The Government's view on the Importance of Agribusiness in the New Millennium

  • John Luxton
Food, Fibre, Biosecurity and Border Control

Ravensdown Agribusiness Conference Christchurch Convention Centre

Ladies and gentlemen, Ravensdown shareholders, board members, guests.

The importance of Agribusiness The theme of this week's conference "21st Century Farming" is one I have been championing a lot of late. In fact it is one that appears to be gaining a wide following throughout New Zealand's agricultural industries.

It is the process of future-proofing New Zealand's agribusinesses for the commercial environment of the new millennium. This has been the primary motivation for the Government's moves to reform the producer boards. To improve the economic performance of each industry sector.

It is increasingly apparent that the era we are about to enter, poses a new set of challenges for food and fibre producers, exporters and marketers.

Globalisation is changing the rules, the marketplace and the Government's role.

Food and Fibre The importance of Agribusiness to the New Zealand economy cannot be overstated. Including fish and forestry, food and fibre exports generate 75% of New Zealand's export returns.

While as a proportion of the total, this is less than it was a couple of decades ago, in dollar terms it continues to increase. The food and fibre sector remains incredibly important to the New Zealand economy.

And this is why National's policies of the past decade have been aimed at improving the trading conditions for those exporters and producers.

New Zealand exporters have shown that they thrive in the low interest rate, low tax, low inflation economy that this Government is committed to delivering. Our job in Government is to provide the best environment for further growth.

Changes such as the Employment Contracts Act, tariff elimination, shipping deregulation, and stable monetary and fiscal policies are all about lowering the input costs for New Zealand's trading sector and making the producers of New Zealand's vital foreign currency earnings, more profitable.

The recent abolition of stamp duty is just one example of the Government removing a barrier so that farms can restructure their businesses without undue Government imposed costs.

Through implementing these reforms the Government has tried to counter the impact of a long-term decline in commodity prices. But that alone will not be enough to save the New Zealand food and fibre sector in the coming millennium.

If commodity prices continue to fall, as they will, and New Zealand producers do not adapt, they will struggle to prosper and many may not survive.

To succeed in coming decades, New Zealand's producers, exporters and marketers are going to have to become even smarter. In future our ability to create wealth will not be bound by physical limits, but by our ability to come up with new ideas.

The solution is to add value through enterprise, innovation and new technology. Innovation is a driving force for economic growth.

New Zealand Inc Transformed Many have already seized the day and as the slide shows, there has been a huge transformation in New Zealand's agribusiness sector over the past decade. I want to focus on these success stories shortly, but before I do I want to look at our sheep, beef and dairy industries.

Our National Flock In the aftermath of the removal of government guaranteed returns, there have been huge changes in the composition of New Zealand livestock. The national sheep flock has been in decline.

Prior to the Labour Government's removal of SMPs in the Muldoon era, New Zealand had over 60 million sheep. Fifteen years on, current estimates put the national flock number closer to 46 million.

This in itself is not that remarkable. What is more remarkable is that this considerably smaller flock is now significantly more efficient and profitable.

In the 1997-98 year the sheep meat sector exported 471,507 tonnes of product. This compares rather favourably with the 478,981 tonnes exported in 1988-89 from a far larger flock.

In the past decade, lambing percentages across the flock have increased from around 90% to well above 110%. With some top producing farmers regularly achieving lambing percentages well over 150%.

Similarly out of the same flock, New Zealand is also producing, on average, significantly larger lambs. Over the past decade, lamb weights at slaughter have increased from 13.07kg to 15.45kg, up 18%.

At the same time, the meat industry has significantly diversified its markets. In 1988 lamb was sold into 88 countries. A decade later New Zealand's meat exporters are operating in 111 countries.

Our National Beef Herd While our national beef herd has remained relatively static at 4.2 million, our export markets have diversified and we are now exporting to 111 countries. Beef and veal exports are worth $1.1 billion and are forecast to reach $1.35 billion for the year ending March 2000.

Knowledge economy But the future of the rural economy depends on more than simply efficient pastoral farming. We have entered the knowledge age and the challenge for rural New Zealand is to make the most of it.

