Posts Tagged ‘Agriculture’
Processed food “is an industry that is active and successful in rich countries and not poor. There is this idea that we are all doomed – that everything will shortly be made in China.
“It is not true. Processed foods are made in rich countries like Switzerland, Denmark, Germany and Canada. These are the type of countries we want to be competing with in the future.
“Not Uruguay, Uzbekistan or the Ukraine.”
- report to Ministry of Economic Development on the future of NZ’s food industry
In Playstation online shooter games, a “camper” is someone who doesn’t head out to find kills, they just wait for kills to come to them.
Among players they are widely ridiculed.
The passivity of the campers is a bit like the New Zealand economy, for example our:
- Lack of investment in international markets
- Transactional attitude to exporting
- Low levels of R&D.
Instinctively our industries and businesses like to sit and wait.
The opposite of camper countries are ones like China, Singapore and Korea. Old economies such as those in Europe have moved beyond a camper mentality because they’ve had to – they can’t afford to lie around and expect things to happen because they are no longer naturally blessed.
Non-camper countries rely heavily on human capital instead.
Not so much NZ, for the moment anyway.
We’ve basically fluked first world status thanks to enough economic opportunities (kills) randomly popping up in our sights; we haven’t gone on marches, launched invasions, set up ambushes or done anything particularly adventurous.
Our strategy is to lie in wait.
Fair dues though – when an opportunity has wandered into our line of fire, we’ve been particularly deadly.
We were gifted some of the best agricultural land around. On the back of this we developed one of the world’s most efficient farming systems.
We’re also sitting on unknown quantities of oil and precious minerals.
Our second bit of luck was being British. It’s hard to imagine any other imperial power being so benevolent to a nation on the other side of the world. And we milked that for all it was worth.
We didn’t invent frozen meat shipments, but we led the world in developing an industry around the technology.
Likewise with a bunch of dairy technologies that allowed New Zealand to become the world’s largest exporter of milk products.
And aerial top dressing was not a New Zealand first, but again we probably made more of it than any else.
The other big kill to wander into the Kiwi camper’s line of fire was war. World War I resulted in a horrendous loss of life, but the war years and the early 20s were a boom period for Kiwi farmers (till they came a cropper with huge debts).
Similarly World War II sparked a boom, as did the Korean War a decade later.
The most recent of the “strategic kills” above are aerial top dressing and the Korean War. Since then I guess tourism has wandered into our line of fire, but that’d be about it.
So camping has delivered us farming, extractive industries and tourism (which again has been clinically capitalised on). Sounds like we haven’t progressed much since the late 19th century.
As Sir Paul Callaghan says, we are poor (at least relative to countries we like to think ourselves the equal of) because we choose to be poor.
Time for a new strategy.
HT – Tom Booker aged 12
Should NZ be worried? Walmart in the US says it will double sales of locally sourced produce.
It’s part of what ING says is a revolution in marketing and sales.
And it’s being led by supermarkets which have become defacto regulators of the products on their shelves, across a raft of issues from water use to carbon emissions.
The Walmarts of this world do this because that’s the way they see consumer demand heading. I’m picking Walmart, for one, is not doing this out of any deep-held sustainability principles – they just want to sell more product.
NZ farm leaders grizzle like hell about this, but they are picking a fight they won’t win.
Walmart’s global sustainable agriculture strategy gives you an idea of what in many cases will soon be standard purchasing practices in our food and beverage markets. The supermarket giant will by the end of 2015:
Support farmers and their communities -
• sell $1 billion globally in food sourced directly from small, medium and local farmers;
• provide training to 1 million farmers and farm workers in such areas as crop selection and sustainable farming practices – the company expects half of these farmers to be women; and
• raise the income of farmers it sources from by 10 to 15 percent.
Produce more food with less waste and fewer resources -
• invest $1 billion in its global fresh supply chain to help deliver fresh, quality food with a longer shelf life to its customers
• reduce in-store food waste by 15 percent in our emerging markets and 10 percent in all other markets, using 2009 as the baseline year; and
• develop a Sustainable Produce Assessment for producers in our Global Food Sourcing network; launch pilot in 2011, to better understand energy, water, fertilizer and pesticide use per unit of food produced.
Sustainably source key agricultural products -
• require sustainably sourced palm oil for all Walmart private brand products globally;
• and only source beef from Brazil that does not contribute Amazon deforestation.
Some of this may look a lot like greenwashing, and contradictory, but as they say, “fake it til you make it”.
