More horticulture businesses are taking a corporate approach.
New Zealand's horticulture sector employs the equivalent of about 39,000 full-time workers or 2 per cent of the workforce, although many of them are seasonal. But horticulture is now responsible for more than 7 per cent of the country's goods exports to the rest of the world.
Horticulture is enjoying a period of exceptional growth across almost all subsectors. Kiwifruit, apples, honey, and even smaller subsectors like cherry-growing are enjoying strong export gains.
Estimates are that 40 per cent of horticultural products are consumed in New Zealand or are used as inputs into other industries. But the key story in horticulture has been exports.
Total horticulture exports reached $3.4 billion in the year to May 2016 - about one-third the value of our well-documented largest export category, dairy.
What has been particularly impressive is the growth rate for horticulture even as dairy exports dwindle. Over the last 16 years, horticulture exports have risen 140 per cent (compared with 94 per cent for all New Zealand goods exports), or 5.6 per cent a year.
Recently, growth has been even faster. Even though the NZ dollar has been strong against major trading partner currencies, exports of horticulture products have accelerated.
In the four years to May, revenues from exports of our three most important horticulture products grew by 54 per cent (kiwifruit), 105 per cent (apples) and 158 per cent (honey). Other products also fared exceptionally well, including onions (81 per cent), blueberries (116 per cent), and cherries (303 per cent).
This is very good news for many rural parts of New Zealand, where other primary industries like dairy are not faring as well. Bay of Plenty, Gisborne, Hawke's Bay, Nelson, Tasman, Marlborough and Otago are most notable for benefiting from the horticulture boom.
Yields are up and the horticultural sector has taken advantage by increasing exports more than 50 per cent over the past four years.
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A number of factors have driven this recent success. Many industries, including kiwifruit, apples and cherries, have increased yields by up to 50 per cent through new on-farm practices, or growing different varieties.
The increase in the number and quality of varieties has been most clearly demonstrated in kiwifruit, with the rise of a Psa resistant fruit (SunGold) that also boosts yields, and in apples, where new markets are opening up overseas for varieties developed here.
We are also seeing better co-ordination and consolidation of horticulture businesses. There are far fewer individual businesses growing apples, for instance, but they are more corporate in their approach, and have the scale to invest in research and development.
Finally, Free Trade Agreements with China and other parts of Asia have opened doors for many products, although more work needs to be done to gain access for products like avocados, which at present are overwhelmingly reliant on Australia to take our production.
At the same time, huge changes are afoot in the sector. Some of these pose additional opportunities for the sector's growth, while others mean considerable risk is developing.
The changes are:
Increased consolidation and corporatisation: The number of "front doors" in the horticulture sector is falling as more consolidation of businesses occurs. Reasons for this consolidation include the importance of scale in ensuring financial viability through better technology, being able to attract more skilled management, and reducing risk across the business through geographic dispersion of growing capability. We expect to see more corporatisation across sub-sectors, especially in manuka honey (where little has occurred to date) as the cost to enter the sector rises.
Technology gains: Low-tech improvements like better know-how on planting, pruning and new varieties are already benefiting the sector; digital technology to monitor ripeness, quality, and weather patterns to optimise production; more automation in sorting and packing; and better atmosphere control in refrigerated units are increasingly important.
However, these improvements are also available to our competitors, especially in the northern hemisphere where most of our produce goes. This may reduce the attractiveness of fresh New Zealand produce relative to refrigerated northern hemisphere produce stored using newer refrigeration technology, for example. We expect more automation of sorting and packing, and the need to employ technology to further support corporatisation.
Rising export market concentration: Some products are sold overwhelmingly to just one or two major export markets. The key examples are blueberries (94 per cent to Australia) and avocados (86 per cent). Increasingly, China is playing a dominant role in some product categories, particularly in honey (and honey-based neutraceutical products, not covered in our definition of horticulture).
Over the short-term, we expect to see more export concentration in China, but opportunities in emerging markets like India and Indonesia may offer some diversification.
Growing debt: As a result of some sub-sectors returning yields of 7 to 12 per cent, land values have almost doubled in four years. This is increasing debt levels in the sector, and creates the risk of financial strife for some growers making purchasing decisions on the expectation that yields will stay this strong. External events, such as a regulatory change in a major export market, could affect the ability of some to service debt.
Nevertheless, at current returns, we expect to see further gains in land values especially in kiwifruit and apples.
Potential for more non-tariff barriers: Some industry sources were concerned that the current political environment globally may be turning away from free trade, and that more non-tariff barriers to trade may be adopted. Examples already in play include subsidies to local growers, changing relationships in markets where trade is driven by government-to-government negotiations, and the use of biosecurity regulations as a trade barrier.
Risk of labour shortages: The Recognised Seasonal Employer (RSE) scheme, which allows growers to bring in overseas-based labour for seasonal work, is one way of tackling a shortage of workers in the sector. However, there are more structural concerns around succession planning of an ageing workforce, and access to skilled scientists and teachers to ensure businesses here can remain competitive.
Without planning to attract and keep younger people in the sector, and boost the number of technical exports, New Zealand risks falling behind.
David Norman is Industry Economist with Westpac Institutional Bank.