No Recovery Until 2010

Brian Fallow suggests in the NZ Herald that the economy is not going to have a happy 20o9 but that lower interest rates, the lower exchange rate and fiscal stimulus might have the desired effect by 2010.  To get there he sees more interest rate cuts and huge pressure for more stimulus on next year’s budget

With wealth evaporating, unemployment mounting and the grimmest global outlook for a generation, policymakers have not been standing idly by, either here or overseas.

New Zealand went into this downturn with just about the highest policy interest rates around, and correspondingly more room to cut them.

So far the Reserve Bank has cut the official cash rate 325 basis points, and with an OCR of 5 per cent Governor Alan Bollard still has plenty of rate-cut bullets left in his bandolier.

The financial markets are expecting another cut of at least 50 points, or more likely 75, on January 29, and some forecasters see the OCR hitting 3.5 per cent before he is done.

But the banks’ reliance on imported funding, in the context of a global credit crunch, will dilute the impact of domestic OCR cuts on retail borrowing rates and the availability of credit.

So the Government’s fiscal policy is expected to have to do more of the stimulatory work than it would during a milder recession.

The Treasury estimates that the cumulative boost from tax cuts and Government spending increases in the two years to June 2010 will amount to more than 5 per cent of GDP – hefty by historical and international standards. But by the time of the next Budget in May the pressure for more stimulus is likely to be strong.

“Eventually the mass of monetary and fiscal easing assaulting the economy will pay dividends,” Bank of New Zealand economist Stephen Toplis said. “But ‘eventually’ is the key word in that sentence … We are hanging out for 2010.”

What is beginning to worry me is what happens after 2010.  All this stimulus around the world must start flowing on into global inflation once economies start to recover.  All the more reason for New Zealanders to be reducing their personal and business debt levels now while interest rates are lowering. 

 

Jack’s Point Golf Course

I made a sensible choice  play golf today.  First the temperatures here at the vineyard were 30 degrees celcius plus for most of  today.  Second, Jack’s Point must be one of the best golf courses in New Zealand.  It isn’t easy, but 17 of the 18 holes were memorable.  And the views were fanstastic.  5, 6, 7, 8 and 11 have fantastic views over Lake Wakatipu, while every hole has a great view over The Remarkables.  The low flying sky diving planes (on holes 2 and 3 you are literally just a few metres away from the planes as they come into land over a ridge) make things all the more interesting.  I shot 44 out and 43 in (3 pars and a birdie).  This was 3 over my handicap but I think I could have shot several shots better had I played the course before.  At $60 green fees this was a bargain.  I strongly recommend the course.  Only the first hole did nothing for me.  It was too easy.  I am not the world’s longest driver and having to hit a less than full wedge shot in for my second on a hole rated stroke number 10 was a little less than challenging.  For a new course Jack’s Point played very well.  My only complaints were the bunkers (need more sand), the speed of play (the round took just over 5 hours – our group would have finished in under 4 hours without the delays up front), and the fact that the restaurant would only serve us a snack menu because we arrived after 3. 

Great golf course, great scenery, great price, and a chance to rub shoulders with all the beautiful people (as we were leaving the Black Caps we arriving for a round).  If you haven’t played Jack’s Point you should.  Phone 03 450 2050 to make a booking.

Another Perfect Day In Paradise

There are still a few spots of snow at the summit of Mt Pisa but otherwise everything down here at the vineyard is looking and feeling like high summer.  We haven’t had the hot, hot days we normally get but three of the last four days have been almost 30 degrees and today looks like a repeat performance.  The vines are just shooting away.

I am off to play the new Jack’s Point golf course with friends from Wanaka and Invercargill.  I will report back this evening on what it was like.  Once I have played Jack’s Point only The Hills stands in the way of my having played every golf course in Central Otago.

Is 2,750 KT of Credit A Big Issue For New Zealand Agriculture?

Andrew D of the Physics Department at the University of Queensland has put much effort into his comments on my earlier post (please read them all).  He concedes that I have a point about the Kyoto rules but reckons I am overstating the case.  According to Andrew (I have asked him to explain this a bit more fully, and he has in his most recent comment) New Zealand’s 24,866 kt of methane emissions are produced from 2,750 kt of stored carbon.  That is carbon that has been absorbed by our pasture, but for which the agriculture sector gets no credit.

Would an 2,750 kt offset be significant for New Zealand agriculture?  I believe that it would, particularly when you remember what our Kyoto obligation is.  Our obligation is to restrict emissions to 1990 levels.

