Time to draw a line under our no.8 wire innovation culture

One of the insights after nearly 100 interviews with New Zealand’s primary business leaders − while developing this year’s KPMG Agribusiness Agenda − was that the innovation system used in our primary sector needs to change.

kpmg ian proudfoot primary magazine agribusiness

There was a strong view that we have, for far too long, relied on luck, one-off innovation and past investment to create the products and deliver the productivity we enjoy today.

On-farm it’s recognised that the exposure that New Zealand farmers have to market signals has made the sector more adept at taking advantage of available innovation. Certainly more so than farmers in countries with higher subsidies and less exposure to market prices. 

 However, the world is changing. The Common Agricultural Policy in Europe is due for significant reform in 2015 which will result in significant cuts to production subsidies. The Farm Bill in the US is also due to be revised this year, while Obama’s administration looks to save from the support payments made to farmers. 

So how does this impact New Zealand farmers? 

In our view, the impact over time could be significant. When New Zealand farmers were left to face the market, they innovated to increase productivity and reduce costs. This generated farming systems recognised globally as being highly effective and geared towards meeting the product demands of export markets. 

What do we expect European and UK farmers to do as their safety nets begin to disappear? We expect them to innovate in much the same way our farmers have in New Zealand. Their choice is simple; enhance the effectiveness of their production systems or go out of business. 

As our competitors produce more they will have to find export markets for these products and it is not unreasonable to expect they will look to compete in the growth markets of Asia. 

We should expect these ‘new’, efficient competitors to seek out best-in-class innovation to gain a jump on existing product exporters. They will not look to replicate the levels of productivity our farmers already achieve, they will look to exceed them. Their aim will be to produce greater volumes of high-quality product more sustainably − and with more rigorous safety standards − than we currently achieve. 

 Of course, these changes will not happen overnight. But the timeframe associated with commercialising new innovation means it’s not too soon for us to focus on ensuring our innovation system is sufficiently robust to support our current market position. 

In short, it’s time to discard our number eight wire innovation culture. We need to focus on developing an innovation ecosystem geared to meet the demands of a country that relies on being a global leader in the production of food, fibre and timber to maintain our standard of living. We cannot afford to be only as good as our competitors. We have an absolute need to be on the edge of innovation, understanding what our customers need so we can deliver the solutions they need as they need them. 

NZ R&D spending

Our spending on innovation, at 1.1 percent of GDP, is low compared to other countries with a similar primary sector component to their economy. Put simply, our companies do not spend enough on innovation. In fact we’re the only country among this comparator group of countries where the government is responsible for more than 50 per cent of R&D spending. 

The World Economic Forum (WEF) ranks our innovation system 27th of 142 countries. Further analysis of this rating shows that, in New Zealand, the quality of scientific research institutions is ranked 17th, access to venture capital is ranked 26th and the availability of scientists and engineers is ranked 69th.

 With this in mind, the primary sector has to address two issues.

Firstly, to create an innovation system that can support investment at a sufficient level to develop the processes and products to preserve our market position. Secondly, the sector also needs to ensure the innovations developed are adopted on-farm to produce sufficient, safe, quality product to maintain our market position. 

There is no silver bullet; developing a world-class innovation system is not an overnight fix. It requires a change in culture that must be led by private sector organisations that start to view spending on innovation as an investment for the future rather than a short-term cost. 

 It also requires us to be prepared to take a risk on long-term and complex research with the opportunity for transformational innovation. While complex research goes hand-in-hand with the possibility of failure, it is essential in developing a pipeline of innovation for the country. This contrasts with a focus on short-term projects that have more certain outcomes and which have dominated government-backed research in recent decades, mitigating the risk of failure. 

Changing culture can take a long time, as does training − or recruiting − people with the talent to get the most benefit from the innovation investment. WEF has highlighted the issue New Zealand faces in respect of the availability of scientists and engineers. It has recognised that the primary sector science population is ageing with many due to retire in the next decade.

 During our conversations for the Agribusiness Agenda we also identified an issue with a lack of appropriately skilled people to commercialise the innovation performed. We believe that the creation of a comprehensive industry strategy with a compelling future vision for the industry in New Zealand is critical to attracting the best talent to pursue careers in the sector, be they in science or commercialisation. 

It was interesting that in many of the conversations we had in preparing the Agribusiness Agenda, a theme came through that there is no shortage of innovation for farmers to adopt on-farm. The challenge is presenting the innovation in a compelling manner so that farmers can understand the benefits both from a financial and a lifestyle perspective. 

The growing gap between the results of the strongest and weakest farming businesses highlights that many innovations are not being adopted widely by farmers. An innovation that fails to be adopted by farmers and is left in the laboratory is worth little or nothing to the industry, regardless of how much has been invested in its development. Consequently, communicating the reasons to adopt an innovation in a compelling manner is critical to creating success for farmers. 

It is important to understand the reasons farmers are not adopting innovation. We were offered many explanations including a lack of business profitability and cash to fund the investment, farmers seeking a balance between lifestyle aspirations and the effort required to innovate, a lack of succession planning, inadequate understanding of the potential payback from implementation and new technologies not being insufficiently intuitive. 

To some extent, each of these account for innovation being left in the laboratory. The obligation to inform and educate farmers about the opportunities associated with new technologies falls on industry good organisations, processing companies and product suppliers. It’s our view that ensuring the innovation aligns closely with the challenges that are top of mind for farmers is the most effective way of achieving rapid uptake of technology.

We were particularly impressed by the work that the Foundation for Arable Research does in testing its proposed innovation programme with a cross section of farmers. This ensures the innovation is clearly aligned to delivering solutions to the issues that are consuming their time. This helps make the speed of innovation adoption in the arable sector one of the fastest in the primary sector, something clearly demonstrated by the yield improvements that the sector has achieved in recent decades. 

We are no longer in a position to rely on the innovations of the past to maintain our market position in the future. There is no overnight solution to address the decades of underinvestment in research and development in the primary sector in New Zealand. 

Given the limited resources that are available there is a need to focus carefully on innovation solutions that will create value for our customers. Focusing on delivering solutions to meet the needs of our customers will ensure we are prepared for the disruptive events that will dramatically change export markets for primary sector products in the coming decade. 

 Ian Proudfoot is Head of Agribusiness for KPMG in New Zealand and the Asia Pacific. He is the author of the KPMG Agribusiness Agenda publications.

This story originally appeared in Primary magazine. Click here to subscribe.

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