Farmer co-ops must 'reinvent' for growth

Greater innovation awaits. Picture / Dean Purcell

Producer co-operatives focused too hard on maximising short-term supplier payout may be restraining the food and beverage sector's longer-term growth, says a Government-industry taskforce report.

Taskforce co-chairman Tony Nowell, of the Food and Grocery Council, wanted co-operatives to look at "how they might reinvent themselves" to assist growth.

Four of the five largest food and beverage companies - Fonterra, Zespri and meat companies Alliance and PPCS - are run on the producer co-op model. They account for more than half the sector's total revenues.

"The advantage they offer their members is that they can disperse risks associated with weather, commodity price and exchange rate volatility," says the report.

But that approach raises the issue of whether greater short-term income security meant opportunities for growth are not always exploited.

"Co-operatives strive to maximise the returns paid to their suppliers and members. However, this can lead them to focus on [prices paid to suppliers] rather than on downstream or longer-term investments," the report says.

Nowell said this could restrain investment in activities such as offshore parts of a product's supply chain, meaning New Zealand co-operatives missed out on the margins and growth available there.

However, the report says: "Decisions around the structure of these companies are, of course, for the owners to make. The taskforce raises the issue only because of its relevance to company investment and growth patterns."

Nowell and the other taskforce co-chairman, Economic Development Minister Trevor Mallard, said the report was not calling for a debate on the future of the co-ops but rather for a discussion on how they might work better.

"It's a fair debate as to what part the co-operative mechanism plays in the future of our food economy as it grows," said Nowell. That debate was already active around Fonterra.

Mallard said it was not just the co-operatives that needed to think longer term. Too many companies could be focused on short-term profits rather than looking at longer-term growth. "That's where the big profit for the country, I think, comes from." He described the sector as "the lynchpin of New Zealand's prosperity".

Nowell said food and beverages businesses were mainly small-to-medium sized and needed more information and funding to help with exporting.

The taskforce, which also included Fonterra and Zespri representatives, set a goal of a 50 per cent rise in output from pasture-based farming over the next 10 years through strategic investment in science and improved pasture management.

On whether this was achievable given land and environmental constraints, Nowell noted the average amount of pasture produced per hectare was about 12 tonnes of "dry matter" as opposed to a 19-tonne best practice standard. It was important the knowledge required to achieve this higher level was spread.

Exporters needed more Government assistance to increase market share, including in the northern hemisphere, and to get a firm foothold in Asia's emerging markets.

A national innovative food research strategy was proposed, with Government matching industry funds to support this initiative dollar for dollar. Another $750,000 in Government funding is wanted for promoting New Zealand produce locally.

Feeding world

* Food and beverage exports are worth $15 billion a year - that's more than half the merchandise trade earnings.

* The 30,000 companies in the sector employ one in five people directly or indirectly.

* A taskforce report - Smart Food, Cool Beverage - calls for more Government support of the sector.

* It says businesses need to work smarter and more collaboratively to maximise potential.

* It also raises the question of whether co-operative structures - such as Fonterra's - inhibit growth.