Realising sustainable growth demands not just ambition but also urgent and immediate strategic shifts in how we think about the products and markets we seek to supply — whereas the current narrative is focused on collecting more dollars for the products we already export. To realise sustainable growth, it is critical that we understand the needs of global markets and consumers and that we have the right conversations with the right people in the right markets — now.
However, if we turn up asking questions about dairy, meat, fruit and wine, we’ll get answers and some useful perspective, but it is very unlikely we’ll get a full perspective. This became very clear to me last year when I met with KPMG agribusiness teams around the world and listened to their top-of-mind issues. Conversations rarely started where I expected or were limited to what they are focused on doing today; instead, they covered a wide range of topics, all pointing towards the changes emerging in their traditional food systems.
The growth in export revenues seen during the Key era was not a result of venturing into new markets or sectors, or from capitalising on the intellectual property inherent in our production systems. Instead, it was largely driven by increased volume and higher commodity prices. The contribution from adding value to exports through premiums driven by relationships or returns on the attributes engineered into products was minimal.
The prescription for growth we benefited from at that time is unlikely to deliver for our country over the next decade. Producing more of what we already produce will be challenging given the impact that production systems already have on the environment. Additionally, commodity pricing is highly volatile, reflecting economic instability — and productivity gains are becoming harder to find and deliver.
The good news is that global food and fibre systems are packed with opportunities for those prepared to make the effort to understand and respond to the rapidly emerging needs and expectations of markets and consumers. As a consequence, we need to be engaged globally with our markets to identify and respond to the opportunities that will position us for growth in export revenues, that are more sustainable than volume and commodity prices.
Our conversations with global KPMG teams and their clients suggest we are not as engaged in some key conversations in New Zealand as other markets are. We must catch up with these markets to stay competitive and ensure our growth in export revenues.
Globally, KPMG clients recognise the opportunities inherent in the Food, Fibre, and Fuel triple play — which is underpinned by a recognition that investment is made in everything that is grown. Food has traditionally been the primary focus of farmers and growers. While that remains important, it is apparent that our clients globally are also looking to optimise the revenues generated from the other biomass grown, in producing the food they have historically grown and ensuring this is fully optimised.
We have observed instances of circular bioeconomy solutions, such as identifying use cases for bioproducts to replace fossil fuel-based products such as adhesives and plastics, extracting active ingredients for health and nutrition, and developing new forms of protein. An example of this in New Zealand is the active research programmes into alternative uses for wool.
Additionally, a growing focus is tapping into the energy potential inherent in production. It has become increasingly evident that the link between energy and food is closely intertwined, and ultimately, decarbonising the global economy will necessitate every food company also operating as an energy company. This is very apparent in Brazil, where the economics for major new processing development often only works when the energy opportunity is incorporated into the business model.
The scale of the bioeconomy opportunity is massive. We reported in the 2021 KPMG Agribusiness Agenda, from a contributor’s perspective, that fully embracing bioeconomy opportunities could be worth $30 billion a year to the New Zealand economy from product solutions only. I would suggest with the shifts occurring globally and a growing focus on the financial opportunities that could come from better engagement with nature, this would be understating the size of the opportunity in front of us.
New Zealand producers are inherently high-attribute producers — our free-range farming systems generate products that tick many boxes for high-value consumers across the globe. What we have not recognised is that the most important intellectual property we have in the sector is how we grow products and the impacts this has on the natural environment. The IP in our systems is a point of difference, but it is also expensive to deliver and, in the past, we have expected farmers and growers to do this without reward.
Globally, with more companies seeking to understand the impacts their business has on nature and nature-based systems, and consequently setting targets using the Taskforce on Nature-related Financial Disclosures (TNFD) framework, the opportunity to generate export earnings from monetising the environmental management practices that we currently deliver and could introduce is massive. Measurement is critical, and ambition to accelerate towards nature-positive farming systems (land, water, soil, biodiversity, oceans) is equally critical, but so is establishing credible markets so that nature or biodiversity credits can be traded internationally — which is a fintech challenge that needs collaboration with financial institutions to deliver.
Another priority is recognising that our ocean economy needs to be more than just fishing and aquaculture if we are ever to get close to sustainably growing export revenues. New Zealand is an island country in the Pacific Ocean; over 90% of our exclusive economic area is ocean. However, we have no cohesive strategy for maintaining a healthy, productive ocean environment that enables us to deliver a greater variety of food, decarbonisation solutions and blue energy to boost the economy.
Some issues must be appropriately addressed, particularly in ensuring the ocean strategy reflects the cultural importance of our oceans to Māori. And while these conversations are difficult, we cannot let them stymie ambition or prevent New Zealand from taking its place as a leading global ocean economy. We are better placed to do this than almost any other country in the world.
Regulation is also important. Since the coalition came to power, there has been much talk about reducing regulation and making life easier for farmers and growers, which we support. The reality is that if we want to double, triple or quadruple exports, we need to be guided by the consumers of our products, not the regulators.
As one contributor said in our conversations in preparing for this year’s KPMG Agribusiness Agenda report, “Regulators bark while retailers bite”. This suggests our markets will define the standards we need to meet and exceed, and if we don’t deliver on these standards, their remedy is quick and easy — they will stop buying New Zealand products.
The rules that we work to need to meet the needs of the markets we supply and aspire to supply. While the Government can help by ensuring regulation is fit for purpose, it should not be seen as a signal we can stop doing the things that are most important to our customers and consumers around the globe.
Doubling exports is an easy goal to set. Achieving it will require a focused transformation of our agri-food and fibre economy. We can do it, but we need to start having the right conversations today and not be afraid of running towards the hard stuff.
- Disclosure: These are the author’s opinions and do not necessarily represent the views and opinions of KPMG.
