Good evening ladies and gentlemen, thank you for inviting me here to launch the Canterbury Innovative Foods Cluster. It is always good to be back in Canterbury, my home town.

I would like to begin by acknowledging the work of the Steering Group, Canterbury Development Corporation and Lincoln University.

I want to talk more about the Cluster but first I want to address a number of other areas.

1. The global economic situation.
2. The world's need for food.
3. The food bowl that is Canterbury.
4. And finally, opportunities in the primary and food sectors.

1. The global economic situation

You will all be aware we are facing extraordinary times. It's bleak both at home and even more so for our key trading partners.

The economies of the EU, the US, and the UK are all forecast to shrink by more than three percent in the year in the end April 09.

Japan's economy is expected to contract by six percent this year.

Some primary sector returns have rapidly declined since the onset of the financial crisis and this is on the back of the 07/08 drought.

Dairy has been particularly badly affected with falling prices and stockpiling is becoming more common.

On top of this protectionism has raised its ugly head in Europe and potentially also in the US.

At home parts of our sector are struggling at the processor level.

The very nature of co-ops means that many are highly geared and are struggling to find new sources of capital in the current environment.

10 to 20 percent of farmers have high debt levels and it's fair to say some are in trouble. Dominant amongst these are new entrants to dairy who were financed on the basis of historically high and arguably unsustainable payouts.

Although feedback from a Rural Lenders meeting I held suggested that this is not widespread.

2. The world needs to eat

Despite the global economic situation, I am optimistic about the outlook for New Zealand's primary and food sectors.

Even in a recession people need to eat.

As the global population increases, the world must produce more food.

The world is already demanding clean, green and safe food. And I foresee no let up in demand for New Zealand's quality meat, dairy and horticultural products.

Sheep farmers had their recession last year and are now enjoying some of the best prices in a long time.

As for dairy, they might be off the highs of last year but the payout is still good and recent runs of Fonterra's online auction, Global Trade, has shown a sustained increase in prices.

There are signs of recovery already in the primary sector.

Treasury is assuming the New Zealand economy will begin to recover by 2010.

I'm more bullish than this and it is because of New Zealand's dependence on the primary sector.

3. The Food Bowl that is Canterbury

As Canterbury is a food bowl, I am especially optimistic about this region's future.

In its entirety the food and beverage sector generates $22.85 billion towards New Zealand's export earnings.

Canterbury makes a significant and growing contribution to the food both consumed in New Zealand and exported.

Canterbury farms 15 percent of New Zealand's dairy cattle, 18 percent of New Zealand's sheep, 13 percent of our beef cattle and grows over 75 percent of the wheat and barley produced in New Zealand.

The climate, water and soils of the region are well suited to large scale food production.

To add value to the extensive amount of raw materials produced in Canterbury we need food manufacturing companies.

Canterbury accommodates 325 of New Zealand's 1,839 food manufacturing companies. The sectors these companies span is diverse with the greatest number of companies producing bakery and processed meat goods.

This is all very positive, but New Zealand food companies face an increasingly competitive market.

They need to add value through product packaging and marketing to differentiate their products and capture market share.

4. Innovation, research and development

Innovation is vital to building future markets and economic growth.

We are no longer a low cost producer. To keep up with international competitors we need to produce smarter and market smarter.

We cannot rely on the research and developments of previous decades.

The National-led Government is committed to R&D.

We believe research and development funding must be responsive to the needs of the economy, both long and short term.

Resources must be directed to areas where they will have the most impact on economic growth. Bureaucracy and compliance costs must also be minimised.

I'm sure you will all know about the Fast Forward scheme proposed by the previous Government. The scheme had a number of positives, but National didn't agree with its funding mechanism.

For this reason I have been working on a replacement scheme. You will hear more about this in the Budget next week.

I can assure you that our initiative will be all about enabling the primary sectors to make quantum leaps forward in their growth and contribution to the New Zealand economy.

We will be looking for added value, not business as usual. And industry will be expected to match Government's investment.

If we don't develop projects that industry is prepared to co-fund, then it's likely we're focusing on projects that don't have commercial relevance.

I can't say much more than that for now, but expect an announcement on May 28.

In summary

Back to the Cluster. Like most food companies within New Zealand, over 50 percent of Canterbury's food businesses are relatively small, employing fewer than 20 people.

There is a great deal of knowledge and expertise within these companies. Using this knowledge collectively to grow the region's food and beverage companies makes sense.

The Cluster is not about sharing intellectual property or company secrets - instead it is about finding areas where the sharing of knowledge will be of mutual benefit. That might be to do with economies of scale and reducing costs, such as bulk buying. Or it might be about working together to access new international markets - wherever it makes sense to share.

For this reason I am very supportive of the Canterbury Innovative Foods Cluster, which will encourage innovation, so our products continue winning their way onto supermarket shelves both in New Zealand and abroad.

To reiterate, it is innovation that will maintain and further develop the world class status of our primary and food sectors.

If we stop being innovative, we risk our international competitors filling the void.

I wish the Canterbury Innovative Foods Cluster the very best of luck and I hope to see companies associated with this cluster setting the standard in food production innovation.

Thank you.