Dairy will still play a role in NZ's future, but we may not see huge swathes of land as dairy farms solely. Photo / Christine Cornege
What is New Zealand agriculture going to look like in the decades ahead?
The sector already faces a number of pressing issues.
Peak milk, carbon farming, increased regulatory requirements and more stringent environmental standards are the issues of the day.
Then there are the inevitable peaks and troughs of the commodities cycle.
Ian Proudfoot, global head of agribusiness at KPMG and a leading strategic thinker on agribusiness in New Zealand, has a few ideas on how things are going to pan out in the long run.
Interestingly, a key part of Proudfoot’s long-term view for agriculture has nothing to do with the land.
“I have a strong belief that more of our food is going to come from the sea,” he says.
“I don’t mean fishing and aquaculture necessarily, but ocean farming in terms of high protein and nutrient-rich plants in the ocean.
“I think that will be a global trend because we have still got to feed a growing population.”
As the world faces largely human-caused climate change, growing food where New Zealand currently grows food may prove challenging.
“Logically, it makes sense that more of our food will come from the ocean,” Proudfoot says.
Much will depend on how New Zealand positions itself as a “blue economy” leader.
“When 93 per cent of our economic area is ocean, we are well-positioned to lead in this emerging new sector.”
As Proudfoot sees it, the ocean is where the growth potential is.
“We need to unlock that relatively fast, and it’s got to be sustainable, and we have to be thinking about how we integrate that into our decarbonisation journey.
“We need a much more cohesive oceans policy, strategy and regulation.”
Proudfoot sees the future will also lie in the “bio” and “circular” economy.
Any one of the agricultural industries produces biological products or waste.
“The reality is that there is a heap of value that technology will enable us to extract from that product waste and the technology is expanding rapidly in that space.”
He says a more circular approach is required.
“We need to think in a more circular way about how we produce things.
“If we are growing kiwifruit, we need to be thinking about how we use that by-product that comes off that Kiwifruit orchard.”
Proudfoot says the issue of forestry encroaching on pastoral land, and the impact that has on rural communities, will not go away.
He fears that the trend will escalate.
“We clearly need to plant more trees but we have got to do it in a way that is measured and in a way that enables us to still have animal production cycles.
“It’s about getting the balance right.
“My concern is that - particularly as we have a lot of overseas people coming in to invest here - that they are investing as a hedge against carbon prices.”
Proudfoot noted that a key theme of United Nations COP27 conference was “greenwashing” and the varying quality of carbon offsets.
“There is this overall view that offsets, over time, will become harder and harder to justify because we need real, true, hard decarbonisation.
“There is a risk that if we continue to let a lot of our land convert to forestry for financial reasons, then we may become the South Pacific equivalent of a tax haven.
“We need to ensure that if people are coming in here to create carbon offset mechanisms, that they can only do high-quality, society-enhancing offset mechanisms, as opposed to society-destroying mechanisms.”
Proudfoot expects dairy - New Zealand’s biggest export - will remain a big part of the future.
“We will see further consolation of dairy farming, so there will be fewer, larger farms.
“Within those farms, they will become more mixed use - they will not be exclusively dairy units.
“There will be some elements of arable, horticulture, and other activities happening with the broader farming system.”
In other words, more diversified farming systems are likely.
“That, logically, is a direction that we will see.
“It will help to ensure that the overall farming unit has a carbon footprint that will fall within the requirement.”
Proudfoot said milk production may have peaked already but he doesn’t expect it to trend down quickly.
The future for dairy will entail continued innovation to produce more while using less natural capital and fewer cows, he says.
On the price outlook for commodities, Proudfoot said disruption of the food chain caused by the Ukraine war may be a sign of things to come.
The war had disrupted grain exports, prompting a structural shift in the cost of producing food products.
“We are seeing that here in New Zealand, but also strongly in Europe.
“As a consequence, the price to support the production of a natural protein has to be higher.
“Manufacturers facing the higher cost of, say, butter, will be thinking about how they can re-formulate those products.
“That reformatting may see manufacturers look at taking out those high-cost animal ingredients and look for potentially some these new, fermented, synthetic, cultured options to use as a replacement.
“Those bigger manufacturers are going to be placing more investments into the alternative space.
“In the short term, we can see the pressure going on core commodities that we produce in this country so well, but over time I think there will be substitution away from those, which may take some price pressure off.
“For us, the markets that we supply are the premium consumer markets are not likely to substitute away, so I still see more than sufficient demand for what we can produce.”
Higher grain costs have made stock feed really expensive.
As a consequence, firms in Europe have reduced the number of animals that they are raising, which has started to impact on supply.
“It just becomes a cycle. How do you manage that when you are changing the cost of goods? You either change the size of the product or do you do something that means less of that particular ingredient.”
Proudfoot is optimistic about the long-run outlook for sheep and beef on pure quality grounds.
“I’m really hopeful about the future of the sector because of the way that we produce that product. It’s free-range, sustainably grown product.
“If we can embrace a regenerative mindset, always seek to do things better each season than we did in the previous season, we can create a high-value niche for our sheep and beef sector, but the challenge is that we have to get past the short term.”
Proudfoot said for a young farmer looking for land for sheep and beef, it is “incredibly hard” to secure that land versus someone who wants to carbon farm it.
With carbon, the key is the speed with which the tree is able to create biomass and therefore sequester carbon and that will determine the type of tree that we will grow.
“Pine is good at that, but it does not give us a permanent forestry solution because we know that if you don’t mean radiata, after 30 years it starts to become a problem rather than an asset.
“Forestry is going to remain an important part of the rural landscape, but more work was needed to integrate it into every farmer’s business.
“Rather than have massive areas of farmland taken out of food production and placed into forestry, how can we create a patchwork across the country where forestry is strategically placed, doing a bits role in terms of helping us decarbonise, while at the same time enabling us to produce the food that creates that cash that we need today.”
Improvements to New Zealand’s agriculture sector will have to take place against the background of decarbonisation and climate change.
“If we do have a warmer climate, then clearly in the top half of the country we are going to be able to produce a whole range of products that have not been viable with the weather so far. Then a whole range of tropical fruit options become available to us, particularly in the Northland region, that could be transformational for its economy.”
“The second thing is more and more globally, with volatile and uncertain weather, it’s going to be controlled-climate, such as vertical farms and glass houses - covered-type systems.
“We need to be thinking about what that means because in some ways that means we don’t need to be growing kiwifruit in the Bay of Plenty.
Kiwifruit in the future could be grown anywhere in the world in a controlled, vertical cropping system.
He said it then could come down to selling the brand and the marketing system, rather than physically exporting the fruit.
Horticulture, he says, is going to look dramatically different in 15 years from how it looks today.
We will not see the huge swathes of dairy country, rather dairy mixed with arable and other farming activities.
Managed farm forestry will be an integrated part of farming systems - smaller forests of maybe 100ha scattered around the landscape.
As agriculture faces pressing issues on a number of fronts, Proudfood says more collabaration will be required.
“Inherently that has to be part of the future.
“It’s recognition that nobody wins if we have climate change - that it is fundamentally hard for everybody,” Proudfoot says.
“We need to work together on that. Getting that into our minds and responding to that becomes quite important.”
Japanese food group Meiji is listed on the Nikkei 225.