Rod Oram's column; Weekend Reads; Rate hikes delayed into 2019

Winston Peters is working MMP to win a concession that will be popular with the small business owners in his base. Photo by Lynn Grieveson

1. Winston wins again

New Zealand First Leader Winston Peters has won another concession for his voting base of pensioners and small business owners, and in the process has made it much harder for National to attack Labour for being anti-business.

Small business owners have won a reprieve for 90 day trial periods under a compromise deal fought for by New Zealand First.

Newsroom's National Affairs Editor Shane Cowlishaw reports Winston Peters flexed his muscles within the coalition agreement to remove a Labour plan for an arbitration system for all employers, and to keep the trial period unchanged for smaller employers.

But Labour won the removal of the trial for all employers with more than 20 staff.

The first tranche of the new Government’s employment law changes were released on Thursday and stuck largely to the pre-election script, except for the surprise on the controversial 90-day trial legislation.

The law changes will also see worker’s rights to rest and meal breaks restored, alongside their ability to take part in low-level industrial action without fear of reprisal.

Unions were also the winners, with the onus on employers to conclude collective bargaining restored and pay rates required to be included in all collective agreements.

No winter of discontent this time

The changes were welcomed by unions and the business community's reaction was subdued, and certainly different to the backlash seen after the first tranche of employment law reforms launched in the first year of the last Labour Government. That backlash came at the beginning of the 'winter of discontent'.

This time around Federated Farmers welcomed the decision to keep the 90 day trial for small businesses.

"It’s good to see Labour has listened to some of the concerns of the business community and consulted with their key coalition partner, New Zealand First. Winston has made the pledge to look after farmers’ interests and we acknowledge his support," said Federated Farmers employment spokesman Chris Lewis.

The Employers and Manufacturers Association said the changes removed some flexibility, but it too said it was pleased to see the 90 day trial remain for smaller employers.

BusinessNZ CEO Kirk Hope described the changes as increasing compliance costs, but being "reasonably pragmatic." He said keeping the 90 day trial for small employers was better than removing them altogether, and he welcomed the restoration of a rule to reinstate a worker after a challenged dismissal process.

See Shane's full article here on Newsroom Pro, where it was first published yesterday.

2. Rod Oram revisits the Beingmate debacle

Beingmate is turning into the most disastrous investment in the history of New Zealand doing business in China. Apart from Air NZ's self-destroying purchase of Ansett, Fonterra's biggest overseas investment could also be New Zealand Inc's worst foreign deal.

After this week's revelations of bigger operating losses and doubts about the accounts of the Chinese milk formula distributor, Fonterra looks set to have to write down the value of its $750 million investment by more than half a billion dollars.

Rod Oram was early to the story last September when he wrote this column for Newsroom Pro detailing why the relationship was failing and challenging the quality of the governance at Fonterra.

Rod picked up on a little-seen Harvard Business Review study of Beingmate's strategy that quoted executives speaking frankly. The quote below stood out for me and explains why Fonterra is having so much trouble getting traction inside China with its own formula sales and brands. It turns out Beingmate's executives have no interest in building Fonterra's brands in China.

“You don’t want to raise other people’s babies,” one executive told the HBR case writers..

This week Rod has a closer look at the latest revelations and the ugly prospects for Fonterra shareholders.

He makes this stunning point. On Monday, Spierings conceded only 2,000 tonnes were sold through 8,100 of Beingmate’s 40,000 plus stores last year. Based on Fonterra’s typical revenues on formulas, that’s worth only around $10m.

Rod writes: two disconcerting patterns stand out in the Fonterra-Beingmate relationship. First, Fonterra expresses high hopes for Beingmate; Beingmate disappoints; Fonterra says the problems are with the market not the company, Beingmate has competitive advantages other companies don't have to overcome them, and the market opportunity remains huge; Beingmate disappoints again; Fonterra blames the market again.

Fonterra was at it again on Monday after Beingmate announced more bad news:

"The Chinese market is growing rapidly and within five years, forecast demand for infant and baby dairy products will be more than the total for other global markets, so the potential remains."

This is a classic mistake that many foreign companies make in China. Seduced by the scale of the market, they pay insufficient attention to the way they're doing business there.

See Rod's full column here on Newsroom Pro this morning.

