Danger looming on the horizon
By Melinda Collins
The nature of a competitive global market dictates that expecting a better result from doing what you’ve always done is a sure fire path to failure. Yet, according to a report by accounting business KPMG, our agriculture industry is in peril of doing exactly that.
The KPMG Agribusiness Agenda report says New Zealand agriculture has as little as five years before large-scale intensive farming in South America, western China and central Asia will erode our cost competitiveness, undercutting our farm exports.
“For many years the New Zealand agribusiness sector has traded on a belief that our commercial advantages were cheap land, abundant grass and plenty of water, making this the lowest cost place to grow food in the world,” the report says. “This is no longer true. Farm prices have risen significantly over the last 20 years, making land in New Zealand among the most expensive in the world.”
The report observes the lower-cost land and labour, less complex regulatory regimes and geographic location of competing nations as capable of producing bulk commodity products in significant volumes at prices New Zealand couldn’t hope to compete with.
KPMG lead agribusiness partner Ian Proudfoot says this means now is the time to start revising industry structures, pratices and products to ensure the industry moves up the value chain in advance of commodity products from these nations hitting the international market.
The report says New Zealand needs to invest heavily in science, technology and infrastructure to gain competitive advantage and government policy needs to be prioritised toward better investment, management and use of water resources.
“Water is New Zealand’s liquid gold. Development of a policy framework that provides certainty over the access, quality and cost of water to agribusiness is important if the industry is to have the confidence to make long term investments in improving productivity and increasing its contribution to the New Zealand economy,” Proudfoot says.
National co-ordination of water management strategy and investing in connected rural communities would also be essential to placing New Zealand at the forefront of the global agribusiness stage.
Proudfoot noted that only 1.6 percent of the government’s proposed investment in broadband and fibre networks was targeted towards the 13.8 percent of the population living in rural communities.
“Yet this group grows, processes and exports 66 percent of New Zealand’s merchandise exports.”
The report also says companies need to communicate with international clients to understand their future needs so they can adapt to them ahead of competitors. The report says this may mean New Zealand needs to adopt a national identification scheme to keep up with market demand.
However, Federated Farmers associate spokesperson for water, Lachlan McKenzie says the report fails to illustrate details affecting farming on an individual scale.
“We welcome KPMG’s statement that ‘farm businesses must be viable and profitable if farmers and growers are to continue to invest’, but this is another strategic helicopter overview.”
While the report suggests the objective for New Zealand must be to protect our clean, green, “golden goose,” McKenzie says this is at odds with recent research done for New Zealand Trade and Enterprise in the United States.
“We know Americans don’t respond to ‘clean green’ or sustainability, but do respond to quality, local craftmanship and community responsibility. Telling that story to our end consumers is what we need, instead of a hollow but lofty sounding slogan.”
McKenzie says Federated Farmers would like to see similar research done in the markets KPMG correctly identifies as becoming increasingly important for our exporters.
He says the report takes a Eurocentric view of the proposed National Animal Identification and Tracing Scheme, but says it fails to illustrate how this will enhance profitability with such a sizeable cost input necessary.
While McKenzie agrees with KPMG that the Emissions Trading Scheme will increase the volatility and costs of agribusinesses, he says the report gives few indications on how to improve profitability on an individual farm scale.
“Over the past decade, inflation on farms has been well ahead of the Consumer Price Index. A Ministry of Agriculture and Forestry report (Situation and Outlook for New Zealand Agriculture and Forestry) shows that farmers retain just 6.2 cents out of every dollar generated from New Zealand agricultural exports. Unfortunately KPMG isn’t providing many practical hints on how that will lift.”
But there are points on which the pair agree. “Where I think KPMG is spot on, is in their support for our push to get a larger slice of the funding package for rural broadband and the need to future proof the economy by way of water storage. We have the annualised rainfall but we don’t store it to use over drier months,” McKenzie says.
“Similarly with research and development (R&D), it is Federated Farmers’ policy for New Zealand to have an R&D spend equivalent to three percent of gross domestic product by 2029,” he concludes.