New Zealand agriculture has as little as five years before underdeveloped agricultural regions such as South America, Western China and Central Asia's large scale intensive farming practices erode New Zealand's cost advantage in producing bulk commodities (p12), according to the inaugural "KPMG Agribusiness Agenda" report released today.
The report observes that as the world's population continues to expand, these historically marginal agricultural regions are opening up to large scale intensive farming. (p12)
"These regions have the benefit of lower cost land and labour and normally have less complex regulatory regimes," says Ross Buckley, Agribusiness Chairman at KPMG. "In addition they are traditionally closer to key markets, enabling them to deliver food to the customer at a significantly lower cost than a competing new farmer or grower in New Zealand could achieve." (p12)
"This gives New Zealand companies a short buffer, maybe as little as five years, before low cost regions are producing bulk commodity products in significant volumes and undercutting New Zealand's pricing in our traditional commodity markets." (p12)
Because of this, now is the time to start revising industry structures, practices and products to ensure the industry is established on a path up the value chain and well in advance of base commodity products coming in large volumes from new suppliers into international markets, the report says. (p12)
To adopt a more efficient producer model, New Zealand needs to "invest heavily in science, technology and infrastructure to gain a competitive advantage in producing the quality food products customers in premium markets are demanding, says Ian Proudfoot, KPMG Lead Agribusiness Partner" (p12)
The farming sector of the future will have the ability to deliver food solutions all year around through adoption of advanced global sourcing and logistics methodologies. (p12)
Companies need to be constantly talking with customers to understand their future needs and requirements around product presentation, sustainability and traceability to deliver these in advance of competitors and lock in price premiums. (p12)
Sustainability is a priority for agribusinesses. The adoption of global best practices creates a significant business opportunity for the industry where first mover advantage is still there for the taking in many premium, niche product sectors. (p43)
Mr Proudfoot says "failure to adapt to sustainable practices will in our view leave the industry facing a future competing in low price, commodity markets with producers from countries that have increasingly got a significant low cost advantage over our producers." (p43)
"Government policy also needs to be prioritised toward better investment, management and use of water resources. Water is New Zealand's liquid gold. Development of a policy framework that provides certainty over the access, quality and cost of water to agribusiness is important if the industry is to have the confidence to make long term investments in improving productivity and increasing its contribution to the New Zealand economy. (p53)
"We believe there is a need for national coordination of water management strategy. This would ensure its value as a key contributor to New Zealand's economic future is handled in a consistent manner. It would also be in the best interests of the New Zealand economy and not delayed or blocked by local political issues, while ensuring that the risk of unintended environmental issues is appropriately managed."
Investing in connected rural communities will also be essential to placing New Zealand at the forefront of the global agribusiness stage. Only 1.6 per cent of the new money the government initially proposed to invest into broadband and fibre networks that were targeted towards the 13.8 per cent of the population that live in rural communities, and yet this group grows, processes and exports 66 per cent of New Zealand's merchandise exports. (p58)
Traceability is another area in which there has been under investment compared with other peers. "Many of our key export markets for meat have already implemented identification schemes or are in the process of implementing such schemes. (p45)
International developments around animal traceability suggest that New Zealand will be out on a limb if a national animal identification scheme is not implemented in the short to medium term." (p45)
"Success in our new markets depends on how intimately our exporters are able to understand their new customers and that will only come from doing the hard work to build the personal relationships on the back of the Government's free trade agreements and negotiations. Volatility will continue to be a challenge and investment in new research and development via coordinated science strategies is vital," says Mr Buckley.
ENDS
For further information please contact:
Sneha Paul Gray
KPMG Communications
snehapaulgray@kpmg.co.nz
09 363 3590
or 021 243 8997
About the KPMG Agribusiness Agenda
As advisors to a large number of New Zealand's leading agribusinesses, KPMG took the opportunity to meet with a wide cross section and number of New Zealand CEO's, Chairpersons and leaders in the sector during the last quarter of 2009 and early part of 2010. We are concerned that there are critical issues in the sector that remain either un-satisfactorily addressed or need serious attention if this vital sector is going to remain healthy and at the forefront of the New Zealand economy.
As a result the KPMG Agribusiness Agenda has been prepared to reflect the common themes and concerns raised in those conversations and to present our initial analysis of the most critical opportunities and challenges facing the sector in the short to medium term.
We have distilled our sector research and our conversations with these leaders down to a series of common topical areas that we believe forms an agenda of major issues for the industry over the next 12 months and beyond. These are the issues that must be addressed by all of us participating in the sector to enable New Zealand agribusiness to grasp the opportunities available to it and maximise the industry's value to New Zealand.
About KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 144 countries and have 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.