A decade after being given the virtual ‘last rites’ as an industry, our primary producers are still delivering results. Among other things, says Ian Proudfoot, it’s time we realised our protein advantage and our acumen as a solution and knowledge driven sector.
At the Knowledge Wave Conference 10 years ago, New Zealand’s future success was seen to lay in the development of ‘sunrise’ technology industries as opposed to relying on its ‘sunset’ primary sector. Despite this focus, New Zealand has not seen significant growth in per capita income when compared to other countries it benchmarks itself against. In contrast, the past decade has seen continued growth in the primary sector’s share of New Zealand’s tangible exports.
So, what happened? Did we miss the Knowledge Wave? New Zealand’s technology industry may have failed to develop the breadth or depth envisaged back in 2001, but that does not mean our exports have not benefited from a good dose of innovation. Research undertaken in preparing the KPMG Agribusiness Agenda 2011 shows that the growth in exports from our dairy, kiwifruit and wine sectors can, in part, be attributed to the application of knowledge and know-how.
The industry leaders KPMG talked to when preparing the Agribusiness Agenda say that our primary sector has only just woken up to the opportunities created by becoming a solution and knowledge driven industry. Some examples:
• The New Zealand’s wine industry pioneering the use of screw cap closures on premium wines. This innovation saw exports grow more than 500 percent on the back of an ability to deliver consistent, quality experiences to customers.
• The New Zealand dairy industry is globally recognised as a leader in innovation in dairy processing. Why else would over 2,000 industry leaders gather in Auckland late last year for the World Dairy Summit?
Demand for protein is exploding globally, with recent Food and Agriculture Organization (FAO) predictions showing demand for some of New Zealand’s core primary products—whole and skimmed milk powders, cheese and fish—set to grow by over 20 percent between now and 2020.
Increased demand for proteins provide our primary industry sectors with a unique opportunity to grasp. Combine this with New Zealand producers’ reputation as developers of safe, sustainable and innovative protein products and solutions and you have key competitive advantage. To date we have not converted this reputation into a sustainable improvement in the country’s income.
This was highlighted in a recent report commissioned by the Ministry of Economic Development which revealed that the export dollars from food generated from our land area are significantly below those of many developed countries. The report suggested that New Zealand appears to have capacity to create more export earnings from its food production sector.
New Zealand may never match the returns that Denmark or Switzerland generate per square kilometre using highly intensive farming systems. There was, however, wide consensus among the industry leaders that there are opportunities to realise more value through greater integration and innovation of our primary sector supply chains.
Making changes such as improving productivity on farm, seeking greater processing efficiencies and increasing market integration were all highlighted in KPMG’s research as areas available for greater value to be captured. A common theme of the findings was that value is being left on the table behind the farm gate for a wide variety of reasons; high debt, inconsistent market signals, farmer inertia and weak extension mechanisms among others.
Despite the issue being specifically highlighted in the Red Meat Sector Strategy report, it was felt that value is being left ‘on-farm’ throughout the industry, including the dairy sector.
The World Dairy Summit in November last year highlighted some of the production challenges the dairy industry faces. With land, labour and input costs increasing and compliance requirements becoming more onerous, New Zealand can no longer compete on cost, even with the most effective processing industry in the world. Growth through dairy conversions, particularly in the South Island, has impacted average milk production per animal as less optimal land is used for dairying. Despite milk production growing 27 per cent between 2000 and 2009, New Zealand was the only top 10 producer to see a decline in per animal production over this period. Our predominately pasture based systems mean we generate significantly less milk per animal than the most intensive dairy systems. Put simply, we currently produce less from our dairy land than many of our competitors, offering the potential to generate greater value in the future.
Realising the protein opportunities available will require relentless focus on factors within our control. For an industry so long focused on non-controllable factors—like the weather, exchange rates and commodity prices—this will require a significant cultural evolution, which like any change programme will not be without its challenges and setbacks. The long-term success of the sector relies on the whole industry:
• Being integrated from customer-to-farm to consistently deliver a product that is tailored to the specific, evolving requirements the end customer has of the product.
• Seeking opportunities to collaborate when commercially appropriate, so that we can deliver to customers the certainties that scale provides in the global market.
• Establishment of innovation processes to ensure ideas are assessed, developed and adopted continually, rather than the celebration of the “eureka” moment inherent within our number eight wire culture.
Returning to the Knowledge Wave; we didn’t miss it, our wave just turned out to be very different to the one that was expected back in 2001. The need for high quality, safe and innovative food is front and centre for governments around the world and New Zealand is well positioned to capitalise on the opportunities this creates. Maybe it is time for us to focus on realising the protein advantage our intellectual property creates for us—now that would be a conference worth attending!
Ian Proudfoot is head of Agribusiness for KPMG New Zealand/Asia Pacific
This story originally appeared in Primary magazine. Click here to subscribe.