NZ lead in agriculture threatened, says report

New Zealand's $26 billion agriculture sector will soon feel the squeeze from lower-cost foreign competition, says a report by accounting and advisory firm KPMG.

The KPMG Agribusiness Agenda said it could be only five years before underdeveloped agricultural regions including South America, Western China and Central Asia's large-scale intensive methods eroded New Zealand's advantage in making bulk commodities.

This country has historically claimed its competitive advantage was to produce exports at a lower cost than other nations, the report said.

"However, the expectations that a global food shortage is looming as the world's population continues to expand is opening up historically marginal agricultural regions such as South America, areas within the former Soviet Union, Mongolia and Western China, and large tracks of Africa to large-scale intensive farming."

KPMG agribusiness chairman Ross Buckley said such regions benefited from lower-cost land and labour, often with a less complex regulatory regime.

"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 farmer or grower in New Zealand could achieve," 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."

New Zealand's exports of agricultural and forestry products were worth $26.5 billion last year, Ministry of Agriculture and Forestry figures show.

KPMG met chief executives and chairmen from organisations across the sector and found that views on New Zealand's agriculture future were reasonably consistent, Buckley said.

It was important to maintain the green, clean national image, which would allow New Zealand to continue to differentiate on the global market, he said.

The sector also needed to focus on more premium-type products.

"There's been some great New Zealand success stories. Icebreaker is a really good example of how we look at product and understand the market."

The report said success in new markets depended on how intimately exporters understood their customers.

"I think people do associate success in agribusiness with New Zealand so I do think people see it as very important and I think there is a will [to take action]," Buckley said.

"I think it's who's going to take the leadership roles and have some of those hard discussions and make those decisions."

KPMG lead agribusiness partner Ian Proudfoot said heavy investment was needed in science, technology and infrastructure for New Zealand to adopt a more efficient model and gain advantage in the quality food products demanded in premium markets.

"Government policy also needs to be prioritised towards better investment, management and use of water resources," Proudfoot said. "Water is New Zealand's liquid gold."

The report said investment in connected rural communities was essential to put the country at the forefront of global agribusiness, and there had been under-investment in animal traceability compared to other nations.

Adopting global best practices created an opportunity to take the lead in many premium, niche product sectors.

Proudfoot said: "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 increasingly have a significant low-cost advantage over our producers."

STAYING AHEAD

Steps New Zealand can take to maintain strength of agriculture sector, according to KPMG:

* Maintain clean, green image.
* Focus on premium products.
* Better management of water resources.
* Investment in science, technology and infrastructure.
* Investment in animal traceability.
* Adopting sustainable practices.