KEY POINTS:
For many years, economic diversification has been a catchphrase. Computer-based technologies and suchlike were seen as the road to prosperity. The country's traditional strength was dismissed as something akin to a sunset industry, a state of affairs not helped by lethargic attitudes within the farming sector. Now, if nothing else, the introduction of the New Zealand Fast Forward fund delivers an overdue sense of balance and realism. It acknowledges the overwhelming importance of the pastoral and food industries, and that, as in the past, they represent the best opportunity to develop a thriving economy.
The fund is based around industries from that sector matching a $700 million Government boost for research, development and innovation projects. It stems largely from the 2006 report of the joint Government and industry-formed Food and Beverage Taskforce, which identified the need for greater investment in research and innovation to develop new "high-margin" products. One obvious field is suggested by the global swing towards foods proven scientifically to improve health and wellbeing.
Some of this work is already occurring. But despite the readily apparent worldwide trends and increasing competition from low-cost, high-volume agricultural producers, such as Argentina, investment in primary production-related and agrifoods research has been declining. Some incomprehensible Government grant decisions, none more so than the halving in 2003 of money allocated to soil science, have not helped.
Even more significantly, elements of the private sector have been slow to grasp the importance of research and development. Others are somewhat hobbled. During a time of booming prices for dairy products, Fonterra might be expected to be emphasising innovation, and to have no need for a Government kick-start. According to the 2006 taskforce, however, co-operatives focus too hard on maximising short-term supplier payout at the expense of investing in longer-term growth options. That, in itself, suggests Fonterra's suppliers should not be too quick to dismiss management's proposed restructuring.
Whatever the reason, the Government has, rightly, if a little belatedly, chosen to act as a circuit-breaker. New Zealand has a superb foundation to supply a world increasingly eager and willing to pay for sophisticated, high-value and functional food. It boasts generally good farming practices, a green image, a reputation for agrifood research, and many small and medium-sized food enterprises keen to grab the chance to be even more innovative. It is also a little complacent. This has encouraged a continued reliance on the export of basic commodities. New Zealand's comparative advantage could easily be squandered if it does not lift its game and place itself in the vanguard of countries developing smart, high-value and specialised foods.
The Fast Forward fund marries a long-standing strength with the tenets of knowledge economy. It is all about leveraging the country's natural resource base. Much has been said of the need to increase New Zealand's research and development spending from about 1.2 per cent of gross domestic product to at least the OECD average of 2.2 per cent. This is a step towards that, and recognises that scientific research is the key to a broader range of products, and, in turn, productivity gains and economic growth.
Equally, it suggests a greater focus on China, India and other parts of Asia, where population, income and consumption are growing strongly, rather than the more traditional recipients of high-volume products. Opportunities are there to be seized. This initiative is a worthwhile means of helping to secure them.
