Rod Oram: A complacent agricultural nation?
Rod Oram looks at whether New Zealand is being too complacent and not investing enough in new technology to survive the coming disruptions of cellular and urban agriculture.
On Thursday, the cavernous TSB Bank Arena in Wellington hosted yet another, high stakes clash. But this was no sporting event.
Billed prosaically as the Food and Fibre Innovation Conference 2017, it was an economic stoush. It pitted our primary sector against its global competitors, with the rules of the game, and the roster of opponents, changing ever-faster to dramatically up the ante.
In our corner were many of our best primary sector innovators. These were companies, scientists, and industry organisations showing off the big, focused development projects they are tackling in the Primary Growth Partnership.
The six programmes completed and 16 underway involved more than 60 organisations. They have attracted $759m of funding sourced equally from the private sector and government. They’re promising a multi-billion-dollar payoff for the NZ economy in the years ahead.
The big new stars in the opposing corner, represented by exponents from overseas, were fast-emerging technologies such as cellular agriculture – the likes of growing meat from stem cells or making milk in bioreactors – and urban agriculture – such as high tech, indoor, LED-lit vertical farming facilities.
Meanwhile, massive old competitors such as Nestlé and Unilever are investing heavily in new technologies and business models to transform their game.
While the crowd consisted entirely of home team members and supporters, many were realistic about the primary sectors’ strengths and weaknesses, eager to improve their game, and to take on the new competition.
And the brave, one-man adjudicator of the contest was Ian Proudfoot, KPMG’s global head of agribusiness.
“The world is not waiting for us: are we innovating fast enough?” was the test he posed.
The case that we can rests on two main arguments: participants are collaborating far more, and better, than they have in the past; as a result, they are innovating more effectively to create more sophisticated and higher value products.
For example, in the PGP’s Precision Seafood Harvesting project, three fishing companies – Sanford, Sealord and Moana – and scientists at Plant and Food have developed a superior way to trawl for fish to land them alive on deck. This means they are in better condition, and thus higher value, compared with fish harvested conventionally. Moreover, under-sized fish and by-catch species are returned alive to the sea. Some 30 percent of the hoki catch is now harvested this way, earning a premium of some $100-$150 a tonne.
And SPATnz, a PGP in aquaculture, has developed technology to selectively breed mussel spat in a hatchery. This overcomes the uncertainties of supply and quality inherent in the natural harvesting of spat, while allowing the breeding of superior traits.
Meanwhile, Sanford has been evolving its systems, value creation, brand and sustainability so it can make the most of such technology developments, Volker Kuntzsch, its chief executive, told the conference. It has started to add value but is still some way short of the goals it has set itself.
Other PGP programmes showcased included ones developing the dairy value chain, the red meat value chain, yields from meat processing by-products, avocado and manuka cultivation, low alcohol wines, marbled grass-fed beef, the precision application of fertilisers and the dairy sheep sector.
To varying degrees, these programmes are improving production performance, product quality and value-add. However, there is little innovation to enable producers to capture a fairer share of the value they’re creating. The lion’s share is still grabbed by the wholesalers, distributors and retailers further down the supply chain who are closer to consumers.
Sector collaboration has also been greatly enhanced by Te Hono, a primary sector “bootcamp”. John Brakenridge, the CEO of New Zealand Merino came up with the idea of bringing sector leaders together in small groups to experience, for example, innovation Silicon Valley style. To that end a group has visited Stanford University for a short course each year since 2012. So far, more than 120 leaders have joined the programme and continue to work together.
Appropriately, it is from Silicon Valley that the most radical new competitors to our primary sector are emerging. The challenge was described to the conference by Ryan Bethencourt, a partner in IndieBio, an accelerator for synthetic biology start-ups based in San Francisco and Cork, Ireland.
“Darwinian forces of entrepreneurship and competition have been unleashed in Silicon Valley,” he said. “Molecular manufacturing is really starting to come through.”
Memphis Meats, which was growing chicken, duck and beef meat from stem cells, is one of the innovators he was involved with. “We’re chasing the cost-curve down, and we’re still at pilot stage.” In its most recent funding round the company raised US$22m from investors such as Bill Gates and Richard Branson.
While such radical new technologies have much less environmental impact than farm-grown meat, their main competitive advantage will be their resource efficiency and low cost, he said. They will be a serious competitive threat in three to five years, he reckoned.
Rural farms will also face competition from urban food producers, the conference was told by Henry Gordon-Smith, a founder of Agritecture, a New York City consultant to more than 50 such projects in the US and abroad.
'Weekends and special events meats'
Already some 15-20 percent of global food supply came from traditional urban sources such as allotments and greenhouses. New technologies such as vertical indoor farming will contribute rapidly to such supply. Consumers were also showing an increasing willingness to pay a premium for locally grown food, he said.
KPMG’s Proudfoot highlighted a number of other major trends changing the competitive landscape for our farmers. To enhance food integrity and traceability, for example, they will likely have to start contributing data to blockchain databases within a couple of years.
Some major competitors are also shifting their strategies with, for example, Nestlé pivoting from chocolate to nutrition as one example in its vast portfolio.
Similarly, Nestlé and Unilever are getting adept at buying small, highly innovative companies with the aim of scaling them fast. Even though Nestlé’s sales are three times those of our entire primary sector, it is focusing ever more intently on niche, artisanal products.
The challenge is very real and imminent from alternative proteins such as meat grown from stem cells and plant-based substitutes that look, smell, taste, feel and cook like meat, Proudfoot said. However, they will be “Monday to Friday meat”, leaving NZ meat to aim at the “weekend and special events” end of the market.
Proudfoot said the sector has significantly improved its collaboration. “But are we collaborating on what’s really important?” he asked. For example, we’re still selling individual products rather than a basket of NZ products, he said. Meanwhile, now Whole Foods Market, the upmarket chain in the US, is owned by Amazon it is pushing to sell people whole recipes and their ingredients.
“Are we doing what’s right?” was another of Proudfoot’s questions to the home team. He reckons they’re “heading in the right direction” on the environment but the election showed that “the wider community does not trust this sector.” Moreover, the sector still has work to do on health and safety, its communities and its values.
“Are we attracting world class talent?” His answer: “You’re not sexy…you need to get the best and the brightest staff.”
“Are we innovating on the global leading edge?”
Wednesday, he noted, had been the 100th anniversary of the first sale of a vacuum milking machine, a world-beating Kiwi invention. But today the sector is behind the pace on the investment and capability needed to keep up with the best agribusiness innovators in the world.
“Are we pivoting from volume to value?”
The necessity is understood, and it is happening, he reckoned. But whole sectors needed to shift and they were still lacking the deep market insights they needed to do so.
The primary sector was still far too focused on tangible assets, “which have limited competitive advantage.” And too lightly focused on people, brand experience, customer experience, innovation and critical insights.
“Are we self-disrupting?” No, was Proudfoot’s blunt message to the home team. “Complacency is the biggest threat to our industry. We need to constantly tell the story of the challenges we face.”
“Ten years ago, we had a very successful industry. Now, we have a successful industry. Ten years from now? The jury’s still out.”