Enterprise success: Primary purpose. Are we adding enough value to the food basket?

Stories of NZ enterprise success
This is the third article in major eight-part NZ Management series: Stories of NZ enterprise success. Leading New Zealand business journalist Vicki Jayne conducts sector-by-sector review of the underlying drivers of success in key parts of New Zealand’s economy.
Next month: construction / engineering.

From sheep’s back to cow’s udder or from wood to wine, New Zealand can boast long heritage of earning its way in the world through the productivity of its primary sector. Along this more than century-long journey, it has shifted from straight out exploitation to more sustainable husbandry and from pure commodity to higher added-value diversity. But has it gone far enough to really reap the benefits of our food basket heritage? And what price the trade-off between further intensification and the inherent (arguably growing) market value of our Pure NZ image? Does our staple export diet need some sophisticated tweaking?
Despite all the talk of high tech and the advantages of “weightless” exports, there’s no doubting the economic dominance of New Zealand’s primary production. Offshore earnings from land and sea last year totalled $31.5 billion – massive 71 percent of this country’s export revenue.
In trade terms, we box above our weight because we harvest lot more product than our small population can consume. So although our burgeoning dairy industry may be mere drop in the global bucket – at little over two percent compared to America’s 12 percent, it accounts for about one third of world trade in dairy.
Today, the compass of that trade is swinging firmly towards Asia. Where once the bulk of our produce headed back to “the old country”, exports to Asia now account for 40 percent of total export value, driven partly by sharp rise in dairy products going to China.
According to Statistics NZ data, primary products (dominated by milk powder and logs) now account for more than 90 percent of New Zealand’s earnings from China. Wine exports to China have also shot up – from $3 million in September 2008 to $17 million in 2011.
Where meat and wool once topped the export tables, dairy is now dominant and growing. Last year, milk products contributed $13.2 billion to export revenue – massive 25 percent rise on the previous year – though wool, meat, fish and forestry all lifted, mainly on the back of demand from China.
Shifts in market demand have in turn led back to land use change, with dairy conversions increasingly common and in turn leading to changes both to irrigation patterns and environmental impact.
These changes bring their own problems – well-known Central Otago artist Grahame Sydney laments the homogenisation of local landscapes as the area’s natural bleak ochres and browns are transformed to “lurid, lush artificially fertilised grass….”.
Just what is local and offshore tolerance to the environmental impacts of land use change?
Expansion of our healthy aquaculture industry runs into the same question as shellfish and salmon farming spread into pristine waterways, while wild fishing has whole other environmental questions to address.
There is an excellent argument that one way to add value to New Zealand’s primary sector is for it to augment the country’s existing green image by seriously embracing sustainable practice. And that’s track several producers – from fish processers such as Sealord to wine growers like Yealands – are clearly embracing.
In that context, agriculture’s entrance to New Zealand’s Emissions Trading Scheme from January 2015 is helping drive changes to farming practices – from increased tree planting to more efficient use of nitrogen fertiliser and better management of animal waste. Given the sector accounts for some 48 percent of our greenhouse gas emissions (unusual for developed nation) it’s challenge this country is taking lead role in addressing.
Then there is the vexed question of land ownership – highlighted by the recent sale of the Crafar farms to Chinese interests. Can we afford to lose control of that which feeds us – literally and economically? Does it really benefit our trade relations with China? Would system of land leasing be preferable?
Ownership structures in the primary sector have already undergone major changes. Even cursory troll through the past 10 years of Deloitte/Management Top 200 data highlights few of those shifts. Consolidation in the dairy sector birthed our largest company, Fonterra, just after the turn of the century. Similar attempts at consolidation in the meat sector eventually saw Richmond disappearing (reluctantly) into PPCS, which in turn morphed into Silver Fern Farms – more on that later.
Meanwhile, once mighty forestry entities were felled or harvested. After earning the dubious distinction of being amongst the list’s biggest loss makers in 2002, Fletcher Challenge Forests’ assets were divvied up, with most of its forests eventually sold offshore and its “children”, listed companies Rubicon and Tenon, both now earning criticism for being amongst the NZX’s worst performers. Former top five ranker Carter Holt Harvey (CHH) had, by 2008, dropped beneath the radar into Rank Group’s diversified private holdings.
Some primary investors have spread their wings – fishing family Talleys also has good-sized stakes in the meat industry (through strike-troubled Affco) as well as owning dollop of local milk fat – including Open Country Dairy, which earned the Top 200’s “most improved revenue” accolade last year with 93 percent increase.
Government structures have replicated the consolidation trend. This year the Ministry of Agriculture and Fisheries (MAF) was re-christened the Ministry for Primary Industries to encompass all government work across agriculture, horticulture, fisheries and aquaculture, forestry, food and biosecurity.
This move, according to Primary Industries Minister David Carter, is about recognising the broad role of the ministry in growing and protecting “the powerhouse of New Zealand’s economy”. Importantly, says Carter, it “provides the different parts of the organisation with single, unifying identity”.
It’s move welcomed by those who believe the primary piece of NZ Inc has lot to gain by collaborating in areas of mutual interest.
We’re all in this …together?
In radical attempt to haul industry players out of their siloed sectors to focus on where and how they could usefully collaborate, more than 20 chief executives representing dairy, beef, sheep, seafood, viticulture and horticulture are getting together in Silicon Valley later this year for six-day intensive “boot camp”.
Championed by John Brakenridge, CEO of New Zealand Merino (NZM), it’s all about working smarter to leverage the industry’s global potential. Brakenridge reckons that “commodity complacency” in many parts of the primary sector puts our economy in vulnerable position.
“We’ve been riding on bull market but what will it look like when the tide goes out? How much stickability is there? How many retail brands are overtly building the New Zealand story into our products?”
There is, he warns, an opportunity we could easily miss in global climate where greater awareness of product provenance and powerful social media could become NZ Inc allies.
The boot camp idea emerged when Brakenridge and Silver Fern Farms CEO Keith Cooper (see box story “Plate to pasture”) were at Stanford University discussing their collaboration through the Government’s Primary Growth Partnership.
“It was benefiting us – so we wondered if it could be extended. How much value could be unlocked for our businesses, stakeholders and for New Zealand?” says Brakenridge, who believes the “power of alignment, collaboration and innovation provides significant opportunity for seismic shift in the sector’s approach”.
Principal sponsor is Agmardt, whose chair Jeff Grant says it fits with his organisation’s new strategy to fund activities that “enable New Zealand agribusinesses

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