NZ: Rain is not enough

Agribusiness has proven to be a fragile and volatile sector over the past 10 years with exposure to commodity cycles and changing weather. In overall terms however, what has pulled Australia through the turbulent global conditions in the past couple of years has been its resources sector, responsible for well over half national mercantile exports, while the farm provides just 14% these days.

Consider the exposure of New Zealand then, which relies on agriculture for two-thirds of its exports of goods, 60% of which are based on livestock products – dairy, meat and fleece. The health and competitiveness of its agribusiness (farm production and its supporting supply chains through to markets) is therefore fairly important for the NZ economy.

With the dust almost settled on fall-out from the Global Financial Crisis, the looming structural shortages in long-term global food supply are again gradually taking shape. Accountants KPMG have decided to assess how the NZ agribusiness sector is placed to make the most of the long-term opportunity available.

KPMG issued a report called Agribusiness Agenda which claims New Zealand's agricultural sector will be under serious threat from several low-cost commodity producers in just five years. Its self-claimed position as the lowest-cost food producer is said by KPMG to be under threat from several with good natural resources and shorter distances to markets. Those countries – Latin Americans, China, Eastern Europeans, and former USSR – presently lack necessary stability, infrastructure and an inability to eradicate corruption.

You’ve just got to look at two things – the cost of labour and the value of land in NZ and you’d have to think the “lowest-cost” tag has long flown the coop. KPMG say the challenge in the next 5 years is to become “most efficient” as well as “integrated and highly sustainable”. Furthermore, to be successful, it must invest heavily in technology and infrastructure to gain a competitive advantage in servicing premium markets.

But with a strong livestock-led commodity price upswing occurring again, the report has hardly raised a ripple. It’s easy to get dazzled by the short-term and miss the long-term game - that’s the history of agriculture right? But so many have been saying this for so long that the ag sector is sick of the message and just wants to get on with riding the cycles. Perhaps the challenge is far too unrealistic for many to grasp. There is little evidence to suggest from past performance that the focus can be so quickly engineered (in just 5 years) to turn traditional agriculture into the model outlined by KPMG with rapid evolution.

If the world is to be as short of food as the FAO suggested a few months back, many producers possibly feel they don’t have to do too much except go for the ride. KPMG have a point however, about NZ’s future need to be able to select higher-value markets rather than take commodity returns, which its expensive patch of green won’t afford. The peak farm lobby in NZ summed up its priorities - it said thanks for the report and told the government to take it out of the emissions trading scheme!