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Economic Production and Consumption

New Zealand's economy, like most pioneer cultures, in its short history has been dominated by 'quarrying' rather than sustainable use (see Box 3.1). Its main industries rely almost wholly on resources originally imported from overseas. This is because the indigenous resources provide a rather limited economic toolbox. The soils are often poor, few indigenous plants are edible, and most of the large meat-bearing species were exterminated or depleted in the early days of human exploitation. Although the rocks are rich in limestone, we have few mineral resources other than ironsands to support heavy industry. Energy resources are comparatively abundant but are extracted at considerable environmental cost. Steep fast-flowing rivers are dammed in about 80 locations to provide 70-80 percent of the nation's electricity. Coal and geothermal reserves are abundant, but their use has environmental effects (see Chapters 7 and 8). Natural gas is also abundant, though the major field is declining fast. Oil, the nation's major source of fuel energy, is present off Taranaki, but most oil is still imported.

As a result, our agriculture and forestry are based almost exclusively on imported plant and animal species, and other key resources are routinely imported to sustain agriculture, industry and the consumer society. These include phosphate fertilisers (which we import from the Pacific Island quarry of Nauru), most industrial metals (which we import from various overseas quarries or as manufactured products), and oil (which we import mostly from quarries in the Middle East or as manufactured petroleum and plastics). Even when import controls were in place, and well before the oil shock of 1973, we generally spent more on imports than we earned through exports-resulting, ultimately in foreign debt and in private and public asset sales to overseas interests (see Figure 3.1).

Figure 3.1: Terms of Trade and balance of Payments (1961-1995)

New Zealand's terms of trade is a measure of how much exports we need to produce to buy a given volume of imports. It is measured as the ratio of an index of our export prices to an index of our import prices. A fall in our terms of trade indicates that we have to produce more exports to buy the same amount of imports.

After several decades of decline, our terms of trade rose in the late 1980s. During the period 1990 to 1995 it remained above the 1979-89 average.

New Zealand's balance of payments on current account is the difference in any year between the money that we receive from overseas and the money that we send overseas. We receive money from overseas for our exports, as interest or dividends to New Zealand owners of loans and investments that they have made overseas, or as gifts. We send money overseas to pay for our imports, to pay interest or dividends to overseas owners of loans and investments, or as foreign aid or gifts.

Over the last 40 years New Zealand has almost always had a balance of payments deficit on the current account, that is, our payments overseas have been greater than our receipts from overseas. As a percentage of GDP, our balance of payments deficit has reduced significantly since the mid 1980s. During the period 1990 to 1995 it was less than 4 percent of GDP.

Box 3.1: Once were quarriers

The New Zealand economy did not have a sustainable beginning. At first it was a 'quarry' economy, that is, an economy where key environmental resources are depleted, either because they are non-renewable or because they are over-exploited (Easton, 1996). The quarry concept comes from mining, but the same word also means a hunted animal. Both senses of the word appropriately describe the first human economy in New Zealand when the main meat sources (inshore marine mammals and large birds) were heavily depleted and large areas of land were deforested. After this, a more sustainable economy developed based on fish, shellfish and fern-root, supplemented by bird hunting, and the cultivation of kumara in warmer areas and cabbage tree roots in cooler areas (McGlone et al., 1994).

European contact triggered a second quarry phase. From 1791, European and American sealers and whalers plundered what was left of the coastal marine mammal populations. Once these were depleted, wool (from the east coast tussock lands of both main islands and the South Island high country), gold (from Otago, the West Coast, Nelson and the Coromandel Peninsula) and kauri timber and gum (from the upper North Island) sustained the economy for several decades. The 'mining' of the tussock lands was dramatic (see Chapter 8). In just 15 years, from 1855 to 1870, sheep numbers rose from 750,000 to 10 million by which time tussock-grazing had reached its natural limits. With added pressure from rabbits some areas soon had to be retired because of soil exhaustion.

Other unsustainable sources of income for nineteenth century settler society were war, namely the provisioning and servicing of British troops during the 1860s land wars, land speculation by foreign investors, and overseas debt, chalked up by the Vogel government in the 1870s when both the gold and the troops had gone. The Government borrowed twenty million pounds between 1870 and 1880 to fund growth. The railways were extended, roads were built, forests cleared, and schools were established. To achieve this, some 115,000 British and Irish labourers and domestic workers were given free passage to immigrate here.