Our “dirty” farmers should do the same.
Love this description of what we export – “agricultural integrity”.
For the Kiwi food and beverage industry, this is both the biggest and most basic value add available.
The quote is from chef Robert Oliver, who was based in the US where he created a number of restaurant ventures including Mandalay Bay in Las Vegas one of the largest restaurants in the US. He now works out of the New Zealand business centre in downtown Shanghai.
The centre includes a demonstration kitchen and bar area for food and beverage promotions and a multi-purpose function and event space. Oliver is also working in a number of other China cities including Beijing, Guangzhou and Shenzhen.
Anyway in his blog The prodigal chef he says, “I know that the New Zealand ‘story’ is that of a small nation of producers with agricultural integrity, and I saw quickly here in Shanghai that this is also what we exporting.
“New Zealand offers not only fine product, but a sense of trust. A small producer nation, a good environment, products with genuine integrity.
“In short, everything that bigger nations do not.”
A couple of months ago I posted on a similar theme with Geoff Ross saying: “Provenance matters in brands more than ever”.
The founder of 42 Below, who has now also gone into the beer business with Moa, says: “In two weeks time I will be in the US selling Natural Home Fragrance and Bath products. I can tell you, in doing this, I am glad I am from NZ and not China or India. NZ’s environment gives us an advantage. It’s time to make this advantage bigger.”
In her Brightwings blog Wairarapa writer Caryl Forrest argues “innovation and change in rural New Zealand seems to come from the imports – people who have moved from the city”.
These people, she says have “coals heaped on their heads from all quarters, except the other imports – have driven much-needed change”.
For sure farmers and rural businesses are deeply conservative, for example when it comes to the failure to respond to changing markets.
A friend who worked closely with the rural sector reckons its because farmers spend most days alone – “down the end of the farm on their tractor” – so they tend to be very inward looking and see change as a threat.
At the moment tough times on sheep and beef farms just makes this worse.
As a result, “critical issues in the sector that remain either unsatisfactorily addressed or need attention…” (to quote KPMG’s Agribusiness Agenda report).
Anyway, back to Brightwings. She says “After living in rural New Zealand for 24 years it’s not hard to work out where this thinking comes from.
“People who have lived in rural New Zealand all their life seem uncomfortable with anyone being successful within their community. Someone who, say, makes it onto the national board of an organisation striving for the benefit of rural people, gets the put-down treatment. “Yes, well, she might be on the board of organisation x, but have you seen the state of her garden?”
The NZ Herald reports that Bridget Liddell is involved in raising nearly $200 million for a venture capital fund focused on investments in the food and beverage sector.
There looks to be a bit of a gap in the VC market here.
There’s BioPacific Ventures which is a bit of a life sciences beast rather than a pure F&B investment outfit. Its investments include sheep and cattle genetics company Rissington Breedlines and NZ Salmon.
But after that, NZ’s small VC community gets distinctly unagricultural.
Why’s this?
Is it because there’s no F&B companies out there that can be expected to deliver on a VC’s investment expectation – a 10 X return?
One issue could be scalability. Many tech companies (especially in software and telecommunications) offer the opportunity rapidly grow the business with relatively little input.
The fact that F&B companies have got to grow their products I think means they are not particularly scalable.
Judging by Deloittes 2010 Fast 50, there are fast growing F&B companies, but nowhere as many as you’d expect in a country whose economy lives or dies on its F&B exports.
In the Fast 50, there’s natural dog food maker K9 Natural Food (at number 9), NZ Honey (10), milk company Synlait (12), Shott Beverages (18), winery Quarry Road Estate (30), Tuatara Brewery (34), Mojo Coffee (37) and winemaker Indevin (43).
So basically again, a pretty unagricultural list.
It’s dominated by technology companies and this where the VC cash has gone.
The Government’s Venture Investment Fund figures give you an idea of what sectors private fund managers have invested in. The VIF normally invests up to one third of the total capital in its partnerships with private VC fund managers.
Nearly 30% of the VIF’s money has gone into software and services, another 14% in telecommunications and another 11% into technology hardware.
Food and beverage got 1%.
Okay biotech, pharmaceuticals and life sciences got 22% and some of that investment may have gone into F&B-type companies if you include ones working in the smart food space such as nutraceuticals. The intersection of biotech and F&B can get a bit hazy.
Not that it probably matters – a 10 X is a 10 X company.
And on this measure, the NZ VC industry looks to be making the judgement that the F&B sector is unlikely to deliver on this basic test.
