A new report highlights the key role of exports in the food and fibre sector for generating revenue to meet New Zealand’s public services needs and living standards.
With an ageing population placing increased strain on New Zealand’s public services, the country must earn more from exports to maintain current living standards in the years ahead, a new discussion paper released by New Zealand Institute of Economic Research (NZIER) has found.
Pathways to prosperity: Capturing more of the value of our food and fibre sector exports for New Zealand calls for “investment and policies that do not demand immediate results” to boost productivity in the food and fibre sector.
The sector, which includes agriculture, horticulture, forestry, fishing and associated processing, accounts for 80 percent of New Zealand’s goods exports and is one of the main sources of income and tax revenue that fund public services.
But it needs to earn more, says Peter Davis, Chair of the Helen Clark Foundation, which commissioned the discussion paper.
“This country faces a key challenge in providing an ageing population with the quality healthcare, education and superannuation New Zealanders rightly expect,” Davis says.
“New Zealand clearly needs to earn more as a country in the decades ahead to meet these expectations.”
However, many New Zealand firms do not have the skills and scale necessary to compete effectively in unforgiving global markets, the paper’s authors Todd Krieble and Bill Kaye-Blake say.
New Zealand’s past productivity performance has been relatively poor compared to Australia, the United States, and other small economies. The relative slide in productivity in the 1970s through 1990s has largely been halted. The problem now is how to catch up.
This discussion paper tackles the issue of how to manage our economic resources differently to produce a different result. By considering how the New Zealand food and fibre sector could deliver more value to New Zealand, this paper sets out how we can ensure our standard of living remains high in the decades to come.
The report is based on interviews with sector leaders and draws on extensive research on the sector’s strengths and longstanding challenges. It sets out five critical areas where long-term decision making will make a major difference to the sector’s productivity, and by extension, to New Zealand’s prosperity:
- developing a more skilled workforce;
- consumer-driven marketing and product development;
- better investment, especially in processing;
- improving management and governance; and
- strategic collaboration to create scale and larger investment pools.
“We need to ensure we’re doing everything we can as a country to support the sector to grow its productivity and earn more from exports without putting more pressure on our people or our environment.
“The good news is that our paper finds clear pathways New Zealand can take to achieve this.”
Pathways include developing a more skilled workforce; consumer-driven marketing and product development; better investment, especially in processing; improving management and governance; and strategic collaboration to create scale and larger investment pools.
The paper’s authors also identify key challenges to achieving greater productivity in the sector, which include lower levels of investment and technology in food and fibre processing compared to similar economies, and the risk-averse nature of firms (sometimes resulting from organisational structure, such as co-ops) and the mindsets of senior managers and directors.
Krieble and Kaye-Blake suggest “time and patient money – that is, investment and policies that do not demand immediate results” could enable the sector to overcome these disadvantages.
“Improving productivity will be hard, but maintaining the status quo will leave us with a middling economic performance and increasing anxiety about how New Zealand will pay its way in the future,” they say.
“The sector’s challenges, especially in processing, have existed for decades and the underlying issues are not amenable to quick fixes.
“We hope this paper provides a jumping off point for further discussions about the strengths of the sector, and how it can adapt and grow despite the challenges of the 21st Century.”
Discussion paper’s recommendations for the sector
- Food and fibre exporters should be supported to be “mini-multinationals” – extracting more value from competitive export markets means companies, even small ones, have to do everything that bigger multinationals do: market research, product development, supply chain management, export clearance, and financial arrangements. Most food and fibre companies do not yet have all these capabilities and will need support in developing them.
- Government could identify businesses with the right set of capabilities and potential, and work with them proactively to build their exporting capabilities. Building on insights developed by MBIE and other agencies to focus government resources on those firms most likely to lift export intensity would mean working with firms that meet identified predictive characteristics of success rather than simply seeking to pick winners.
- Government with industry to understand what kind of investments would best support export growth and devise a long-term investment strategy. This approach could identify processes, technologies, training that would benefit both a company and the wider economy, helping New Zealand to develop the sorts of mini-multinationals that are needed to extract more value from export markets.
- Industry and government could collaborate to develop mechanisms that reduce investment risks in the food and fibre sector, given the sector’s importance to New Zealand and the higher risk profile it faces. For example, a government fund with an equity stake that invests at below-market rates could provide funding but capture the upside from ventures that succeed.
- More investment should be made into research the practice of management in New Zealand, given the importance of managerial capability in building export-capable firms. Consideration should also be given to subsidies or tax credits for managerial training for qualifying management and governance roles in the food and fibre sector.
- Government should consider requiring a minimum level of vocational training per year, and should ensure existing policies and programmes that incentivise businesses to undertake workforce training are working effectively and efficiently.
- Industry and Government should collaborate to explore options for more strategic collaboration among key players in the food and fibre sector. This should include investigation of the mechanisms and policies necessary to facilitate effective collaboration, while being mindful of limits set by competition and trade law. Funding could be directed to academic and applied research to determine the most promising forms of collaboration for the food and fibre sector.
