Consumer packaged goods, changing land use, and deep tech are three opportunities for innovation in New Zealand's food sector. Photo / FoodHQ
Consumer packaged goods, changing land use, and deep tech are three opportunities for innovation in New Zealand's food sector. Photo / FoodHQ
Opinion by Vincent Heeringa and Dr Victoria Hatton
Based on interviews with Founders Advisory managing partner Nicola O’Rourke, independent consultant, formerly of Wellington’s Development Kitchen, Dale Bowie, Professor Alan Renwick of Lincoln University, Opo Bio chief executive and founder Olivia Ogilvie, New Zealand Food Innovation Network co-chief executives Grant Verry and John Morgan, and chief executive and founder of State of Play Brewery, Grant Caunter.
If New Zealand is to double primary sector exports, we need innovation to deliver the change. New Zealand needs to leverage its research, science and education strengths to become well set up for food innovation. This part of the article looks at three opportunities that could help.
In consumer-packaged goods, the growth is most likely to come in the form of innovative start-ups.
New Zealand has had an explosion in the number of small food brands in the last 20 years.
Companies like Teiny (pronounced Teeny), the oat milk-powder company with the appropriate tagline “small changes for big impact”, hint at where our future innovation may lie.
Started by school friends Emma Arvidson and Renee Tauwhare, Teiny uses oats sourced from the South Island.
It was incubated into existence by Christchurch’s Electrify Accelerator, funded by Auckland’s Climate VC Fund, and won multiple start-up and industry awards.
The product seizes on the appetite for dairy alternatives and reduces the emissions problem of “shipping water” around the globe.
Teiny solves a problem in a growing market with a clever twist on existing technologies.
Tick, tick, tick.
“It’s a good example of how the innovation system can work well,” Dr Victoria Hatton, chief executive of FoodHQ, said.
“Teiny have adapted an existing business model – dairy – and innovated and evolved.
“A high-functioning food industry should be constantly generating ideas that build on the strengths of the past, nurture them with advice and capital and create surprising opportunities for the future”.
Teiny is one of thousands of new brands to emerge in the last 20 years doing just that.
Tim Morris from Coriolis, a market research firm studying the food sector for decades, said an explosion of small-time entrepreneurial brands had seen our economy shift from unprocessed materials sent to the UK to sending packaged goods to Asia.
“There are tens of thousands of entrepreneurs trying things in tens of thousands of markets and channels,” Morris said.
Product innovation has resulted in new ingredients (cauliflower), new flavours (mānuka honey), new bases (sheep or goats’ milk), and new packaging (cardboard tubs, novelty sticks).
We have new companies entering the market, and while export volumes have remained constant, value is being added through growing prices.
Craft brewers are not called “mad scientists” for nothing.
They are another fine example of a community where the culture of innovation is now deeply ingrained.
This sector has been booming in New Zealand for a few years as they are constantly experimenting.
From sustainable grains, herbs, spices, and fruit flavours to innovative brewing methods that help alleviate issues caused by the global shortfall in CO2 supply.
Look at the innovations in the non-alcoholic craft beer category, which has about a 10% share of the market in Europe.
Could innovation be the Golden Goose for doubling New Zealand's export value in the next 10 years? Photo / FoodHQ
Grant Caunter is the founder of State of Play, New Zealand’s first and only zero alcohol brewery.
“Non-alcoholic craft beer is the only segment in the beer industry that is in growth, and this has sent shockwaves through the industry,” he said.
“It’s also the segment that is recruiting new drinkers”.
Caunter, who recently returned from Amsterdam, where he was the Global Head of Craft Beer for Heineken, brews with an innovative yeast that produces minimal alcohol.
He believed there was a real advantage for New Zealand in this growth sector.
“New Zealand is positioned with our brand and quality to deliver on the expectations that our zero alcohol beers taste great and have the added benefits of having no nasties included.
“Our advantage is that New Zealand hops work wonderfully with zero alcohol beer and new innovation in hop oils and hop adjuncts are changing the game to the point where we have real potential to export our zero alcohol beer, and the ingredients we use”.
Chocolate too is flourishing, with unique flavours (feijoa, kiwifruit, tamarillo) and clever branding.
Worth about $100 million in exports per year, this will grow if we can follow in the footsteps of “wine and honey” to focus on developed markets with high premium consumption.
Like Hatton, Nicola O’Rourke sees potential for growth in innovation in New Zealand and is particularly excited about the future of consumer-packaged goods.