How come?
A Ministry of Economic Development report makes a strong plug for the farm over pharm path to our economic salvation.
Ummm…unless the pharmaceutical ingredients come from the farm. (Using pharm as a term to describe the knowledge economy path).
The report, done by Coriolis consulting, makes the case that we need to add more value and processing to our food and beverage exports, building on our competitive advantages in growing and breeding stuff.
BigCake has in recent times (ie once he got out of the grip of the Knowledge Wave, memorably described by Vincent Heeringa as being similar to a Youth for Christ rally) favoured the farm path. While obviously not an either or situation, NZ has have limited science dollars so we need to aim where we’ll get our biggest bangs for bucks.
And that I’m afraid is concentrating on leveraging off our natural and human competitive advantages in things like the life sciences and food and beverage value add.
And the Coriolis report claims there is a lot of slack in our F&B performance. On a export per capita basis we do okay, but we perform poorly when it comes to F&B exports per square kilometer – “…we would appear to have ‘spare capacity’ to export more.”
Denmark achieves around $600,000 of export dollars per sq kilometre; we manage around one tenth of that.
Less available farm land and falling overall animal numbers, Coriolis says strongly suggest that the path to exporting more F&B in the future is not just ‘more of the same’.”
And there’s been a bit of that going on.
Coriolis says that “despite sending meat to the U.K. for over 120 years, we own no major in-market processors.
“In many traditional sectors, New Zealand has failed to forward integrate along the value chain, as this example from the meat industry shows.”
BTW – The impact of the Knowledge Wave with its focus on a weightless economy has been pretty dismal, at least in terms of changing the makeup of our exports. According to Corialis, food & beverages as a percent of New Zealand’s total export value rose between 2000 and 2009 from 44% to 53%. (In 1940 they were 67%).
Coriolis also makes the point that F&B is the only way we are going to get the scale needed to hit our target of matching Australia’s income by 2025. To get there we need to at least double our exports per capita and that means adding another US$40.1 billion in export sales by 2025 at an annual growth rate of at least 6.2% per year (more than the past 15 years – 4.9% – but less than historical rates).
“We don’t need to invent an industry from scratch. Processed foods are happening. They are a trend achieving solid double digit export growth over a long timeframe (i.e. they are not a fly-by-night fad).
“There is currently a shift underway towards more value-added processed foods.
“Processed foods exports to Australia are not just large, they are also growing rapidly; interestingly, our Australia processed food exports took-off in around 1999.
In general, New Zealand processed foods are growing faster in Australia than elsewhere; many of these categories represent huge potential opportunities for New Zealand if we can “crack the case”.
Geoff Ross has once again nailed the importance of ‘clean and green’ to the branding of NZ products and services. Over in the other corner, mixed messages again from the farmers.
“Provenance matters in brands more than ever,” the founder of 42 Below says in yesterday’s Dominion Post.
“In 2 weeks time I will be in the US selling Natural Home Fragrance and Bath products [nice product placement Geoff]. I can tell you, in doing this, I am glad I am from NZ and not China or India. NZ’s environment gives us an advantage. It’s time to make this advantage bigger.”
In the same piece, which looks at Department of Conservation head Al Morrison’s call for a wider measure of our country’s progress than just gdp, Fonterra’s group director of external relations, Kelvin Wickham describes farmers as “caretakers of the land for generations”.
Now caretaker is a good word. It implies the farmers are only temporarily in charge of the land and have a responsibility to look after it for those who follow.
Most farmers are great at this, but what are they seeking to pass on? – It’s the farm as a profitable business.
Like Morrison said – “Creating an environmental mess is good for gdp.”
Or like the other Morrison – Jim – wrote more poetically:
What have they done to the earth?
What have they done to our fair sister?
Ravaged and plundered and ripped her and bit her
Stuck her with knives in the side of the dawn
And tied her with fences and dragged her down
[When the Music’s Over]
Okay, a bit extreme but I saw the result of this attitude to the land when I recently drove from Wellington to Turangi and saw the massive scars from slips on farmland. Farmers had been sacrificing the land for the extra dollar.
Some brands don’t implode because of a big cock up like BPs, they die a slow death of a thousand cuts which is what NZ’s clean green image is in danger of doing.
And the farm leadership, well Federated Farmers anyway, doesn’t get this – not really, like deep down. They say they do, but judge them by their actions.
The Fed’s President Don Nicholson for one appears antagonistic towards clean and green.
