Monday, April 19, 2010

Big-scale rivals put heat on NZ farmers

New Zealand agriculture has as little as five years before large-scale intensive farming in South America, western China and central Asia erodes its cost advantage in producing bulk commodities, according to accountant KPMG.

The KPMG Agribusiness Agenda report observes that these regions have the benefit of lower-cost land and labour and less complex regulatory regimes.

"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," KPMG agribusiness chairman Ross Buckley said.

"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."

Because of this, it was now time to start revising industry structures, practices and products to give New Zealand produce better value well in advance of large-volume commodities from these new suppliers.

To be more efficient, New Zealand needed to invest heavily in science, technology and infrastructure, KPMG lead agribusiness partner Ian Proudfoot said.

The farming sector of the future should have the ability to deliver food solutions all year around through adoption of advanced global sourcing and logistics.

"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," Mr Proudfoot said.

Sustainability was a priority. "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."

Government policy should also be focused on better investment, management and use of water resources, Mr Proudfoot said.

"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."

National co-ordination of a water management strategy was needed.

Investing in connected rural communities would also be essential.

Mr Proudfoot noted that only 1.6 per cent of the new money the Government proposed to invest in broadband and fibre networks was targeted at the 13.8 per cent of the population in rural communities, "and yet this group grows, processes and exports 66 per cent of New Zealand's merchandise exports".

Mr Buckley said: "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 co-ordinated science strategies is vital."

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