Value growth rates have, however, varied dramatically between productive sectors -- pastoral farming (including dairy) showed an annual growth in value of 5.7 per cent while the seafood sector increased only a 0.4 per cent.
Digging behind the headline figures highlights that the majority of the value growth has come from commodity price movements and increases in the amount of product being produced.
Despite the strategies the majority of companies have adopted to increase the value they are able to secure from their products, there was little evidence that these initiatives are making a significant contribution to income being captured by New Zealand companies and returned to the farm gate.
It is very apparent that adding substantive value to our primary sector produce is easier said than done. For too many companies, the default value-added strategy is designing and placing a brand mark on their packaging in the hope that this will sustainably generate a premium return for production.
The risks of this simplistic approach was illustrated by the manuka honey industry. Many companies believe they can create sustainable value add by putting their honey in a jar and sticking a label on it.
The reality is far more complex. There is consumer uncertainty about the authenticity of manuka honey, meaning it is the businesses that are using their honey in clinically proven healthcare solutions that are being more effective in creating sustainable value.
KPMG identified a number of other factors that are impacting on the effectiveness of companies in adding sustainable value to the products they are delivering to customers around the world:
• Many organisations struggle to evolve their go-to-market approach to reflect the cultural, social, political and economic nuances of the markets they are looking to sell into, preferring to replicate what has worked for them historically in every market they enter.
• Many companies try to operate both commodity and value-add businesses under the same roof and find one culture dominating, leaving part of the business to operate sub-optimally.
• The growing global demand for food plays to New Zealand's strategic advantages. However, we will never be able to produce anywhere near enough food to feed the world (or even a small part of it). Many companies have big ambitions, for instance, to dominate their market segment in China, but lack the scale necessary to be relevant to the large customers in these markets
• Many companies in the primary sector have an unwillingness to commit to intangible investments. They find it far easier to invest in tangible production assets (for instance, a milk drying plant) than in the intangible investments that have significantly greater potential to transform their ability to create sustainable long term value.
I strongly believe that we should maximise our potential to create real, sustainable value in New Zealand by leveraging strategic advantages to produce products that solve the most important problems and issues that consumers face on a day to day basis.
For too many companies, the default value-added strategy is designing and placing a brand mark on their packaging in the hope that this will sustainably generate a premium return for production.
This means we need to be very close to the consumers of our products to understand their lifestyles, the problems that they face, and how our products fit into their daily lives.
We must be prepared to walk in our customer's shoes if we are to truly understand how to create value for them.
The reality is that achieving this level of consumer intimacy does not come cheaply. It is not something that can be done by flying sales representatives into a market for a week or two every now and then.
It requires co-ordinated and planned (intangible) investment to have people permanently based in a market, building a high level of customer knowledge, and providing deep insights to shape innovation and marketing strategies.
It is investment in building customer relationships, employing highly-talented leaders, innovation undertakings and developing the experience that have the greatest potential to differentiate our products in market.
The investment could be designing product delivery mechanisms to enhance the convenience and relevance of a product to its consumers. Or it could be completing detailed scientific trials to support a product health claim to better articulate the experience a consumer can expect from a product.
It could be weaving New Zealand's strategic advantages into a deep, authentic consumer brand story.
The challenge with this type of expenditure is that it is intangible. It is not easy to envisage what will be delivered when the funding is committed -- compared with making a capital expenditure decision on a new milk dryer).
Very often this expenditure is not considered as strategic by companies as their spending on capital projects. This is demonstrated by the board level review that many capital projects receive, while investments in market activities, people and innovation are often handled by management under delegated authorities -- rather than being viewed as something requiring oversight by an organisation's governors.
It also cannot be ignored that it is difficult to explain to stakeholders -- particularly when many of them are focused on the short term cash flow they receive for the products they supply -- that part of their return is being withheld to be invested in a project with a long payback period.
Our work with the Te Hono Movement, the primary sector leaders who have attended the New Zealand Primary Sector boot camps at Stanford University over the past four years, has enabled us to identify organisations that have evolved a high-value enterprise culture to enable them to consistently capture greater value for their products.
It has become clear that organisations which are more effective in creating value have common DNA traits:
• They have pivotal leadership -- leaders who are willing to make decisions that set the direction and pace of an organisation.
• They have clear ambition to be the best company in their market segment, but are not arrogant -- they recognise that they can learn from anyone.
• They understand their purpose -- this provides them with a strategic anchor and guides every action the organisation takes.
• They treat every investment as strategically important, paying as much attention to an investment in a market activity or a talented person as a piece of capital equipment.
• The organisations recognise that without customers they have a limited future, and invest heavily in market activity to ensure they do walk in their customers' shoes on a very regular basis.
• Technical competency and high performance are a given from their people, thus the contribution an individual makes to organisational culture and achievement of its ambition is key to recruitment decisions.
• The organisations are committed to delivering on their core mission -- they do not get distracted by fads and fashions but do ensure their activities remain relevant in rapidly changing markets.
Re-engineering organisational culture to incorporate all aspects of the DNA of high-value enterprises is not easy.
It is not something that happens overnight or even within a year and can be a difficult to get under way, given it often requires current leadership to recognise they lack the capability to lead the journey and stand down from their role.
We have no choice but to create more primary sector powerhouses -- organisations that can see the world through a sufficiently ambitious lens.
Ian Proudfoot is KPMG's Global Head of Agribusiness, based in Auckland.