Given the opportunity to ask PM John Key any question he liked, Nicolson came up with:
“Do you categorically know if our assumed ‘clean and green’ and ‘sustainable’ brand is a primary reason why consumers in the growing markets of Asia, the Middle East and Africa buy New Zealand food products and if not, why not?”
Key gave a pretty much standard (and correct) answer about ignoring environmental concerns of customers at our peril, citing the UK, US and Europe, then saying the customers in the markets Nicolson mentions will eventually have similar concerns.
To be fair, not all farm leaders see the world in same way as Nicholson. Fonterra CEO Andrew Ferrier predicated his question on the need for an international consensus on how to increase economically and environmentally sustainable production. He asked how can we do both?
Which is a much better question.
An old BigCake idea is that our co-ops are a handbrake on our economy, particularly in the agriculture sector where co-ops dominate.
Mostly the evidence around this is circumstantial, though you could say Fonterra’s sluggish financial performance is strong pointer.
I think NZ Herald columnist Brian Gaynor is in this camp, but in today’s NZ Herald he also points out that farm companies listed on the NZX are crap generators of wealth too.
At the back of BigCake’s mind is that something is fundamentally wrong with the Kiwi agricultural business model. A pessimistic/fatalistic view would be that poor financial performance is unavoidable because it’s just the way the world is – it’s the price you pay for being caught in the commodity trap.
Okay this makes doing business tougher, but I figure it’s more than that. For some reason our farming sector seems largely incapable of taking advantage of the opportunities the world offers.
The best export businesses are outward looking – they see and deal with the world as it is, not the way they want it to be.
Most of the time farm businesses, farm leaders and farmers just don’t get this.
As a consequence, their business ventures (including farms) stumble along with long periods of crisis broken up by short periods of respite following acts of god such as commodity booms or falling exchange rates. Some just fall over.
Gaynor highlights the high attrition rate of NZ ag companies on the NZ Stock Exchange and their recent sh!t performance.
He points out that there are only four main board-listed agriculture companies:
• Affco
• Allied Farmers
• NZ Farming Systems Uruguay and
• PGW Wrightson.
They have a combined market value of just $850 million (1.5 per cent of total sharemarket capitalisation) compared with agriculture’s 40% export earnings.
The quartet have had an “average negative return of 58.3 per cent over the past two years, even though agriculture commodity prices have boomed and the benchmark NZX 50 Gross Index was down only 0.01 per cent over the same period.
“The average sharemarket return for the four listed agriculture companies over the past few years has been a negative 46.9 per cent. This excludes NZ Farming Systems Uruguay, because it didn’t list until December 2007.”
Gaynor points out that 30 years ago there were 23 listed agriculture companies. “Most of these companies have disappeared because they were unable to develop a successful business model and their profitability and sharemarket performance was poor.”
Another agriculture company that is about to disappear from sharemarket listings is Tasman Farms (the old Tasman Ag).
What’s left of one-time sharemarket darling Tasman Agriculture is about to disappear from public ownership, fully gobbled up by New Plymouth District Council.
Yeah, you read right, the New Plymouth bloody District Council.
Local government asset creep is an aspect of state asset creep I didn’t cover in earlier posts on this phenomenon because there was more than enough examples in the state sector. Check out NZ Post, Quotable Value, Orcon…
(Declaration of interest here: I’m a small Tasman Farms – the company’s current name – shareholder. It trades on the Unlisted exchange. I bought into Tasman Ag very early on and have stayed for the ride).
I hung in because it was one of (the only?) way the few ways for me to get investment exposure to the agriculture sector, in this case dairying. If agriculture was going to be NZ’s economic saviour, then I wanted a bit of it.
Anyway, the NPDC now holds about 75% of Tasman Farm shares and last week gave notice it wanted the rest.
I ain’t arguing that Tasman Farms has been badly run under NPDC ownership, but I’d point out that the current share offer price is exactly the same as what Tasman Farms shares were trading at (albeit thinly) three years ago.
The Capital Market Development Taskforce noted that New Zealanders don’t have as many opportunities to invest in large and mature, local companies (like Tasman Farms) as investors in many other countries.
It saw agriculture as a key gap.
The other thing is that in the long run I wouldn’t bet on district councils, or the state, running businesses better than the private sector.
The more of the economy that ends up out of the reach of private investors, the worse it’ll be for the economy.
BTW – there’s an Alan Hubbard connection here. Alan Hubbard co-owned the bulk of Dairy Holdings which at one time held 42% of Tasman Farms.