goonix

Changing tastes and preferences in the market for NZ wine

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The owner of Montana Wines and New Zealand’s largest wine company, Pernod Ricard, is set to cull its contracts with wine growers in the Gisborne region.

This action is in response to falling demand for chardonnay and sparkling pinot noir wine, both domestically and internationally. Chardonnay exports reportedly fell 12-14% last year alone. The culprit? Chardonnay’s fairer sister, sauvignon blanc. Apparently we are seeing a significant supply-side ‘correction’, as producers respond to a structural demand shock – consumers’ changing tastes and preferences. Indeed, last year sauvignon blanc overtook chardonnay as New Zealand’s most consumed white wine.

Try as they might, Pernod Ricard have not been able to sway the mighty consumer to stick with the product they have contracted for, despite “new product development, innovative packaging, capital investment and changes in wine style”.

I know at least one TVHE author that might be a little disappointed seeing his favourite varietal taking such a pounding. As for me, well I’ll stick with my reds thanks.

goonix

The carbon emission circus is coming to town

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Late last week the Government announced that they were running a public consultation on the emissions target for 2020.

The Government already have a long term goal of reducing carbon emissions to 50% of 1990 levels by 2050. Long term goals tend to work quite well for Governments as it gives the public the idea that they are proactively doing something but realistically they will never be held to account if and when they don’t meet the target, as they don’t align all that well with the three year election cycle. But I digress.

This consultation process is part of setting the ‘interim’ goal for the year 2020. Environment Minister Nick Smith has quite correctly identified that setting this target requires a trade-off between our economy, our international reputation and, obviously, the environment.

Ultimately this 2020 goal will be presented in international climate change conferences at the end of the year, including the post-Kyoto Copenhagen Conference. I’m sure we will all be waiting with bated breath to see what the outcome of this Conference will be.

Of far more interest are recent ‘cap and trade’ developments around the world. Obama *just* got his bill passed by the House of Representatives while in Australia the proposed Carbon Pollution Reduction Scheme (CPRS) is very much struggling to gain legs.

New Zealand’s version of cap and trade, which will aim to reduce emissions to the 2020 (and subsequently 2050) goal looks set to be determined sometime later this year, although early indications are that it will be somewhat like the Aussie model. To blatantly oversimplify things, the Aussie model is a more politically palatable version of cap and trade, with lots of pressure-group exemptions and handouts to favoured sectors, as compared with the version NZ originally had planned for under the previous Government, which was more of an economically pure ‘you pollute, you pay’ model.

The final design of New Zealand’s scheme will be very interesting indeed…

Matt Nolan

Governments love to take credit for things they have nothing to do with Part XXX

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So when consumer confidence rose in December because of falling fuel prices there were people saying it was because of the National government. When net migration started to turn at the start of 2009 there were mummers of it being because of the National government. Now that it is clear that departures have collapsed Immigration minister Jonathan Coleman has decided to show us just how deluded politicians can be by stating:

“Under the Labour government, with its high taxes and disincentives to getting ahead, thousands of our brightest and most talented people chose to seek their fortunes overseas,” Dr Coleman said.

“Now, these people are choosing to either stay in New Zealand or return home to build a better, brighter and more prosperous future under the National government.”

You have to be frikken kidding me. For one, the National government is still running the same set of policies as Labour. And more importantly as the article points out:

Dr Coleman did not say whether the international recession had anything to do with the situation.

When the international recession IS the reason. Foreign labour markets have collapsed, why would New Zealanders leave the safety and comfort of family here when there are no jobs for them overseas. It is blatantly obvious that the ability to get and security of work overseas is a more important factor for individuals than which set of politicians is sitting around in the Beehive.

Now, I guess it makes sense for a politician, the actual immigration minister no doubt, to pretend that they have had an impact. However, they have not. In fact I find this sort of talk embarrassing, as it trivializes the ways that I believe government can help society and mis-informs people as to the primary role of government.

Update:  Seems that some of the comments at Kiwiblog also take Dr Coleman’s message to heart.  I realise David Farrar didn’t say it, he knows better than that, but I also don’t see him correcting Dr Coleman’s assertion in the same way he would have corrected it when Labour was in power …

Matt Nolan

Is Westpac admitting collusion

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Apologises for my long delay from the blog – I am afraid that it will continue for the next couple of weeks. I am on an economics adventure, trying to fight the beast of recession with sketchy logic and econometrics 😉

However, I had to say something about this recent Westpac article on bank funding (ht Rates Blog).

At the end Westpac says that it, and other banks, have been pricing at average cost instead of marginal cost – so they have been pricing based on the cost of credit to them, not the cost of sourcing additional credit to make loans.

Now, according to Westpac the average cost is higher than the marginal cost, and all banks have seemingly agreed to do this even though since the marginal cost of credit is below the current “price” an individual bank could “defect” and make some money. Is it me, or has Westpac blatantly admitted to collusion here?

Westpac has said that it, and other banks, have implicitly agreed to set interest rates at a higher level than marginal cost – which I presume must be closer to the collusive price than marginal cost as otherwise it wouldn’t stick.

Now I didn’t think the banks were colluding, but if Westpac is willing to go ahead and admit it then …

[Note: to be fair I think long run marginal cost, which banks would actually need to set fixed rate loans based on, will be higher than marginal cost – and this would explain much of the difference. However, this isn’t what Westpac said.  Also, I’ve ignored market power and the prevalence of fixed costs – again if they wanted to make these arguments go ahead, but do they really want to say that they used market power to keep prices above the marginal cost of credit 🙂 ]

goonix

It’s that time of the year again…

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Public servants are always frantic at this time of the year. I hear you collectively asking why? It’s nearing 30 June, the end of the government’s financial year. As such the various departments/ministries/commissions are very *busy*, throwing money around like they were the leader of the free world.

The perverse incentives on government officials to make sure they spend all of their allocated budget in the financial year, while nothing new, always amuses me. They are strongly incentivised to make sure that the kitty is empty come June 30, otherwise they risk having money taken away from them in the following year. You have to ask about the importance of the projects that are only taking place in order to empty the coffers.

As a result of these incentives it’s a very lucrative time to be consulting, even if the gravy train is about as efficient as KiwiRail.

jamesz

Tourism funding

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Deciding how to fund tourism is tricky: On the one hand there are a fairly well-defined group of firms who gain most of the benefits. On the other hand, a large, ill-defined group of firms benefit somewhat from tourism and promotion of New Zealand as a destination is common property. Once you’ve spent money on a promotional campaign and people decide to come to NZ, you can’t restrict access to those tourists to the firms that paid for the campaign. However, tourists’ spending is rival since each dollar can only be spent at one place. The problem with common resources is that nobody has the incentive to provide them.

Ordinarily you might ask the government to sort out the problem, but then the government is basically subsidising an advertising campaign for the tourism industry. One answer is for a tourism industry body to fund advertising campaigns for its members jointly. The problem here is that nobody has an incentive to join such a body, since they get the benefits of promoting NZ as a destination whether they’re in it or not. Furthermore, the industry rightly points out that its advertising is subsidising revenue for all businesses who have some custom from tourists.

John Key’s solution is to match industry advertising spending dollar-for-dollar. Read more