2020 Agri Outlook with ANZ
Blinc Innovation’s 2020 Agri Outlook with ANZ Innovation series event explored the key considerations for 2020 .
Here are some of the key takeaways.
Susan Kilsby (Economist - ANZ) shared the following overview of what we can expect from the 2020 economy:
2020 so far has seen missiles, drought, fires and flooding, a presidential impeachment, Brexit and Coronavirus outbreak - a hectic start to the year, making it difficult to see what to focus on.
2019 was a slow year for global trade growing only by 1% with expectations that it would increase in 2020 - given the challenges already seen this year, this is now unlikely to happen. Trade implications of Brexit is still being negotiated and so disruptions throughout the year will start to bring some improvement.
Trade agreements between China and the US could mean the China starts to take more imports from the U.S, this could mean a shift away from the imports for NZ particularly around beef imports.
Globally the big risk is the spread of the coronavirus. Disruptions within China and developing elsewhere has meant a challenge for trade exports, slowing to a standstill and creating uncertainty about consumer demand for NZ products. Impact on supply chains has a global effect - directives to reopen factories and imported food factories are being worked through.
The domestic economy has improved over last 6 months with mixed signals - inflation picking up and the housing market has taken off. Employment levels are high and consumer spending is good. There is a disconnect at a business level as wages have not increased at the same rate.
Regulatory change for Government including water initiative will have a large impact. Waiting to see more clarity for what these will look like in practice. Policy aligned with consumer demand - NZ is well placed as consumers want environmental, ethical foods and there is great opportunity for farmers.
New Zealand’s image for food production on the world stage is better than on a domestic stage. It is up to farmers to provide a personal touch and share stories about how and why food is being produced in a certain way - for example inviting ‘townies’ onto farms to challenge views.
Kate Acland (Farmer – Mt Somers Station) shared the practical ways that Mt Somers Station is embracing change through diversification:
Like many farmers, debt equity and land values are of major concern, so changing regulations and expectations have created innovation opportunities. For example, feeding their livestock with what is already available on the farm to maximise production is a simple formula implemented that makes them receptive to change.
Beekeeping, dairy cows, lamb’s wool blankets and winemaking are examples of innovation and diversification seen on the farm. Identifying another opportunity with the collapse of honey prices in the NZ economy, Mt Somers developed a fermented honey wine - Mead. Due to environmental constraints and regulations Mt Somers are reducing their deer stock and replacing this with breeding cows.
Keeping across all political parties’ policies & activities allows the Mt Somers owners to immerse themselves in the macro trends for consumers. Following through with changes requires bravery but ensuring that this never interferes with main production of the farm is important, viewing these as value-add opportunities instead.
Mt Somers Station has found success in defining a vision and values for their business which can be articulated in a succinct plan rolled out through entire organisation. “Highly diversified multigenerational business, centred around place, people and profit.”
They have developed a 100-year view around operational considerations and reactions to market trends. Encouraging staff to be on board with their plan has meant clearly communicating goals to encourage a change in mindset for staff, allowing them to take responsibilities and ownership of day-to-day operations. Articulating primary motivations to bankers/ government has been a challenge as their outlook is on a smaller scale.
When thinking about the ‘social licence to operate’ one needs to consider that farmers are actually producing food to sell into a defined market. Consumers are concerned about the standard of products and if they are not up to standard then specifications are less important than the condition of which it is produced.
This really means that it is essential to look to the market and understand consumer values outside of the farmgate internationally as well as domestically. Farmers need to be open to change and show how far they are willing to shift - Prioritising the articulation of values encourages long term decision making and communicating change
Alison Stewart (CEO) shared FAR’s thoughts on where Arable is heading for the future:
The majority of arable produce created on farm is going into baked goods, livestock silage, and seeds. As an example: in cereal production, Canterbury is producing approximately 100,000h/a for ingredients for the domestic commodity market. Over the last 20 years, the production has declined due to moving to intensive dairying. NZ holds the world record for wheat and barley production, but productivity cannot be increased any further, already reaching peak limits.
The challenge is that there are very technically competent growers producing high quality produce but getting paid only small amounts, with mixed cropping farms nowhere near as profitable per hectare as irrigated dairy. Throughout industry benchmarking standards gross margins vary which gives opportunity to enhance profitability.
Opportunities are arising from a shift in dietary habits, demand for safe sustainable food, clean environmental footprint, diversification of production systems and new products. Challenges are economic sustainability, environmental compliance, biosecurity and crop protection.
Public perception about greenhouse gas emissions is focussed on the dairy industry – by taking collective responsibility, there is an opportunity to reduce the amount of emissions produced when manufacturing fertilisers for wheat production, as well as diversifying crop rotations, reducing synthetic inputs and improving soil health.
There are opportunities in plants for protein, plant-based milks, seed crops and more home-grown grain. As an example: NZ bread is primarily made from Australian grain due to cheaper production costs and easier transport channels. NZ farmers get more money from selling grain to feed animals than for human food. If NZ can encourage consumers to demand NZ grown grain bread and pay a small premium, it will greatly enhance profitability of the industry.
FAR is encouraging exploration of new avenues for products which can add value in a niche market and supporting entrepreneurial companies that are investigating diverse options.
The future of farms is in multicropping livestock farms, precision farming, eco and carbon farming, including evolving with innovation in efficiency of scale and yield premiums, and developing diversified systems.