Agriculture became the focus of attempts to establish a sustainable economic base. Cheap land was sold to new settlers and lowland forests were cleared wholesale. Hundreds of small farms were established based on crops and cattle. A wheat boom in the South Island lowlands was temporarily lucrative, but soils were rapidly depleted. Although the newcomers laboured mightily, without fertilisers to maintain soil productivity many were reduced to subsistence living. With high debt and low productivity, the country went into an economic recession which lasted into the 1890s.

The salvation of settler society was the invention of refrigerated shipping. When the ship Dunedin left for Britain in 1882 it carried frozen meat and butter which would eventually become the mainstay of the New Zealand economy for the next century. Without this invention, wool, canned meat and grain would have been our sole export commodities and today's New Zealand would have had a much smaller population, perhaps reminiscent of a slightly larger and slightly more prosperous Falkland Islands (Easton, 1996).

The frozen meat and butter trade encouraged a process of land development which eventually saw more than half the entire land area converted to sheep and cattle pasture. Agricultural expansion continued until the natural limit of grazeable land was reached by 1920, after which areas that were ungrazeable (e.g the North Island's deforested central plateau) were planted in fast-growing exotic pine trees to build a sustainable timber resource. This wholesale replacement of native wildlife and vegetation was tantamount to another quarry phasethe mining of our biodiversity. Its legacy can be counted today in the number of threatened species still struggling to survive in habitats that were decimated and fragmented by the expansion of agriculture (see Chapter 9).

From 1920 on, efforts to increase agricultural production and export income have been centered on the intensification of agriculture within its existing land area. After the Depression of the early 1930s and the wartime austerity measures of the early 1940s, this economic strategy flourished, aided by powerful friends overseas. The Western powers' stranglehold on Middle Eastern oil supplies ensured cheap oil for our vehicles and machinery while unrestricted access to the British market-something which was denied to most other countries-ensured above-average returns for nearly all our agricultural exports.

From 1939 to the mid-1970s New Zealand had a comprehensive social security system, free health care, free primary and secondary education, and full employment. Large numbers of state houses were built to provide cheap, high quality, rental accommodation to urban workers and their families. In the 1950s, the country embarked on an industrialisation programme. Large hydro dams were built and technology and raw materials were imported from overseas to help build up the domestic manufacturing sector. Once again, workers were imported in large numbers.

Although a small manufacturing sector had existed from early times, its development in the post-war years was nurtured by a protective umbrella of import licences and trade tariffs which restricted the quantity of goods imported and imposed a fee on imported items, pushing up their price relative to the locally made product. The import controls had not been introduced to support manufacturing but to conserve foreign exchange reserves during the Second World War when local shortages boosted demand for imported goods. However, the controls were maintained until the early 1980s, allowing New Zealand manufacturers to prosper despite relatively inefficient production systems and high labour costs.

As a result, consumer goods in New Zealand were often more expensive or of lower quality than those available overseas. This prompted the development of a resourceful do-it-yourself repair and maintenance culture which reused and recycled all manner of machinery and gadgets. The most visible feature of this was the preponderance of old cars whose lives were prolonged by a nation of backyard mechanics. These gave New Zealand a quaint and backward appearance to overseas visitors.

By the time of the first UN Conference on the Environment in 1972 (the Stockholm Earth Summit), New Zealand's economy was nearing the end of its long period of prosperity. From 1947 to 1966 the nation's terms of trade had fluctuated around a historically high level. Through the late sixties they faltered but recovered strongly on the coattails of a world boom in commodity prices which lasted from December 1971 to October 1973. Then came the Arab-Israeli war and, in response, the oil-producers announced their first major price rise. Within just a few months, fuel prices trebled and the New Zealand economy, whose oil and petrol was all imported, reeled with the impact. The price rise pushed up production and distribution costs-and prices. It became harder to sell our goods overseas, a problem that was compounded when our number one customer, Britain, joined the European Economic Community and began buying its goods from the neighbours. New Zealand's terms of trade plunged and a second oil shock in 1979 dealt another blow. Ever since, the nation has been struggling to recover the high growth rates enjoyed prior to 1974.

