocery Markets Association has somewhat narrower interest and focused on labelling, or more importantly to its members the costs of labelling. It says “appropriation information” about the GM status of food must be made available, because consumers must have the right to choose what foods they consume. But it is satisfied the current labelling regime provides meaningful information to consumers without breaching international obligations and imposing excessive costs on consumers.
Adolf Stroombergen, one of the country’s leading economic modellers, went in to bat for the Life Sciences Network, and said the best deal for New Zealand’s economy comes from adopting genetic-modification technologies while minimising risks.
His study for the network started with business-as-usual scenario to the year 2010, the data expressed in 1995 prices. Further scenarios show variations in the economic effects, depending on the adoption of different policies. They all assumed that risk control strategies are in place.
Stroombergen’s modelling showed modest growth would be encouraged if New Zealand adopted genetic engineering. Much more significantly, substantial economic growth will be foregone and jobs lost if New Zealand rejected genetic-modification technologies.
“The benefits from genetic modification don’t look massive,” Stroombergen said.
“The point that comes through is the disadvantage of not going ahead. That’s where the bigger numbers start showing.”
One scenario assumed New Zealand banned genetic modification in agriculture to encourage organic farming, although this did not rule out biotechnology in other sectors. The key assumptions were that New Zealand would get higher product prices for proportion of its agricultural exports, but yields would be lower, farming techniques would be more labour-intensive and there would be lower spending on chemical products.
The returns were unlikely to be high enough to justify banning genetic modification technology, Stroombergen found, but organic farming could be profitable if it co-existed with traditional agriculture and with GM technologies.

Bob Edlin is Wellington-based economic commentator and journalist.

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