The knowledge economy is about growing the intellectual capital of New Zealand so we can innovate faster and smarter than our competitors, and thereby earn the best possible returns.

It is about training a new generation of international marketers, scientists and farmers who are focused on maximising returns through generating new ideas, and building relationships with customers.

This involves far more than simply staying at the forefront of biotechnology in the laboratories of our universities and research institutions. Though this is of course one of the important objectives - and more than half the Government's investment in science is in this area.

Rather, the knowledge economy is about turning that scientific capacity into profitable exporting projects. In the knowledge economy, ideas and how we use them are the key to the future.

Changes in the Meat Industry A significant part of this relates to the knowledge the producer and exporter has of their consumer. It relates to achieving quality assurance standards that enable higher value products to be accepted on the other side of the world.

A fine example of this is recent changes in the meat industry.

The Employment Contract Act has also allowed significant changes in processing, with killing costs educed to $10 for a lamb and $100 for a cattle beast.

In 1989, 59% of the lamb trade was in frozen carcasses. In 1998 the corresponding figure was 17%. Over the decade, the chilled lamb trade has expanded by a factor of five and now makes up 10% of all lamb exporters. Similarly chilled bone-in cuts of lamb have risen in volume four-fold. In the mutton and beef trade, the story is similar. Over the past decade, producers and exporters alike have radically transformed their industry, both in terms of markets and products.

This transformation in trading patterns in our meat industry has been matched by a virtual revolution in many of New Zealand's other agricultural sectors over the same period.

Of which the Dairy Industry is an excellent example.

The Dairy Industry New Zealand exports more than 90% of its dairy production. As a result of its export orientated dairy industry and rigorous marketing strategies, New Zealand supplies around 31% of the international dairy market, with exports valued at $4.7 billion. Our butter is sold in 100 countries and our cheese is exported into in 96 countries. But we are as dependent on commodity markets as we were a decade ago.

The Government has recently introduced legislation which will enable the dairy industry to further expand its business by unshackling it from the legislative constraints it currently has. If farmers vote for the Mega Co-op and the Commerce Commission approves the merger, the way will be cleared for new alternative exporters to compete with the Mega Co-op.

Dairy Industry - New Technology The Dairy Industry has a bright future in the modern high tech world of tomorrow because it is making the necessary steps to future-proof itself. Investments in new technology and advances in biotechnology have led to some exciting new products made from milk. Good research that has been going on by our scientists at the Diary Research Institute and in our dairy companies, looking at how to add value.

In the past, commercial uses for whey proteins have been limited. Today specific whey proteins can be isolated to produce an ideal dietary supplement for athletes.

A chocolate flavoured instant skim-milk powder, like milo but with a higher nutritional value, is now exceeding all budget expectations throughout South East Asia, in spite of their financial crisis.

High energy products like the bar used by Peter Hillary in his recent Antarctic trek are another innovation. A milk calcium tablet just launched, will help prevent osteoporosis in women. Pharmaceutical grade lactose used in drug manufacture. Immune products and serums. Polymers for obesity control and slow release foods and there are many more examples.

As we're increasingly able to break milk down and modify these components over time, then we open up many new opportunities.

The Dairy Mega Co-op plan is an important and exciting circuit breaker because it enables the Dairy Industry to break away from its current legislative and structural constraints.

The Dairy Industry plans is to utilise its institutional knowledge and expertise in low cost production and distribution, developed over the past seven decades, to expand operations around the globe.

The Government is delighted with the way the Dairy Industry has embraced the producer board reform challenge and is making its own way.

Changing Wool Industry In the wool industry progress is slower but there has been a lot of effort and investment from Wools of New Zealand in its Fern-mark programme.

And there are encouraging developments at the fine fibre end of the wool market as we saw recently in London when Karen Walker and three other designers show-cased their work to the world.

But sadly many farmers still see wool as a by-product to their meat business.

This is something of a tragedy given the significance of the wool trade to New Zealand historically, and the obvious advantages of the product over its alternatives. In my view there is enormous potential to develop this market further.