In the 1970s, steps were taken to diversify the economy and liberalise trade. Free access to the Australian market was achieved through Closer Economic Relations (CER). Agricultural production was increasingly subsidised. This encouraged the deforestation of steep 'marginal' land to extend sheep pasture, and the diversification of production into deer farming and horticultural crops such as kiwifruit. Sheep numbers reached a peak in the early 1980s. In the late 1970s and early 1980s a 'Think Big' development strategy was devised to make New Zealand more self-sufficient in energy and to attract energy-intensive heavy industries to the country (e.g. smelters, refineries and mills). Large sums were borrowed to develop the energy resources for Think Big, leading to soaring overseas debt and spiralling inflation. A wage and price freeze was slapped on the economy from 1982 to 1984 and marginal taxes were lowered to the benefit of upper income groups. However, the country's basic economic problems remained.

From the mid-1980s successive Governments brought in economic reforms that have taken New Zealand down a more free market path. The main reforms were: floating the exchange rate; limiting inflation to 2-3 percent; withdrawing production subsidies to farmers and manufacturers; lifting import controls; lessening the regulation of economic activities; restructuring government departments to clearly separate policy, service and commercial roles and remove conflicting objectives; corporatising and selling off commercially viable state-owned assets; restructuring local government to give greater local autonomy and accountability in planning, resource use and environmental management; ending compulsory unionism; cutting income taxes and imposing a general goods and services tax (GST); reducing and retargeting welfare benefits; and reforming the public health and education systems to put both on a more business-like and user-pays footing.

The social impacts of these changes are still being assessed and debated (e.g. Dixon, 1996; Easton, 1995, 1997; Krishnan, 1995; Mowbray, 1993; O'Hare, 1996; Snively et al., 1990), but the economic effect has been to make New Zealand more competitive in the international marketplace and to speed up the process of diversification that began in the 1970s. The effect on production patterns has been to encourage a move away from inefficient subsidised activities (such as grazing sheep on marginal hill pasture) and into activities that have strong international markets (e.g. forestry, dairy and horticultural production). The effect on consumption patterns has been to open the door to a large quantity of affordable imported consumer goods, such as the second hand Japanese cars that have displaced older style British models from our streets.

In making the economy freer, the Government was careful not to also usher in a more laissez faire approach to the environment. In parallel with the economic and social reforms, the nation's environmental legislation and administration were reshaped around the principles of heritage protection and sustainable management (see Chapter 4). As a result, the Resource Management Act 1991 and several other key environmental laws now require resource users to safeguard the life supporting capacity of resources and ecosystems and ensure that they are passed on to future generations intact. By enshrining the sustainability ethic in law, New Zealanders are now better placed to resist the short-term temptations of the quarry economy.

New Zealand's economy today

Today, New Zealand is a small trading nation whose Gross Domestic Product (GDP) per person places it among the richest 20 percent of countries in the world (Dalziel and Lattimore, 1996). GDP measures the total economic activity within a nation. It is an important economic indicator, but does not necessarily reflect the general well-being of a society since it cannot reflect the distribution of income or any forms of production based on social relations rather than economic ones (e.g. family care, housework). GDP also ignores any costs of production that are paid for by the environment rather than people (e.g. species extinctions, habitat loss, pollution).

Over the past 25 years (1971-1996) New Zealand's real GDP (i.e. GDP minus inflation) has grown by about 2 percent per year on average, though there have been considerable ups and downs over this period (Dalziel and Lattimore, 1996; OECD, 1993, 1995, 1996 and 1997). The early 1980s (198184) was a period of relatively high growth, averaging 3-4 percent, while the period from 1985 to 1992 had average growth of only 0.8 percent, culminating in the recession of 1990-1992. Growth soared to 4-5 percent per year during the recovery of 199395, boosted by a global rise in agricultural and log prices. Today, growth has slowed again and appears to be averaging about 1-2 percent per year, depending on the measure used (see Table 3.2). (Growth estimates can vary according to whether GDP is calculated on the basis of expenditure, as in OECD publications, or income, as in many New Zealand publications. Expenditure-based GDP currently has a lower growth rate than income-based GDP).

