Future NZ: Grow agribusiness, grow New Zealand

Business columnist Fran O'Sullivan. Photo / NZ Herald

Kiwi agribusiness leader Sir Graeme Harrison first coined the arresting phrase - "Agriculture: New Zealand's Silicon Valley".

It's a visionary statement signalling the very real wealth that will accrue to New Zealand if we develop a more sophisticated agriculture sector to create high-end food products for the world's rapidly growing middle-classes.

The Government has set a goal to double primary exports by 2025 to spur economic growth and, despite the growth in other sectors - tourism, technology - agribusiness will hold sway for some years yet.

Right now China is NZ's biggest agricultural export market, where dairy exports have trebled since the 2008 free trade deal. Fonterra is now investing $1 billion in driving a series of farm hubs in China and stepping up the rollout of its own branded products including premium prices infant formula.

The beef trade growth has been explosive and sheep exports have doubled from $250 million to $550 million in 12 months.

It's not all been plain sailing as contamination scares, invoicing scandals and other issues have affected our major exporters.

To some degree this is simply growing pains resulting from the speed bumps which can occur in fast-growing markets. But it is also a pointer to the increasing professionalism and sophistication New Zealand's primary exporters must adopt as they expand well beyond China into other fast-growing markets in South-East Asia and also Latin America.

Market diversification is also essential. China's consolidation of its own dairy industry to create some new national champions is already creating new competitive pressures on Fonterra. Other potentially valuable markets such as Indonesia and Vietnam are tying increased access to their growing consumer bases to the stipulation that foreign companies should simultaneously invest in their domestic industries to upskill their people.

Work is already underway on three growth kickers:

* The Government has launched the Primary Growth Partnership scheme to lift the value-add component of NZ agribusiness. More than $300 million have already been allocated to a range of projects. The Food Innovation Network is also driving a range of new products.

* Maori - who own roughly one-third of the country's farming, fishing and forestry - will spur growth as they increasingly leverage their own $37 billion asset base and organise the capital to bring more Maori freehold land into production.

* Investment in water - the major economic multiplier - via a range of irrigation projects essential to lift farm productivity was boosted by an allocation in this year's budget.

But there are also pressures:

The intensification of the NZ dairy industry has brought a wide range of environmental problems to the fore; there are also constraints on capital and supply chain issues.

The debate over environmental degradation has some are considering the ultimate heresy: housing dairy cows as Fonterra does in China and using a 'cut and carry method to bring the pasture to them.

Our farmers are ageing and there needs to be a great deal of work done to open the way to farm ownership to younger people. This is where foreign ownership of farmland comes in, as buyers from Asia, the Middle East and US snap up dairy farms and invest in forestry.

There is an opportunity to leverage foreign ownership more by requiring joint-ventures with local partners, ultimately listing the joint-ventures on the NZX so that more Kiwis can buy into and support the agriculture growth story.

The big game comes from forming joint-ventures between foreign capital and NZ 'know how' by acquiring farmland in other nations and building new export-focused ventures there.

It's a balancing act. But exploiting NZ's agricultural DNA to the full holds a lot of promise for this small country.

Fran O'Sullivan is a business columnist at NZ Herald