Whether it’s in food, health, or beauty, the categories share common attributes, she said.
“It’s typically got very little truly defendable intellectual property [such as patents] and so it’s about getting a fabulous product to a consumer as fast as possible, then learning, evolving, iterating, tweaking, and building out range extension and distribution as fast as possible.”
But range extension needs new knowledge to be competitive.
The New Zealand Food Innovation Network (NZFIN) knows all about this.
It is set up to enable businesses, from start-ups to corporates, in the food and beverage sector to create new knowledge to remain competitive.
They find innovative ways of working with ingredients, technologies, and engineering processes to add value.
NZFIN is a support system to help innovators reach export scale.
According to John Morgan, co-chief executive, a key question he often asks innovators is “What’s the best realisation of the value? It could be as a pristine Zespri Kiwifruit or a nutritious juice and a high-value extract from the fruit skin. It may not just be one thing or looking at a product one way”.
O’Rourke believes the same approach could be applied to our volume industries, like red meat and wool.
The launch of Lewis Road Creamery showed there was untapped demand right under the noses of the existing players.
Its recent foray into double cream, with slightly higher fat and better mouthfeel, shows further demand exists – it just needed someone to uncover it.
She said red meat must have similar potential.
“Millennials are the first generation to age with social media and have formed a lot of their opinions through that medium.
“We could be having a very interesting conversation around protein for the next 10 to 20 years and positioning ourselves in such a way that we could be taking advantage of that funnel of consumer groups as they age.”
The size of the prize for this type of innovation is hard to quantify.
Thousands of entrepreneurial brands creating an endless stream of high-value consumer brands adds up to a big number.
And someone may hit a jackpot.
O’Rourke points to turnaround stories like Lucozade, where a single brand transformed the out-dated health tonic industry to the explosive sports drinks industry, now worth billions and growing.
“We have enormous potential. Where is our thought process on that as a country?”
All this is with the context that New Zealand is not a highly successful incubator of start-ups: there are just 2,400 across all sectors.
Seaweed, and aquaculture more broadly, has the potential to become a multibillion-dollar industry in food and the much-underrated cosmetics and pharmaceuticals.
Hemp is well-suited to New Zealand’s temperate climate and thrives in many regions already.
Combined with deep expertise in plant science and food production, New Zealand has the potential to produce it at scale.
As a nutrient-rich source of protein, hemp seed has value as a whole food source and a high-value food ingredient.
It has a lower water footprint and requires fewer pesticides compared to other crops, while its deep roots contribute to soil health improvement and erosion prevention.
This all means it is well-positioned to compete alongside soy, pea, and fava bean protein as a major plant-based protein ingredient in a market expected to have rapid growth in the coming years.
New Zealand is committed to growing its aquaculture industry to $3 billion by 2035 – though the Cawthron Institute says it could be $10 billion in the next decade.
With seaweed projected to triple in value globally by 2030, it makes sense for New Zealand to consider establishing a seaweed industry.
Additional research is needed to further explore how to extract protein from native seaweed species at scale.
And a study would be necessary to determine the feasibility of establishing a seaweed protein extraction and processing facility in New Zealand.
However, our competitive advantages in this area are considerable.
Despite the economic logic, however, the barriers are high – so high that such industry-scale change has not happened in 50 years.
Research by Coriolis for the Ministry for Business, Innovation and Employment called the “Situation and Capability Report” shows that new crops and cattle face almost impossible hurdles.
According to Tim Morris, “no new globally competitive farming systems or biomaterials production systems have emerged in the last 50 years. All the large biomaterials production systems and post-farmgate processing systems [red meat, dairy, kiwifruit, berries, stone fruit] emerged in the decades prior to 1984. They were the beneficiaries of massive, long-term support and public-private partnership collaboration between government and industry. Unless this kind of patience and deep investment occurs again, introducing a new globally competitive biomass production system is almost impossible”.
By new platforms, Morris is talking about entirely new crops, such as hemp, canola, bananas, peanuts or soybeans – all of which are currently being tried.
The problem is not climatic or even market demand – it’s in the investment required to achieve economies of scale.
It takes a minimum of 20 years to go from a successful pilot to being globally competitive.
And it takes system-wide collaboration and investment from government, research, growers, distributors, marketers and trade negotiators.
This pattern is evident in the history of kiwifruit, wine, avocados and berries, and it fits with a globally acknowledged phenomenon called the Experience Curve.
First explained in 1968, the theory shows that costs decline 20-30% each time production is doubled.