Because they provide the commodities for most of our exports, the primary sector industries (e.g. agriculture, forestry, mining and fishing) still play a greater role in New Zealand's economy than they do in most other OECD economies. However, the tertiary (services) and secondary (manufacturing, construction and energy) sectors contribute much more to GDP and provide much more employment (see Table 3.2). They are also increasing their share of export income. Overall, the services sector has increased its share of GDP since the 1950s, while the primary and secondary sectors have had both gains (e.g. fishing, forestry, energy) and losses (e.g. agriculture, manufacturing, construction) (see Figure 3.2)

Figure 3.2: The changing structure of New Zealand's economy (1955-91)

The contribution to Gross Domestic Product by the main economic sectors has changed between 1955 and 1991.

  • Agriculture has decreased from approximately 21% to 7%.
  • Fishing, forestry and mining has increased from approximately 3% to 4%.
  • Manufacturing has decreased from approximately 22% to 19%.
  • Electricity, gas and water has increased from approximately 2% to 3%.
  • Building and construction has decreased from 9% to 4%.
  • Services has increased from approximately 46% to 66%.

Sources: Department of Statistics, 1970; Statistics New Zealand, 1996

The service industries are those that do not convert material products into new forms (i.e. everything from the repair and maintenance trades through to health and education services, defence and policing, transport and communications, banking and finance, science, and even entertainment). It also includes non-market services provided by central and local government, which make up about 13 percent of GDP.

Today, market forces play a much greater role in the use of resources, subject to local or central government restrictions on their environmental effects. Farms and factories are no longer subsidised. Government spending is now more tightly controlled, public debt is declining from the record levels of the 1980s, and public overseas debt is now zero, though private debt is at an all-time high. Foreign ownership of land and resources has increased but so too has New Zealand investment overseas. Inflation levels are now comparable to those of other OECD countries (see Table 3.2).

These changes have influenced production and consumption patterns. On the consumption side, we have seen an increase in the range of imported consumer goods and a GDP-related increase in solid waste production (see Figure 3.12). We have also seen a widening gap in consumer spending power, with the top 40 percent of income earners benefitting from the past decade's changes while the remaining 60 percent have had a decline in their real incomes. The latter trend may help explain the relatively low level of 'green consumerism' here, despite the generally high level of environmental awareness among New Zealanders.

On the production side, the move to fully competitive pricing of energy is leading to a reduction of energy-intensive heavy industry. The removal of import controls has shifted industrial production away from import substitution and toward making light industrial products for export. The removal of agricultural subsidies has reduced sheep numbers, and triggered an export-led increase in intensive dairy and deer production. Horticultural exports have increased, as have log and fish exports. Overall, forestry, fishing, manufacturing and services are all bringing in an increasing share of dollars from overseas. One of the fastest growing earners of foreign exchange is a service industry which is not, strictly speaking, an export industry at all but an import one-tourism.

Tourism

International tourism is now a major source of overseas income for New Zealand, comparable in scale to such high profile earners as meat, dairy and wool exports. Properly managed, tourism offers an alternative to unsustainable land-use practices such as over-grazing in the high country. It allows rural communities to earn money from crafts and tourism services. By adding economic value to land which is not being farmed, logged or mined, tourism may even encourage some people to reserve or restore indigenous forests, wetlands, and other habitats on their properties. The tourism industry can also be a powerful lobby for conservation in some areas. However, the industry can also have negative effects on the environment if it leads to overcrowding or to the establishment of roads and other intrusive tourist developments in previously unspoilt areas (see Chapter 9, Box 9.8).

Because it is a multi-sectoral industry, tourism does not appear by name in our standard industry statistics, so its exact contribution to the economy has to be estimated. Various estimates suggest that international tourists pumped almost $5 billion into the economy in 1995 as against total export income of almost $21 billion. This represents more than 20 percent of our overseas earnings. The estimated contribution of international tourism to New Zealand's Gross Domestic Product ranges from nearly 4 percent (see Table 3.2) to more than 5 percent (New Zealand Tourism Board, 1996a). The latter estimate attributes some 100,000 jobs to international tourism, rising to some 190,000 jobs when domestic tourism is also included.

