Fresh Grass or Fresh Ideas…Which One Will Secure New Zealand’s Future?
New Zealand’s lush green countryside and its free-range farming system has generated and created the nation’s wealth and whilst that system is now stretched to capacity, it has positioned the farming sector well for the disruptive rigors of the 21st Century…and it’s mostly a great story. New Zealand farmers have done some heavy lifting over the country’s history and are held in high regard by global peers. Townies and those in professional services please take note. Someone has to do something for you to make a living. Thank goodness for farmers. What would the cash flow and P & L performance look like in many professional services firms without them? Actually what would New Zealand look like without them? Prosperity and productivity would be further challenged and whilst Sir Paul Callaghan famously suggested getting off the grass, he also noted the country would be much poorer without Fonterra and the dairy sector. Like most things in life, finding the balance is key. New Zealand is working harder on getting the balance right than most. I’m an Aussie, and even I can see what’s happening here. Notably, New Zealand farmers have also performed and significantly contributed on anything but a level playing field. Their stellar reputations are well-deserved.
Unlike most of their global competitors, Kiwi farmers receive zero subsidies or government handouts. They operate in a completely free trade mode. One of only five countries in the world to do so. In reality, they didn’t have much choice and commenced their open market training shortly after the 1984 budget crisis. They were more or less forced to adapt their farming operations overnight with the incoming Labour government instigating reforms rapidly eliminating over 30 different agricultural production subsidies and export incentives. The only option left on the table was to get match fit, or go broke and guess what…like the All Blacks they got match fit and became world class. Imagine how competitive New Zealand farmers will be if the playing field ever gets levelled…and never say never. Look out Ireland and Co.
Farm subsidies face being chopped as Brexit hammers the EU coffers, with the Government being asked to find extra funds to make up the shortfall. Budget commissioner Günther Oettinger has warned that spending cuts are coming across the board to deal with the Brexit black hole.
Source: Farm Ireland (August, 2017)
And while New Zealand farmers were detoxing off subsidies they also became incredibly efficient and innovative. There is a lot of unproven and untested assumptions out there about New Zealand’s farmers. Sadly, much of it is negative and fails to recognize the significant achievements and incredible performance metrics New Zealand farmers have delivered. For example, NZ Dairy farmers now produce 2,200 products from milk, compared to about 35 before the 1984 reforms. This includes antibody milk and chocolate cheese.
Dairy farmers have serious skin in the game too, and frankly, they’re on a roll. Are there issues? Yes, and we’re all very aware of them. Are they being addressed? Of course, they are. Did the envelope get pushed a bit too far? Probably, but that’s what happens when you need to become efficient to survive. The red meat sector is getting there too…slowly, but surely. I say this with confidence because I can hear the passion and commitment in the voices of farmers and that means they believe it, and belief is a powerful thing. It can take you a long, long way. And there is little argument that protein has a strong future and make no mistake, wool might be a touch lack lustre right now, but it isn’t done with yet either. Just look at the trend (surge) towards organic and natural. The demand Tsunami for authenticity is coming. It’s hard-wired into the DNA of every human being on the planet and it’s here to stay. Nature soothes. Nature relieves. Nature relaxes. Nature feels good. Nature is good medicine. Natural products scream health, trust and safe…and above all, they scream BUY ME. It’s a no brainer. Each one of these drivers plays right into the hands of New Zealand’s agricultural sector and this is where New Zealand farmers will one day leave their competitors wondering what happened.
And given where the world is heading, New Zealand is almost perfectly positioned. Distance will prove to be a competitive advantage. When economists get their crystal balls out and start waxing lyrical about the growth industries and sectors of the future, they predictably fall back on two key questions – what will the world want and what are we good at doing? Sounds simple, but those two questions and their answers have profound implications. We already know the answer to question one…it is more and better food. That is perfect for New Zealand because the appetite for what our farmers produce is not going to go away anytime soon. Quite the opposite, investment in the agri-space has never been higher with significant capital starting to flow into the ag-tech and food-tech space. Notice that ‘tech’ word.
With arable land now reaching its scale limits, technology is going to be an essential ingredient in supporting New Zealand farmers to increase future productivity and prosperity. And that means technology behind and in front of the gate. Farmers who champion new technology, embrace innovation and adopt new ideas stand to grow rapidly and they will be attractive to capital. Those who don’t embrace change will find it hard to survive this time around. And capital will be an essential ingredient in the future, particularly in a transforming B2B and B2C landscape powered by extensive social media and IoT. Just look at Amazon’s first move at Wholefoods. They immediately slashed prices by up to 43% for some of Whole Foods’ bestselling products on the first day its USD $13.7-billion purchase was completed. They have sent a message to competitors. The reset button has been pushed and the survival of the fittest has begun. Good luck Wholefoods suppliers. Let’s hope Amazon isn’t a greedy grocer. Their track record isn’t without flaws. I can recall the Chairman of Wesfarmers, Michael Chaney, saying, “These guys are going to eat our breakfast, lunch and dinner”, and that was a few years ago now. Interesting times.
Niall Ferguson, the Laurence A. Tisch Professor of History at Harvard University suggests history is important to a well-rounded business education. Ferguson also suggests history is a more reliable predictor of the future than economics. In the agricultural sector history is very clear: as nations see their incomes rise, so too does their consumption of food. And, more importantly still, the quality of the food demanded lifts as well. That, unless I’m mistaken is opportunity knocking. Are we listening? Will we hear it? Will we take action? Three more questions which will have a profound impact on all of our futures. And it’s perhaps a question best answered by the country’s farmers. Personally, I’m backing them. Not every operation will make it, but the best ones will and in what other industry is natural selection so appropriate and so relevant.
One final point worth noting and it’s one which both scientists and economists agree on: protein intake doesn’t rise alongside income – it rises faster than it. There is little doubt the world is going to demand more and better food. It is also true that New Zealand is superb at producing more and better food and that is a rarity among rich nations. New Zealand is one of the world’s major food bowls, producing much more than it can eat. As a marketer, I would also like to argue that now is a great time to reengage our profession, because no matter how good agri-technology gets, or how good the produce is, someone, somewhere, needs to create a brand and go and sell it in the right place, to the right people, at the right time, for the right price. And that’s another story.
By Jim Wilkes