Many thanks Andrew for the effort you have put in on this.

In 1990 New Zealand emitted 22,413 kt of methane (CO2 equivalent).  In 2006 we emitted 24,866 kt of methane.  That is a 2,453 kt increase.  The 2,750 kt of offset that the New Zealand agriculture sector is being denied by the silly Kyoto rules would mean we have no carbon liability.

Looked at another way we need to buy credits to offset our methane liability.  At a cost of NZ$30 per credit x 2,453,000 we are required to buy credits worth $73,590,000 to offset our Kyoto methane liability.  I deem this significant particularly as the tax payer is currently set to meet the cost of any liability coming from agriculture (agriculture is not due to be part of the ETS until 2013).  I would much rather that $74 million was spent on something other than Russian AAUs.

Fran’s Predictions and Coddington On Crow

One of the few negatives about being in Central Otago is the lack of the NZ Herald (it can be purchased at Queenstown Airport but we try and avoid Queenstown as much as possible).  The Christchurch Press is readily available so one can keep up with the contents of the Dominion Post pretty easily (much of the content is thesame).  So to catch up with the Herald we have to rely on the internet.  Sometimes I fall behind, so only today read Fran O’Sullivan’s mother’s recollections of the 1930s depression and her self assessment of the accuracy of her predictions for 2008 in yesterday’s Herald.  I also read Deborah Coddington’s latest opinion piece.

What jumped out at me was her comments on Steve Crow

Finally, the “how could you get it so wrong” award goes to so-called porn king Steve Crow who spat the dummy when Wellingtonians ignored his erotica show. He’s not returning with his “Boobs on Bikes” parade because only 6000 out of an expected 15,000 turned up to be titillated by what appear to be the worst-shaped breasts Crow can find, judging from the newspaper photos.

We have good taste in Wellington. As the late Paul Newman said, why go out for hamburger when you can have fillet steak at home?

Women in the Capital already know what’s sexy, and it’s not exposing as much flesh as legally allowed. We don’t do mini-skirts and vaulting cleavage. We know what turns men on – intelligence, and not finishing every sentence with a rising inflection.

I don’t care if Crow does come back with his Erotica exhibition – it’s harmless, and attendance isn’t mandatory. But I doubt the reason Wellingtonians stayed away was because, as Crow said, we have “deep pockets and short arms”.

We’re deeply bored by tackiness, and men or women who boast how good they are in bed. Never true, except in their dreams.

Crow’s off to “Palmy” with his porn, where he says they “love it”. I’m not surprised – two unsubtle cities where people need to be beaten over the head with the bleeding obvious. Inhabitants in these cities will see out the year with a whinge. In Wellington, we’ll be welcoming 2009 with a bang.

I coped a bit of flak from Mr Crow for relaying the results of a survey we did off our membership on attitudes to his foray into the capital.  Most of our members thought that his parade was inconsistent with the image we wanted for Wellington and most thought it would do nothing for their business.  My own view was that Wellingtonians would regard the whole thing as a bit of yawn.  And I was right.  We are not prudes (I certainly am not one) but we know what is going to work in Wellington, and boobs on bikes was just not our thing.  We were correct in this prediction, and it is a pity Mr Crow didn’t spend less time abusing me, and more time listening to my advice.

Good luck Palmerston North!

How Osama Bin Ladin Damaged The Wine Trade

The most profitable bottle of wine sold by a wine company is a bottle that it sells direct to the consumer.  Mail order and cellar door sales have always been a useful extra for our business (we export 80% of our production) but for some small producers it is the bread and butter of their business.  No one else gets a margin on the sale of the bottle.  I have seen a bottle of our Reserve Pinot Noir on wine lists in Sydney for A$120.  We have only received arond NZ$20 for that bottle.  The rest is margin taken by others.  Likewise we only receive around NZ$20 for the same bottle sold here in New Zealand at a retail outlet.  Our New Zealand agent and the retailer take the other $20.

Our cellar door is on State Highway 6.  There is lots of passing traffic.  As we are the first wine sales and tasting facility you strike when driving from the West Coast to Queenstown we get plenty of foreign tourists calling in.  In years gone by we used to sell good quantities of wine to these tourists – three to six bottle sales were common.  Sometimes they would even buy a case.  This wine was hand carried back to their country of origin. (I too used to buy multiple bottles of wine to hand carry back to New Zealand from various wine districts around the world.  I own a “pilot’s briefcase” which can hold 12 bottles of still or 9 bottles of sparkling.  Many serious wine tourists had similar devices available.)