Agriculture

Agriculture dominates land and water use in New Zealand. More than any other sector, changes in its economic fortunes can have significant reverberations on the environment. Agriculture is a key sector of the economy, directly contributing about 5 percent to the nation's GDP and supporting a further 10 percent of GDP through those industries which process, transport, and sell agricultural products, and those which service the agricultural sector (Journeaux, 1996; Statistics New Zealand, 1996). It also contributes to 17 percent of our employment, roughly half on the farm and the other half in farm-related transport, processing or support industries (Ministry of Agriculture, 1996).

Livestock account for three quarters of our agricultural production (74 percent). Horticulture accounts for 13 percent, agricultural servicing 10 percent, and arable crops 3 percent. The vast majority of this produce is exported. Although agriculture's share of our exports decreased at a rate of one percent per year between 1986 and 1995, declining from 64 percent to 55 percent, it is still our dominant export sector. In no other OECD country in 1995, did agriculture account for such a big share of export income. Although total production has declined in the past decade, the quality and diversity of products has improved markedly because of increased off-farm processing and the development of many new export markets.

In the past decade, the changes in the economy and the Government's policies on agriculture have meant that New Zealand agriculture is now far more vulnerable to fluctuations in world prices and exchange rates, but also far more competitive in overseas markets. Prior to the recent reforms, the Government tried to cushion farmers and manufacturers from the immediate impacts of the market through producer boards (which purchased agricultural products at guaranteed minimum prices), various production subsidies, low interest loans and tax incentives (which helped offset the costs of production), tariffs and import controls (which ensured that locally produced goods remained cheaper on the domestic market than imported foreign products), and controls on overseas financial transactions and the foreign exchange rate of our dollar. By insulating farmers from international market trends, these policies discouraged them from adapting to new conditions and opportunities and permitted them to continue with inappropriate products and practices. When New Zealand's wholesale economic restructuring began in the mid-1980s, its effects on agriculture were dramatic. Beginning in 1984, government subsidies to agriculture were gradually reduced from 34 percent of gross revenue to almost zero in 1995. This makes New Zealand agriculture the least subsidised of all OECD countries (see Table 3.2). In most other OECD countries the level of agricultural subsidy rose or stayed the same over that period.

At present, few affluent countries have followed New Zealand's example in reducing agricultural subsidies and import barriers. As a result, it is still difficult to sell our produce in some of these affluent markets. Increases in the value of the New Zealand dollar have also added to the difficulty by making New Zealand produce more expensive overseas. The long-term answer is being pursued vigorously by New Zealand and other primary producer countries through international negotiations under the General Agreement on Trade and Tariffs (GATT). The GATT's general aim is to free up world trade. Considerable success has already been achieved in some sectors but this is not occurring as quickly in agriculture.

While the agricultural reforms of the past decade have benefitted the economy as a whole, they also brought considerable pain to many farming families and rural communities. Initially the changes led to lower farm incomes, higher debt, declining asset values and adjustment problems for the agricultural service sector. These problems were compounded by declining international prices for agricultural commodities and a rising exchange rate. Many people simply left the farm or sought off-farm work. Between 1981 and 1991, the proportion of the rural workforce engaged in agriculture declined from 47 percent to 42 percent. Farmers began to reduce their sheep flocks, particularly on steep unproductive land, increase their cattle and deer herds, and diversify into horticulture, dairying and forestry.

From 1990 to 1994 the agricultural sector recovered somewhat as farmer debt declined, expenditure and investment increased, and rural land sold for higher prices (Ministry of Agriculture, 1996). The process was assisted by an increase in world commodity prices and by a continuation of the steady rise in dairy and timber prices. The more efficient and intensive use of land has also led to higher productivity, and continued intensification is likely.

Forestry

New Zealand is rapidly developing into a major forestry nation, although our contribution to global forest product markets is still small. Forests cover 7.9 million hectares (29 percent) of our land area, of which 6.4 million hectares are indigenous forests (most of them protected) and 1.5 million hectares are planted forests. Our planted forests are dominated by radiata pine, which makes up 91 percent of the total, but other important species are Douglas fir and eucalyptus species. Altogether, 17.3 million cubic metres of wood was harvested from our production forests in 1996. Of this, 10.5 million cubic metres was exported, earning New Zealand $2.6 billion and making forestry products our third biggest export commodity (Ministry of Forestry, 1996).