However, it takes time to create efficiency. Who funds that cost gap?
Peanuts are an example.
About $1 million has been invested in Northland peanuts, making the current cost about $100/kg.
Following the Experience Curve, Northland needs to produce 8800 tonnes before the cost approaches what a New Zealand buyer is willing to pay and 34,000 tonnes to compete with Argentinian producers.
In the meantime, who funds the growers, the researchers, the distributors and buyers to build that scale?
In the past, that cost was borne by industry and government working on large-scale, long-term collaborations.
“The New Zealand government will need to take a more proactive approach if it wants new biomass production systems (e.g. hemp, canola) at scale to emerge,” Morris said.
“Otherwise, it will remain stuck in what McKinsey calls an unhealthy pattern of ‘creating ideas but not building businesses.’”
Given the predominant appetite for smaller government, less intervention and lower public spending, it’s unlikely we will see land-use change achieve a globally competitive scale - which is not to say it’s a bad idea, but it requires the kind of public-private partnerships no longer tolerated in New Zealand.
A third area for innovation is deep tech, commercialising research buried inside our universities and Crown Research Institutes (CRI’s).
Unlike land-use change, this holds great promise, given a long heritage of success from apple and kiwifruit cultivars to Fonterra’s revolutionary mozzarella and high-grade Lumina Lamb.
This type of innovation is, of course, expensive and takes a long time.
It requires an entire ecosystem of support and multiple parties.
“And sometimes even with this support, it takes years to create impact through the commercialisation pipeline,” Dr Victoria Hatton said.
“Our CRI’s and universities have very different approaches to commercialisation.
“A researcher employed in a CRI is industry-aligned and understands that getting new technology out of the door is as important as a publication.
“It’s the opposite for universities, where a researcher’s success is measured by the volume of high-ranked publications, so their focus is on teaching, academic research and students.”
But the advantage of this over the incremental or rudimentary innovation described above is the creation of those magic words: intellectual property (IP).
Growing the Envy apple has been a great business for New Zealand orchardists but an even better business for the CRI, Plant and Food Research, which owns the plant variety rights (PVRs).
The CRI earns almost $60m a year in royalties, a third of total revenue, from its PVRs in apples, kiwifruit, berries and so on.
Hatton said, “There is a lot of tension between publishing and commercialisation, with commercialisation being viewed as a trade-off for researchers in universities. It doesn’t need to be like this. To speed up the commercialisation activity in a university, researchers need to understand that it’s not that you can’t publish, it’s a question of what you can publish and release early into the public domain to protect IP.”
Switzerland, Sweden and Singapore are in the top five.
What’s the problem?
The report shows there’s a profound gap between innovation inputs (rank 28th) and innovation impact (80th).
This could be because information that has commercial value to an organisation is also held as a trade secret. There is no database of trade secrets, which are often very valuable if deployed appropriately.
Alan Renwick, a professor of agricultural economics at Lincoln University and originally from the UK, is at once impressed by our science and industry and puzzled by the lack of connection between the two.
“I feel that our strength is very much in our production, that we are able to operate without subsidies and are attuned to the market, and I would definitely say historically we have been smart at science and R&D.
“But we don’t have a systematic approach to innovation. We don’t have strong integration between the universities and industry. And the intermediaries between us, I feel, are quite fragmented and disparate.”
But industry is also free to look elsewhere for its innovation partners, and sometimes, this is with universities outside of New Zealand because the talent and support they need simply doesn’t exist here.
The gaps appear in the niches.
Olivia Ogilvie, the co-founder of Opo Bio, a cell-cultured meat start-up in Auckland, said the business advice, funding and industry support for her pioneering business had been good.
What’s missing is specialist knowledge.
“An example of this would be when we were buying a bioreactor,” she said.
“There were none in New Zealand, so we couldn’t view any in action. And Callaghan Innovation, a Crown entity with the task of making New Zealand more innovative, ironically did not have anyone with expertise in the space to advise us.”
Nicola O’Rourke said a handbrake on Lewis Road’s progress was the specialist consumer-focused manufacturing support for small-scale operators.
“We’re very good at building large stainless-steel facilities aimed at providing bulk format packaging.
“But when you look at trying to scale from food science to a minimum viable product and then to servicing a small, addressable market, we don’t actually have the consumer format manufacturing capability at scale.
“I hear amazing stories where people are pushing through and finding solutions.
“But getting the food and beverage into a format that consumers want seems to be the challenge.”