Since 9/11 and subsequent terrorist incidents it is not possible to hand carry liquids in containers of more than 100ml.  Wine can be carried in cabin but only if purchased at airport duty free shops and in sealed bags from these shops.  So if a visitor to a winery wants to buy bottles of wine to take home they have to put them in checked in baggage.  This is risky even if one packs the bottles well in moulded wine packs.  It also affects the weight of one’schecked in baggage.  People don’t like packing wine in their suitcase, even to the States were weight isn’t an issue.  In consequence the amount of wine sold direct to foreign visitors has plummeted.  We still make plenty of single bottle sales (for consumption while in New Zealand) , but the multiple bottle sales are pretty much a thing of the past.  Wine tourism all over the world has been affected negatively by the hand carry on rules.

I personally think the rules are a bit of an over reaction.  And their strict intepretation is even worse.  I have seen alcohol purchased duty free in one jurisdiction confiscated at transit points in other jurisdictions on the grounds that it wasn’t purchased at that transit point (Frankfurt Airport does this regularly).  And I once had a near empty tube of tooth paste confiscated at Singapore Airport on the grounds that the tube said the contents was 120 ml.  These practices do not need to happen.  One day I hope we can revisit the 100ml regulation. 

Update – While writing this post we have had visitors from the UK and US (Seattle) call in for a tasting who have said that they can’t buy any wine because of this regulation…..

Why I Think The Kyoto Rules Treat New Zealand Sheep, Beef And Dairy Farmers Unfairly

At least one reader of Kiwiblog appears not to have understood the point I was trying to make about the rules around methane production so I will try and explain myself more clearly.  Yes, I know methane is a potent GHG and that it is probably one of the worst GHGs because of its half life being so long.  I also know that the carbon atoms in methane molecules that are produced in the gut of a ruminant come from carbon stored in the grass not from the atmosphere (I actually thought that was pretty clear from my post).

The point I was trying to make was that farmers are being penalised for the amount of methane produced without adjusting for the fact that to produce the methane their pasture has absorbed close to an equal amount of carbon.  I really only know wine making chemistry so can’t comment definitively about the relative bulk of a tonne of methane as compared to a tonne of carbon dioxide but I can tell you that a molecule of CO2 has as much carbon as a molecule of CH4.  Each contains one atom of carbon.  My guess is that it is almost a one to one conversion.  If one looks at the latest edition of the Ministry of Economic Development’s publication New Zealand Energy Green House Gas Emissions you can see that in one of the tables  (1.1) all gases are converted to CO2 equivalent.  Agriculture produced 37,668 Kilotonnesof CO2 equivalent.  This is made up of 24,866 kt of methane and 12,802 kt of nitrous oxide N2O.   

From the above we know that to produce the 24,866 kt of methane (CO2 equivalent) New Zealand farmers have had to absorb roughly 24,866 kt of CO2.  Why do the rules not give credit for this?  I have seen some argue that it is impossible at this time to tell how much CO2 is absorbed by a New Zealand farm.  This may be true, but a chemist can tell you exactly how much CO2 must have been absorbed by pasture to produce the methane which the Government says it knows each farm is producing.  I think it is unfair that our farmers are not being given credit for this CO2 absorption.

Some Questions On The Science Of Kyoto

This post is not a challenge to those who believe that the climate is changing due to the release of greenhouse gasses (GHGs) by humankind.

It is asking questions about the science that underpins the Kyoto Protocol and and which is being used to determine our level of emissions. 

 Several aspects of the Kyoto Protocol really annoy me.  For a start how can we solve this problem if major emitting economies have not taken on any obligations?  It looks as though the US will take on commitments to whatever replaces Kyoto but there seems no chance off China, India and Brazil etc taking on commitments.

Why is there such inconsistency over points of obligation?  Why are consumers held responsible to the release of GHGs from oil, gas and coal and not the producing countries, when the country that cuts down a tree is held responsible for emitting the full amount of carbon stored in that tree from the time that it is cut down?  An importing country faces the full liability for emissions from gas, oil and coal, but exporting country faces the full liability for wood.  And why does the exporting country face the full liability for its agricultural emissions as opposed to the country that is going to actually consume the product that was produced as a result of all those emissions having been made?  So New Zealand imports oil from country x and bears the full costs of releasing the GHGs from burning that oil in New Zealand.  We export meat to country x, but also face the full cost of producing all the GHGs released while producing this meat.