New Zealand has a well established timber processing industry. Two-thirds of the timber harvested in 1996 was processed by New Zealand's four pulp and paper companies, five panelboard companies, more than 350 sawmillers and 80 manufacturers (Ministry of Forestry, 1996). Jobs in the forestry sector have been on the increase since 1991 and are forecast to keep rising, although changes in technology and mechanisation mean that the increases may be smaller than expected. In 1995, forestry contributed 2.5 percent of our GDP and directly provided jobs for more than 25,500 people. If jobs in timber-related industries are added to this, the figure rises to 30,456 jobs (Statistics New Zealand, 1996).

Perhaps the most significant aspect of New Zealand's forestry industry is its future potential. Our planted forests are still mainly young, with 61 percent of trees 15 years old or younger. We are also planting more and more forests-the estimated long term rate of new planting is 56,000 hectares per year. Together, these factors mean that by 2010 wood supply from our planted forests will have increased by 73 percent from current levels and forestry could be New Zealand's number one export earner (Ministry of Forestry, 1996). Although the increase in planted forests is by and large viewed favourably, some rural communities are concerned at the current rate and scale at which pastoral land is being converted to forestry. These concerns encompass landscape changes, infrastructure changes (e.g. roading requirements) and the effects of harvesting on ecological values.

The economic reforms have assisted the forestry sector. Deregulation of the economy since 1984, privatisation of the Government's forestry assets since 1990, changes in the taxation regime, and private sector acquisitions and restructurings have increased the economic performance and competitiveness of the sector. However, the future of the forestry sector also depends to a large extent on our ability to maintain healthy, disease-free forests and the overall environmental quality which contributes to successful marketing of forest products.

Fishing

Our fisheries resources are a valuable source of social, cultural and economic wellbeing for many New Zealanders. An estimated 20 percent of New Zealanders are recreational fishers. The seafood industry (which includes catching and processing fish) employed just over 10,000 people in 1995, an increase of more than 10 percent since 1992 (Ministry of Fisheries, 1996). Māori also have strong cultural ties to fisheries, which are recognised in common law and legislation. However, the benefits we get from the fishing resource depend on our ability to keep fish populations at sustainable levels and maintain the health of the marine environment as a whole.

New Zealand's Exclusive Economic Zone (EEZ), at approximately 1.3 million nautical square miles, is 15 times the size of the country's land area, giving us the fourth largest area for fishing in the world. However, much of this area has very deep waters and has low biological productivity. There are over 700 fish species in the EEZ, but only 130 of these are fished commercially and only 40 or so are commercially significant. The economics of the fishing industry is dominated at present by just a few species-orange roughy, spiny red rock lobster, paua, greenshell mussels, snapper, ling, squid and hoki (Ministry of Fisheries, 1996).

Although New Zealanders are eating more fish than they used to, the small domestic market means that the seafood sector is directed primarily towards export markets. Japan, the United States and Australia were the main destinations for New Zealand seafood in 1995, but the European Union and other Asian countries are also becoming important, with the EU market growing 6.5 percent in 1995, and exports to other Asian countries growing 14.4 percent. In 1995, fisheries accounted for 28 percent of our export earnings from Japan, 22 percent of our export earnings from the United States, and 11 percent of our export earnings from Australia (Statistics NZ, 1996).

Aquaculture, or marine farming, is also an important part of the New Zealand fishing industry. The aquaculture industry is based mainly on farming green lipped mussels, although pacific oyster, paua and salmon are also important. Research is progressing on techniques for farming other species such as kina, scallops, seaweed, snapper and sponges. In 1995, aquaculture export earnings were approximately $160 million (Ministry of Fisheries, 1996).

Both the total production from the fisheries resource and the export value of the resource appear to be levelling out, at least in the short term. In 1995 total production from the wild and farmed fisheries was over 650,000 tonnes, but the rate of increase in production has been slowing in recent years and is now reaching a plateau (Ministry of Fisheries, 1996). Three difficult trading years in a row (1993-1995) have resulted in static export earnings from seafood of around $1.2 billion in each of those years (Statistics NZ, 1996). In the longer term, however, the trend is towards increasing value, with the total value of fisheries production increasing from $913 million in 1989 to $1363 million in 1995 (Ministry of Fisheries, 1996).

