MPI's Ray Smith.
Ministry of Primary Industries (MPI) director general Ray Smith says three positives have buoyed people working in the sector. First, there is the fact that we forecast a $2 billion growth next year. That's roughly 3.5 per cent growth.
Second is the realisation that the sector did well in what was one of the most difficult years in living memory.
"If you went back 12 months, we were worried about holding our own as the world went through the depths of Covid," says Smith. "We came up with a remarkable result that was only 1 per cent off the previous year's export revenues. That was only softened a little by the exchange rate.
"That gave people a boost. They knew they'd had a tough year with their heads down: whether it was looking for a container or a ship; trying to manage international market access issues; or coping through lockdown. The reports shows they could look up and see that we have done incredibly well and the outlook is even better."
The third positive is in MPI's 'Fit for a Better World' update. This looks a future pathway for the sector. Smith says this shows how we can grow further and achieve our sustainability goals. This is important because a sustainable primary sector will reinforce New Zealand's market opportunities and ability to get good prices over the long run.
Diversity is a key to long term growth. Today dairy production is about 40 per cent of the primary sector by value.
Smith says horticultural is a strong performer. It sailed through the Covid pandemic and continues to grow.
Forestry took a dip in 2020 and has yet to return to 2019 levels but is on its way back up. "We're getting amazing prices out of China for our wood products. The seafood industry is bruised. It's been hard. Crayfish was a problem last year, but it has come back. It has been hard for the industry to get its product to market. It doesn't help that restaurants were closed and there are challenges with freight. Looking ahead we're seeing a return to a growth path for all the sectors."
The positive numbers in the SOPI report were not expected.
"When looked at our forecasts we thought this year would be flat, and probably next year as well. We were surprised at how well things held up and the pull-through demand for our product internationally.
"One of the things that we did well, and it underpinned this, was the way the primary sector kept operating all the way through Covid. Forestry went into a closed-down mode, but the rest of the sector didn't. We kept going to work and all the protocols we've put in place to keep people safe mean primary production just carried on rolling through.
"At a time when high numbers of people each week were catching Covid in New Zealand, we had minimal experience of it in the primary sector. The workforce in meat works, dairy factories and the larger production facilities were safe and could continue because of the controls we put in place. We never lost production capacity. In some parts of the world the meat industry suffered because people work close together in processing plants and become vulnerable to spreading the disease."
Not losing product was part of the success story. The other part of the story is that overseas demand for New Zealand products, especially fresh products like Kiwifruit, where there's a health appeal, became even more prominent.
The Made with Care marketing campaign helped. Smith says it was an adjusted version of a tourism campaign. "We couldn't get tourists to come to New Zealand, but we could keep telling them about New Zealand. The international campaign linked back to primary products.
"These things reinforced the messages we sent to the world: we were proud to be able to bring them food and they would know it was safe because it was from New Zealand. It worked here to give the primary sector a lift. People felt they were valued and that we had done a good job on the world stage by continuing to provide the products people want. The demand continues to be strong, so there's a good outlook for the coming year."
New Zealand managed to do a good job with international relationships especially maintaining a positive relationship with China where others have not done as well.
"There were issues, just like every other year," says Smith. "But they were resolved along the way. All the extensive work that has gone into our trade and market access relationships over the years has paid a dividend. This, at a time when we couldn't see people face-to-face and had to use Zoom.
"I observed that myself in engagements I with my counterparts in Vietnam. We were advancing an agricultural co-operation agreement which we will sign soon. It was done with great enthusiasm. I think relationships have stood us in good stead and New Zealand remains well regarded."
International supply chains have emerged as a tension point over the last year. Smith says companies in the primary sector have been stressed trying to find places on container ships. "Then we've had a problem with ships being diverted away from New Zealand, sometimes, with only a day or two's notice. Our producers are managing to get products out, but at times they miss the key windows they would prefer to have to get products to international markets.
"But it's not the same for everybody. And that has been part of the Covid story. Things are lumpy. Some of our producers will tell you they have seen good supply chain performance. Others will tell you they struggled. Once again this can have a lot to do with pre-existing relationships."
On top of the difficulty of shipping products, the cost of shipping has increased. Smith says he expects that trend to continue. "It was hard for people to anticipate the snarl up in the supply chain and we don't know how long it will take to return to normal. We think it will continue to be a stress point and we will keep working with industry to find ways to help."
He says the Government supported airfreight scheme that aims to keep freight moving has done a lot to ease the problem. Last year government support enabled 6000 flights carrying 120,000 tonnes of freight worth $8 billion. The scheme also provides support to keep passenger flights running and maintaining international connectivity.
"This has worked well. It's been a tremendous boon for people to offset some of the extra costs and ensure high value products can get to market on time. One of the most crucial things we need to do during these times is to keep our place in a market. Your product has to stay in position."
MPI believes the supply chain issues are likely to roll on well into next year. It could be longer. It will stabilise, until that happens businesses need to find medium-term strategies to get their products out. Smith says in many cases they are working together on the problem and looking for mutual advantages.
The pandemic has underlined the essential interdependence of modern commerce. It's not only a matter of getting products to market. Many people fly around the world providing crucial labour skills first in one place, then another. This has come to a stop. We now know more about the fragility of supply chains and this will need to be addressed as life and business returns to normal.
New Zealand's currency remains strong at present. Smith says this takes an edge off our international competitiveness and flattens export earnings. He says he sees this continuing but there's a growth path and Smith says that can accelerate through MPI's Fit for a Better World programme.
There's an opportunity to move to higher value products. Yet he says much of New Zealand's value continues to come from the volume of quality product produced here. He sees a move to build on our sustainability credentials as a way to preserve price and grow margins over time. This applies as much to large volume commodities as to niche products.
"It's not going to happen tomorrow, but people on the other side of the world who import our products are going to want a product that's lower in carbon that's friendly to the environment. They want a product that they know has been produced leaving natural resources in a better state. As a result, it's going to be a consumer preference. I think that sees the sustainability credentials becoming potentially a price differential over time. And at least we can maintain a position in market with the products that we are so good at.
"We have a massive competitive advantage of producing dairy and meat because we can grow grass so easily.
"If we build on sustainability, reduce greenhouse gases, improve our fresh water and add traceability to our products we will continue to be competitive."
• Export revenue food and fibre exports forecast to hit a record high of $49.1 billion in the year to June 2022.
• Sustained growth is forecast year on year, hitting a further record of $53.1 billion for the year to June 2025.
• Overall export revenue for the current 2020-21 year continues to be strong, with only a slight dip of 1.1 per cent forecast.
• In January 2021, NZ signed an FTA upgrade with China, eliminating tariffs for 99 per cent of New Zealand's nearly $3.3 billion wood and paper trade to China.
• To drive New Zealand's recovery from Covid-19, NZ launched the Fit for a Better World — Accelerating NZ's Economic Potential roadmap to boost productivity, sustainability, and jobs.
• Almost $96 million has been brought forward to kickstart delivery including $84 million to upscale Sustainable Food & Fibre Futures (SFF Futures) to further boost innovation efforts, on top of the $40 million already available each year.
• Since SFF Futures launched in mid-2018, more than $111 million has been committed to approved new projects of a total investment of almost $250 million.
• Partnerships like He Waka Eke Noa, our Primary Sector Climate Action Partnership, are working with farmers and growers on practical solutions to reduce emissions and build resilience to climate change.
Source: MPI's Situation and Outlook for Primary Industries (SOPI) June 2021 report.
Squeeze on costs collides with rising excises to sour sentiment.