The dislocation experienced in the past few months has made it easy to believe, at times, that every aspect of our lives has been fundamentally changed by the pandemic. As we move from response to recovery, the impacts of the changes experienced are becoming apparent.
Before considering how key changes may play out in relation to our food and fibre sector, given its importance to economic recovery, it is worth reflecting on the drivers underlying the crisis we now face.
A notable feature of the Covid-19 response has been the lack of a co-ordinated global approach to either the health or economic crisis. This contrasts to the multilateral approach that has been taken in previous global crises, for instance, the G20 was created to co-ordinate responses to the GFC.
Individual governments have first responded to a health crisis (with closed borders, safety warnings, social distancing and lockdowns), measures that have intentionally decreased the supply of goods and services. These actions have precipitated an economic crisis that will shape the global economy for years. The challenge is that a crisis triggered by deliberate government policy is much harder to fix than a demand-created crisis arising from a natural disaster, regulatory breakdown or bank failure.
In the case of 'traditional' demand-driven recessions, actions can be targeted at the root cause of problem and their effectiveness measured and, as we saw after the Christchurch earthquakes, an economic crisis can become a growth driver if handled effectively.
The nature of the pandemic means every country is planning economic recovery on timelines driven by its response to the health crisis. The levers available to governments are largely unpalatable; austerity, quantitative easing and raising taxes were all used post-GFC with limited success. The other option, which appears to be preferred globally, is using the government balance sheet to borrow and spend as quickly as possible to stimulate economic activity.
Responding to isolationism
With debt piles growing, governments are focused on growing GDP faster than others to maintain relevance, start paying down debt and protect living standards. It has been apparent over the past two years that some countries were stepping back from globalisation to prioritise domestic interests. The inability to access essential supplies, including food, during the pandemic, and the need to boost domestic GDP has accelerated this trend. We expect more governments to focus on lifting domestic food resilience and reducing reliance on imports.
This trend will accelerate the uptake of modern farming systems that enhance food resilience, for instance vertical farming systems. It poses a risk to food exporting nations like New Zealand that rely on selling food to the world to create wealth. We need to accelerate our focus on securing extensive free market access. We also need to collaborate with the countries we export to, to ensure trade is seen as being good for all, not just good for New Zealand.
With China being the first to emerge from the crisis, the impact that Chinese consumers will have on shaping the post-pandemic food system is likely to be significant. Demand from China as the market reopens is currently supporting commodity prices; however the longer-term impact will come from how the Chinese government evolves its food security, safety and provenance policies moving forward. An expected step change in the domestic food production sector in China will materially reshape global export markets.
Building back better
It has become clear over the past few months that the money we are borrowing is from our children and our grandchildren. As a consequence, we need to focus on spending the money in a way that does more than just deliver short-term economic stimulus. It is about utilising the funds to build back better for future generations.
Our food and fibre sector has set some ambitious goals in the industry vision, Fit for a Better World, to transition towards the use of regenerative agricultural practices to produce exceptional food for discerning customers, while mitigating the sector's impact on the climate, water, soils and oceans.
The opportunity to invest today in infrastructure that will future-proof our ability to deliver on our regenerative vision for future generations of New Zealanders is significant.
This could take the form of water storage and distribution schemes, it could be in the development and deployment of innovative new farming systems (for instance kelp farming or deep-water aquaculture) or further upgrading the ability for rural communities to digitally connect with the world.
Purpose is critical
However the money is invested, it needs to be spent in a way that supports the industry's long-term strategic purpose. Globally, in the aftermath of the pandemic it is apparent that a sense of purpose is more important than ever. Whether this is articulated through a clear "why" statement or specific UN Sustainable Development Goals targets, it is no longer enough just to maximise profits and shareholder returns.
In New Zealand, we have seen a significant lift in food insecurity during the lockdown period. This is compounding already poor outcomes on issues like obesity and diabetes. Ultimately, these health outcomes will impact our ability to tell a trustworthy story about the quality of the products we produce.
They will reduce our ability to earn a premium on the products we grow. A key priority for our food producers should be ensuring we feed our five million properly first, to ensure we have a nutritionally secure community in New Zealand, while enhancing a healthy, natural food story.
Conscious consumers are thinking health and safety
Lockdown has forced many people to focus on their own and their family's health and safety. The longer the pandemic impacts their day-to-day lifestyles, the more likely the new routine becomes everyday practice. We expect to see more consumers making conscious purchasing decisions.
They will seek to understand the attributes of products before buying. If a product claims to boost their immune system, we need to be able to provide robust scientific evidence to verify the health claims made.
Many consumers have utilised digital platforms for the first time to purchase food in recent weeks, to avoid being exposed to the safety risks associated with visiting a store. Our expectation is that many will become habitual online buyers.
Producers need to think about the digital front door as a primary route for consumers into a business and ensure their digital experience matches the physical service they offer.
The worst of the economic downturn is still to come. There will be less people able to afford premium products, increasing the global competition for the dollars of those who can. It is critical that we are highly connected with the markets we sell to, so that product formats, marketing strategies and pricing all match markets as they are today rather than how they were four months ago.
This will present some challenges while borders remain closed but offers the opportunity for the government to provide support, by taking actions like redeploying Tourism New Zealand to promote our food and fibre story globally.
As we move beyond the health crisis, the fundamentals of the global food system: transition to more sustainable production systems, digitalisation, inequitable access to nutrition and growing consumer influence — remain the key issues the sector needs to contend with.
While the pandemic has not altered the fundamentals, it has accelerated the pace at which change happens. What was next year's challenge for executives has just become today's opportunity.
- Ian Proudfoot is KPMG Global Head of Agribusiness.