New Zealand's approach to managing its fisheries resources underwent a radical change in the mid 1980s, from a free-for-all competitive fishing regime with some regulatory control, to a property rights approach known as the Quota Management System (QMS). Under the QMS, the Government sets annual catch limits and each fisher 'owns' a defined share of the allowable catch (see Chapter 9, Box 9.14). Further changes to fisheries management were introduced in the 1996 Fisheries Act which requires ecological considerations to be taken into account when setting catch limits.

The QMS provides greater certainty and security for each fisher and gives a greater incentive to fish sustainably. Around 40 species are currently covered by the QMS and these are subdivided into more than 150 individual 'stocks' for quota setting purposes (see Chapter 9). Eventually all commercial species will be brought into the system (Ministry of Fisheries, 1996).

The QMS is being watched with keen interest by other fishing nations who were also finding that their traditional means of managing fisheries were leading to depleted resources, overexpanded fishing fleets, low incomes for fishers, heavy dependence on government support and regulation, and conflict among fishing groups.

The QMS provides certainty and security for all participants in the fishing industry and, since its introduction, there has been substantial growth in the seafood processing and marketing sectors. Thirty-one species are currently covered by the QMS, and it is intended that eventually all commercial species will be brought into the system (Ministry of Fisheries, 1996).

One little-appreciated outcome of the QMS is that nearly all of New Zealand's fisheries resources are fished and controlled by New Zealand companies. This is because quota holders must be New Zealand residents or companies that are less than 25 percent foreign owned. In 1995, New Zealand boats caught 54.7 percent of the total commercial catch, and a further 45.3 percent was caught by foreign boats on charter to New Zealand fishing companies, with New Zealand companies also controlling the processing and marketing of the product. The catch by foreign vessels was negligible (less than 1 percent) and was restricted to the tuna fisheries (Statistics NZ, 1996).

Manufacturing

Manufacturing accounts for 20 percent of GDP and is becoming increasingly important in the New Zealand economy (Statistics New Zealand, 1996). In 1995, over 250,000 people, around 18 percent of the workforce, were employed in the manufacturing sector. Just over a quarter of these are involved in making fabricated products, machinery and equipment. Another quarter are in the food, beverage and tobacco industries, and around 11 percent are employed in each of a further three categories: textile, apparel and leather goods; wood processing and wood products; and paper and paper products, printing and publishing.

As can be seen from these figures, manufacturing statistics include categories of activity which are also counted under primary industries. The processing of food and textiles is often counted as a subset of agricultural production and employment, while forestry employment statistics frequently include those involved in wood processing and wood products. This serves to illustrate the interdependence of the manufacturing sector and the primary industries such as fishing, farming, forestry and mining.

As with the primary industries, the role of government in the manufacturing sector has changed over the last decade. Instead of providing direct support for the industry, the Government now aims to foster an environment in which businesses are responsible for creating, capturing and capitalising on their opportunities. The complete removal of import licensing in 1992, and the phased tariff reduction programme on imported goods which is still continuing, have lowered the cost of imported materials and opened the domestic market up to international influences. Manufacturing is now more reliant on general economic conditions and on the competitiveness of its supporting industries. The deregulation and privatisation of infrastructural sectors, such as transportation, energy, communications and finance, has therefore benefited the manufacturing sector.

Services

The services sector is growing strongly in New Zealand. It includes activities such as central and local government services (including health, education, policing etc.), community services, trade, restaurants and hotels, financial services, communication services, electricity, gas and water supplies, and transportation and storage-in fact, all activities that do not convert material products into new forms.

The share of GDP contributed by these activities has grown over the last 40 years from around 45 percent to around 66 percent in 1992. This shift has been at the expense of agriculture and manufacturing (see Figure 3.2). About 12 percent of our GDP is from non-market services provided by central and local government. This shift toward a more services-dominated economy is a feature of all affluent societies.

It is sometimes suggested that a services-dominated economy is inherently more environmentally sustainable than one based on manufacturing or primary resources. However, it needs to be remembered that all service industries rely on the fuels, raw materials and manufactured items produced by the primary sector. All sectors, therefore, share some of the responsibility for the economically-driven pressures on New Zealand's environment, such as our patterns of energy use and waste generation which are discussed in the remainder of this chapter.