People are crying out for natural fibres and as our fashion designers showed, the potential to be innovative and imaginative is unlimited! But as a fibre it must be more in line with market demand.

New Products However, the most remarkable changes in New Zealand agribusiness over the last decade have not been in any of the traditional pastoral industries however. Rather they have been in the development of new products and new markets. For example in pharmaceuticals, nutriceuticals and dietary supplements.

Other new products while not new per se, are still new for New Zealand. And it is in this area that success stories abound.

Flower exports Take the flower export industry for example. It is now earning more in export dollars than the wine industry. The most recent figures indicate New Zealand's flower export earnings are around $140 million a year.

Much is often made of the National Government's plans for deregulation in New Zealand's agricultural sector. But deregulation is a continuum and now we are reaping the benefits.

The exciting thing from my perspective is that Kiwi entrepreneurs are clearly finding many of the market opportunities they seek. And across so many parts of the agricultural sector.

Success stories Take another example - New Zealand's avocado producers. In 1990 the orchard-gate value was $3.5 million. Today it is over $25 million!

Or kiwifruit which in the 1998 season saw a remarkable increase in returns at the orchard gate of $257.7 million up from $157.6 million the year before - a whopping 53% increase in returns per hectare.

Wine Industry And then we have the wine industry - widely regarded as the glamour industry of the export sector.

Since 1990, export volumes of wine have increased from 4 million litres to 15.2 million litres. In the same time, the area of land in wine production has risen from 4880 hectares to 7356 hectares. By the end of 2001 another 2000 hectares are expected to be in production.

Export earnings for wine already exceed $100 million and with significant winery developments underway all around the country, the industry expects to more than double that in the next decade.

From my perspective one of the most significant aspects of all this enterprise, is that it is not dependent on Government instigation.

Most of these rapidly growing industries have no statutory framework in place. And in my view, the success they are clearly achieving, proves what I have often said. That the best thing the Government can do for agribusiness is step back and let the participants get on with it.

Vegetables Vegetables is another exciting area where there are many new varieties - mushrooms and peppers for example. New Zealand now has a billion dollar vegetable industry - half of it exported.

Asparagus New Zealand has also achieved great success in the asparagus trade.

According to a recent report in the Christchurch Press, a single Japanese buyer has been purchasing the entire South Island asparagus crop for the last ten years.

The buyer told the newspaper he was so impressed by the quality of the crop he wanted to double the tonnage he bought over the next few years.

In the asparagus industry like in all food industries, the key to success is developing a relationship with the consumer. The Japanese buyer in this article was quoted as saying Japanese demand for New Zealand asparagus had not been dented by the recent economic downturn in Japan because, "consumers in Japan have leant that the cheaper, skinny asparagus grown in hotter climates like the Philippines, has little taste".

As a result consumers were willing to pay more for the South Island product.

It is this sort of customer relationship that will provide New Zealand's agribusinesses with the certainty and prosperity that they are seeking for the coming millennium.

Olives Throughout our agribusiness sector, there is evidence of innovation and smart business practice. For example a new olive industry is responding to the growing demand for gourmet products and oils.

Other new high earning niche market products now being produced in New Zealand include Wasabi, and truffles, another product in which a New Zealand innovator appears to have gained a global edge on his competition through successfully seeding an Oak grove with the necessary fungus.

New Zealand also has a whole new range of medicinal products such as St John's Wart, echinacea and ginseng now being commercially produced.

And I haven't even mentioned seafood. An industry that exported $6.5 million worth 30 years ago will this year earn $1.3 billion.

Seafood is New Zealand's fourth biggest export earner after dairy, meat and wood products.

Seafood Industry Last week I visited Crop & Food's Research's Seafood Unit in Nelson. It was exciting to see the application of innovative research contributing to increased export earnings. New Zealand research placing hoki as a superior quality fish away from surimi.

Cutting edge research is not only vital to the seafood industry, it is essential to the whole economy. In the Nelson region alone the local scallop industry employs 200 people in the processing area and approximately 180 crew on the 60 scallop vessels. One thousand full-time equivalent jobs are provided by the Nelson-Marlborough mussel industry.