3. No rate hikes until well into 2019

Adrian Orr's new job as Reserve Bank Governor just got a little bit harder. He will have dig around even deeper in the bowels of the economy to find out why the inflation just won't come, despite plenty of economic growth and apparently near-full employment.

Yet again, inflation figures released yesterday were disappointingly weak because our currency is too strong and because domestic inflation (apart from in housing) is as flat as a pancake.

Statistics New Zealand reported
the Consumer Price Index rose just 0.1 percent in the December quarter and was up 1.6 percent from a year ago. Economists had expected quarterly inflation of 0.4 percent and 1.9 percent and the Reserve Bank forecast in November that inflation in the fourth quarter would be 0.3 percent.

Tradables deflation

The main culprit was the tradables sector, where prices of goods and services are set on international markets. They in turn are influenced by the strong currency. Tradable prices fell 0.3 percent for the quarter and were up just 0.5 percent from a year ago. The deflation would have been even more dramatic without the rise in petrol prices.

As seen in the chart above, transport (petrol) and housing inflation were the main drivers. Other prices in both the tradable and non-tradable sectors were broadly flat.

Economists extended out their forecasts for when the Reserve Bank will have to raise the Official Cash Rate into well into 2019. That brings many of them closer into line with the Reserve Bank itself, which was cautious about seeing the OCR being flat until well into 2019.

The New Zealand dollar's January surge to well over 73 USc will further complicate the outlook for Orr when he arrives at the end of March. It is now almost three percent above the Reserve Bank's forecasts.

As recently as its November Monetary Policy Statement, the Reserve Bank had appeared more relaxed about the currency, which was just under 70 USc when it released the statement.

If it continues to strengthen as America pursues a 'beggar thy neighbour' policy of encouraging of weak US dollar, then Orr faces the prospect of having to cut interest rates.

That complicates the political outlook for a Government that wants a robust export sector and at least flat house prices. A strong currency hurts exporters and lower interest rates make houses even more attractive.

4. Briefly in the political economy...

'Protect us too' - In the wake of Juken's decision to sack half its timber mill workers in Gisborne, the Wood Processors & Manufacturers Association has asked for the Government to take a complaint to the WTO about unfair subsidies in overseas markets. Other wood exporting countries such as Canada and Russia support their local industries, while Chinese wood manufacturers benefit from subsidies, creating an uneven playing field for New Zealand processors, the Association argued yesterday.

You say what? - Auckland Transport surprised public transport advocates and many in the Government by announcing investment plans that slashed spending on buses, trains and cycling. Transport Minister Phil Twyford said AT had accidentally released a draft. "I’ve had sincere apology from AT chair Lester Levy for internal “budget” document mistakenly made public," Tywford tweeted last night.

5. Weekend Reads

Especially for the weekend, here's a few longer reads from around the Internet on economic, social and political matters.

Prospect Magazine's John Naughton writes in this article
how corporate giants have created an entirely new surveillance capitalism, and we're too hooked to care.

RNZ CEO Paul Thompson's opinion piece on how public media should respond to journalism's crisis is well worth a read.

I always read Farhad Manjoo's technology columns in the New York Times. Last week's column on the need for Apple to reinvent the iPhone to make it less addictive was a doozy. This American Journal of Epidemiology paper showing how extensive Facebook use is correlated with compromised well-being has shaken the faith of many, including it seems Mark Zuckerberg, who has announced plans to remove a lot of the news content deemed fake and addictively annoying.

6. Coming up...

Parliament resumes next week for the first time this year. Parliamentary question time starts at 2 pm on Tuesday.

Jacinda Ardern is expected to outline the Government's plans beyond the 100 day mark (February 3) in a speech in Christchurch on Wednesday.

7. A few fun things...

As much as climate change is potentially a long-term threat to life on this planet, it is also making life in Wellington so much more liveable (except, perhaps, at night). We're having another summer for the ages and have spent every spare moment riding the laps (hard to call them waves) at a surprisingly swimmable Lyall Bay.

But we're not the only ones. NIWA reported yesterday that New Zealand is tracking to have its warmest January since records began in 1909.

Fiddy with a few bitties - Rapper 50 cent went backrupt a few years back so sold his album online for bitcoin. He got 700 for his efforts in 2014. They're now worth US$8 million...

8. This morning's political links

These are available in the morning subscriber email