Why biggest might not be best for NZ Ag

It’s high time we stopped thinking we can play with the Big Boys in terms of our agricultural production.

So the All Blacks might be proof that we can be the best in the world at something, despite being a small country in the middle of nowhere. But rugby is played by a maximum of 5 million of the world’s 7 billion or so people – that’s 0.07%. The rest of the world (99.93%) aren’t interested in competing on the rugby field.

On the other hand, 100% of those same 7 billion people eat, so there’s a bit more competition for “world’s best” when it comes to agriculture.

Primary sector commentator St John Craner argues a bit of pragmatism may be in order.

There’s a beauty in small, and opportunities in exploiting niches. Just ask the shareholders of manuka honey producer Comvita or farmers supplying NZ Merino.

NZ Ag isn’t a big player worldwide. Sometimes we draw ourselves into a false sense that we are bigger than we actually are. It’s the same insecurity we see at play when we act like giggly school girls excitedly asking Orlando Bloom or Venus Williams “So what do you think of New Zealand?”

Dairy and Fonterra might be big for New Zealand’s economy (over 25% of our export dollars) but we’re not big on the world stage. That’s where the distortion occurs. Maybe it’s time to drop old egos and face facts.

The big players in agriculture are still the US, Europe, China and South America. Even Africa is getting in on the act. Forget BRIC (Brazil, Russia, Indonesia and China) and think MINT (Mexico, Indonesia, Nigeria and Turkey).
 

China produces 37 million tonnes of apples a year, the US four million tonnes, and New Zealand just 470,000 tonnes. Hardly big – in fact we are 29th on the producers list.

However our apple guys are doing a great job extracting value in new markets like India, with prices up for the last two seasons and looking good again for the season ahead. Our residual counts, new varieties, taste and growing conditions are all key factors to this success.  

Beef-wise we only provide 10% of worldwide beef consumption. However some players (First Light Foods and Silver Fern Farms, for example) are doing a great job promoting grass fed.

Don’t underestimate how hard it is for these guys to do what they do. As David Ogilvy said: “Any damn fool can put on a deal, but it takes genius, faith, and perseverance to create a brand.”

In terms of world traded milk, NZ is the 8th largest exporter of milk – 21 billion litres annually or around 3% of all tradable milk. The EU sits at 156bn, India at 131bn and the US at 91bn litres.

Because we have a small domestic consumption, we export almost 95% of the milk we produce, which lulls us into thinking we’re big when we’re not. Dairy and Fonterra might be big for New Zealand’s economy (over 25% of our export dollars) but we’re not big on the world stage. That’s where the distortion occurs and maybe it’s time to drop old egos and face facts.
 

We’re big in wool, but a lot of the money comes from the smaller value-add plays we make through the likes of Icebreaker, NZ Merino and Landcorp’s latest JV with NZ Merino and Danish footwear company Glerup.

In our efforts to get bigger and assist MPI’s Export Double (getting NZ exports from $32 to $64b by 2025) the question many are asking is: Have we become less profitable with more commodity volume plays that erode our natural “clean green” 100% Pure advantage? I think there is some truth to this suggestion.

Perhaps we should leave cow barns and intense lot feeding to others.

Instead, we should be thinking about the growing global army of discerning LOHAS (lifestyles of health and sustainability), the “tiger mums” and the Locavore (local food) movement, where consumers are looking for more traceability, authenticity and trust in the food they buy.

How much chemical or nitrate was used to produce it? How were the animals farmed and treated? Were there inductions at calving? Were staff low paid or treated fairly by their employers? Are these products genetically modified? Growth hormone free?

These consumers want to hear real brand stories based on truth about the food they eat.. And they’re willing to pay a premium for this so it makes sense to target these customers when we will only be able to feed around 50m or 0.6% of the world's growing population.

The question many are asking is: Have we become less profitable as commodity volume erode our natural “clean green” 100% Pure advantage? Perhaps we should leave cow barns and intense lot feeding to others.

David Hughes, Emeritus Professor of Food Marketing at Imperial College London, presented at the 2015 Red Meat Sector saying: ”New Zealand is good at nouns but not very good at adjectives“. Adjectives like organic, grass fed, free range. His advice also came with a warning: “Make sure you don’t mess it up”.

With the latest dairy movements perhaps we could look to less intense, but highly specialised milk products, based on more grass-fed systems – a system that for a long time has underpinned our cost advantage and New Zealand story.

Yet only 15% of our dairy farms today are pasture-based. Sheep and goat milk have great synthetic properties much closer to human milk, and farmers in those sectors are focusing on value rather than volume. Exciting times lie ahead for these guys.

Fonterra has just called out for more organic milk as market demand heats up. Red meat in some patches have found a meaningful point of difference so why can’t we in dairy?

Big isn’t always best but small can be beautiful and profitable. Let’s not lose sight of that.

St John Craner is strategic planning director of Tracta, a primary sector communications specialist based in Hawke’s Bay. St John wants New Zealand to extract the maximum value from its natural produce so future generations prosper stjohn@tracta.co.nz