Not to mention the 300 plus jobs in the New Zealand salmon industry in the same area.

Biotechnology New Zealand is also world leader in genetics and biotechnology research and needs to remain so. But the challengers are rising thick and fast.

There are a range of innovations occurring in the medical, industrial, environmental, horticultural and agricultural fields. The primary sector needs to grab these opportunities without endangering the trust and faith of consumers in the process.

The debate over genetically modified food is gaining momentum. Consumers want to know what they are eating. But there is another aspect to the debate that should not be overlooked. All food industries involve products which have over time been selectively bred for preferred traits.

Biotechnology may speed up and more directly achieve such results. The opportunity for genetic manipulation of pasture species to produce twice the level of quality dry matter could dramatically improve pastoral farming viability in New Zealand. Equally the ownership of that skill by our competitors could lead to our demise. The stakes in these games are high.

In this respect, closing our eyes to new technology is simply not an option for a country so dependent on agricultural exports.

Boysenberries Cutting edge research is the way of the future.

New research by AgResearch shows there are plenty of market opportunities out there just waiting to be tapped. The squashy boysenberries for example which make such delicious jam are also rich in the most potent form of anti-oxidants - elements which scientists increasingly associate with protection from common ailments.

On this news John Molyneux of Berryfruit Export observed "if there's a proven health benefit, it opens up a whole new vista of opportunities for us."

Indeed it does. But equally importantly, New Zealand's agribusiness entrepreneurs have the ability to turn such an opportunity into a profitable earner.

Trade Liberalisation With trade in agricultural products firmly on the agenda for the upcoming WTO round, the next decade could well be a golden one for New Zealand's agribusinesses. Earlier this month Lockwood Smith and I attended the APEC Trade Ministers meeting where the enthusiasm for the new round was exciting.

As trade liberalisation delivers us new markets, what New Zealand has learned in the last decade about competing on the international stage will put us in a perfect position to exploit whatever gains are made.

Moreover New Zealand is in an ideal position to exploit its knowledge of trade, to leverage business opportunities with our trading partners, and even within the economies our trading competitors.

In the developed world, the retail environment is becoming increasingly complex and demanding. While many of our competitors will find this threatening, for New Zealand traders already at the forefront of this new environment, food safety, consumer satisfaction and quality are already well understood.

More sophisticated processing also brings the benefits of free trade. It is often the commodity products that face quotas and tariffs.

Conclusion In my opening remarks I touched briefly on producer board reform.

It has been a whirlwind few days for the Government and the three major single-selling boards - dairy, kiwifruit, and apples and pears.

We have sliced through more than a decade of debate to agree in principle on a new direction for farmers and growers. The changes proposed by the dairy industry are epoch making.

The intention of the producer board reform process has always been to encourage industries to embrace change themselves. To encourage new investment and innovation and to move away from our commodity trap.

In the meantime the Government will stick to the formula which has delivered so well to date. We will continue to work to reduce input costs to New Zealand's exporting businesses.

We will continue to work towards lowering the cost of the tax burden and we will continue to follow a path of fiscal discipline and sound monetary policy to ensure the favourable interest rate and exchange rate environment remains in place.

For a food producing nation, the key to the future lies with industry investing in research and technology. Our ability to develop world beating products is what will stand our primary industries in good stead in the knowledge economy of the future.

In the final analysis New Zealand's agribusinesses are doing New Zealand proud.

Kiwi ingenuity, Kiwi enterprise and Kiwi smarts are winning over the export markets that New Zealand is so dependent on. More importantly perhaps they are winning them over in the best possible way - by appealing to the new tastes and concerns of consumers and by developing relationships.

So to return to the question posed by the conference organisers when they invited me to speak here today: "What is the Government's view on the importance of agribusiness in the new millennium?" The answer quite simply is that agribusiness is vital to New Zealand's economic future.

It remains the dominant source of New Zealand's export dollars, and as the many examples illustrate, it is clearly something that New Zealand and New Zealanders are good at.