Why was horticulture excluded from the original emissions trading scheme?  We store plenty of carbon in horticulture.  Our systems are essentially closed – in wine for example we absorb in the grape growing process exactly as much CO2 as we put back into the atmosphere in the wine making process.  Our vines store more cabon each year, and those of us growing things organically, are constantly boosting our carbon levels in our soil.  We get no credit for this under the previous Government’s scheme but we face full costs on all our inputs.

And have we got the science right over methane production from our cows and sheep?  This is a critical issue for New Zealand as our agricultural emissons are half our total emissions.

Where does methane come from? It comes from the guts of cows and sheep.  It is is produced in the guts of ruminant livestock as a result of the actions of methanogenic bacteria and protozoa on the feed being eaten by the ruminant livestock.  In New Zealand’s case that food is mostly grass.

Now this is where I am hoping to be corrected, but my reading of the Kyoto Protocol gas calculation rules suggests that the methane emitted is being measured (estimated based on stock numbers) in gross terms.  But no counterbalancing adjustment is being made for the fact that the components that make the methane were largely absorbed from atmosphere as carbon (methane – CH4 – is one atom of carbon and four of hydrogen).

No where can I find a measure of the amount of carbon dioxide absorbed by our pasture in New Zealand.  While pasture doesn’t store carbon well (grasses tend to die and then release carbon back into the atmosphere relatively quickly – unlike trees that live many years) pasture absorbs as much carbon as does forest.  If is wasn’t for the interaction of animals, pasture would be a fully closed system in terms of CO2.  As much carbon as is absorbed would be released again once the grass dies.  The animals convert the carbon that has been absorbed by grass into all kinds of things.  Out one end comes the methane that everone is so exercised about.  The other end is even more disgusting but those droppings do add carbon back into the soil where it is stored.  And of course the meat and wool produced gets eaten or consumed into clothing.  The carbon will get released back into the atmosphere one day, but is maay take many years.

But in terms of carbon and GHGs isn’t this as much a closed system as pasture without the animals?  The grass absorbs the carbon dioxide from the atmosphere.  It gets eaten and that carbon gets combined with some hydrogen in the gut thanks to some microbe induced anaerobic frementaion and methane gets released into the atmosphere.  So as a result there is less CO2 in the atmosphere but more methane than there would otherwise be. But they are both GHGs.  Why therefore do our farmers not get pinged for producing methane when in fact without the methane there would still be CO2 being released into the atmosphere?  And why are they being pinged at all for being part of what is essentially a closed system?  No more GHGs are being put up into the atmosphere than are being absorbed by the pasture.

Looking at the way things are measured here in New Zealand the amount of CO2 being emitted and absorbed by agriculture is treated as a neutral exercise – data is deemed to be not available.  If it was, would it confirm or refute the case I make above?  But even without this data how can determine a farmer’s liability?

Finally, as mentioned above in relation both to pastural agriculture and viticulture, I think that there is an issue over the measurement of, and need for account to be taken of the amount of carbon being absorbed in our soils.  I have seen plenty of scientists getting excited over the prospects for using biochar to store carbon in soils, but what about what is already going on?  Without taking acount of what is already taking place how can we get a true picture of the amount of GHGs we are actually producing from our agriculture sector?

UN Help Or Hinderance Over Fiji?

I am not sure how to react over the news that the UN has agreed to work with the Commonwealth to try to get an agreement on the timing of parliamentary elections in Fiji.  I am sure the UN is well intentioned, but Idon’t want Fiji to play divide and rule on this.  It is all to easy for Fiji to try and play bilateral relationships and the work of international organisations off against one another.  The international organisations need to be alert to this.  I think the UN can be most helpful on Fiji by sending all remaining Fijian military personel home from peace keeping operations and tell Fiji that there will be no more assignments until a full democracy is restored.

Blog Statistics And Rankings

I  am greateful to Tumeke and Half Done for their attempts at rating NZ Blogs.  Dear John features for the first time in both league tables for November.  We took the trouble to post our full statistics to help Tim Selwyn but he doesn’t seem to have taken them into account in his rankings.  We make our score using his formula to be 144 which would rank us #45.  Instead we are ranked at #110 with a score of 53.  Half Done had us ranked a bit higher at 92.  Half Done does a mid-month ranking also.  By mid-December we had been ranked #53.