Dairy expansion at risk, says bank

The Rabobank report says food industries are coming under threat from South American, Eastern European and Asian competitors. Photo / Mark Mitchell

Rabobank says joint industry and government approach needed to improve sector's competitiveness.

New Zealand's milk production growth is likely to be constrained over the next five years as the ability to change land use will become more difficult and expensive, rural lending specialist Rabobank said.

The bank said the future growth of the New Zealand dairy industry would partly depend on how efficiently producers adapted their production systems to meet heightened environmental controls.

"This will require even closer engagement locally with regulators and the wider community, alongside a rigorous programme of measuring, monitoring and mitigating environmental impacts," Rabobank said in a report on New Zealand's competitiveness in the agriculture sector.

More broadly, New Zealand risked a "golden opportunity" to grow its agricultural base unless it adopted a co-ordinated, joint approach to improve its competitiveness.

The report, which covered the New Zealand and Australian agribusiness sectors, said both countries' food and agribusiness industries were increasingly coming under threat from a growing group of competitors from South America, Eastern Europe and Asia.

The report said the critical areas were rising production costs, international market access, logistics, regulatory pressures, capital constraints and product development.

Rabobank's general manager food and agribusiness research and advisory, Luke Chandler, said while the rising demand growth for food from Asia remained an opportunity, New Zealand and Australia risked missing the boat without a more co-ordinated effort from industry and govern-ment.

"While the competitiveness of New Zealand's food and agricultural sectors has generally compared favourably in a global context in the past, this situation is far from static," he said.

"Many of New Zealand's competitors in agricultural markets around the world are investing heavily and becoming much more productive, and this is very much raising the bar for New Zealand's agricultural industries," he said.

Chandler said food and agriculture was becoming the subject of increased focus from governments around the world as the challenge of meeting the food needs of a growing and wealthier global population.

"Over the past decade, highly-resourceful developing countries have begun to assume a greater role in the global export trade of food and agriculture products," he said.

"The potential of countries in South America and Eastern Europe is obvious, but even some major food-importing countries and regions, such as China and the Asean-5 nations are playing a greater role in shaping the export landscape," he said.

As a case in point, it said, New Zealand's dairy industry needed to increasingly deal with significantly heightened environmental regulation.

In the sheepmeat sector, the growing need for new capital to rationalise and revitalise industry supply chains was another priority in lifting the competitiveness of New Zealand's agricultural sector, the report said.

Ready access to efficient investment capital was critical to driving the pursuit of scale, infrastructure investment and the adoption of new technologies which act to support competitiveness across the agribusiness sector, it said.

A lack of investment capital has been a particularly pressing issue affecting the competitiveness of the New Zealand sheepmeat sector, Chandler said.

"Investment, whether local and/or foreign, is clearly required to improve efficiencies and productivity downstream in the supply chain.

"With the sheep flock halving since 1990, the adjustment of both processing capacity and capability has not kept pace and is consequently impacting returns," he said.