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New Zealand Dairy Revolution: Seizing Economic Opportunities

Discover insights from Rod Oram’s presentation at the Irrigation New Zealand Conference, highlighting the global economic landscape, New Zealand's dairy industry, and strategies for growth. Learn about the challenges and opportunities for New Zealand's economy and dairy sector, including the impact of exports, competitiveness, and creating and capturing value. Explore the potential for innovation, sustainability, and re-invention in the dairy sector, with a focus on driving economic prosperity. Discover how companies like Comvita are transforming their value chain and investing in science to create high-value products. Gain valuable knowledge on reducing environmental impacts in farming and boosting sustainability in the dairy industry.

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New Zealand Dairy Revolution: Seizing Economic Opportunities

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  1. Rod Oram’s presentation to the Irrigation New Zealand Conference Napier, April 8th, 2014 Radical is the new normal Securing the future Kiwiki on Facebook / Twitter @RodOramNZ Rod.Oram@NZ2050.com / +64 21 444 839

  2. Agenda • New Zealand • Dairy • Paradox • Revolution

  3. The world • …is doing OK, broadly speaking • Some economic traumas…...and big changes…still to come • But most economies are showing more stability and momentum • Europe first signs of recovery • Australia slogging • US strengthening • Asia succeeding • …enough for us to earn a living

  4. Our growth • …is gaining momentum • Largely driven by Christchurch, whole milk powder, housing market, consumption • Export volumes growing only slowly…as is business investment • Reserve Bank forecasts • Growth in year to March: 3.0% in 20143.5% in 20152.4%in 20162.3% in 2017

  5. Our economy is constrained • The economy is constrained by e.g. • Skills and capital shortages • Weak business investment • Limited government investment • As a result “potential GDP” (the rate at which the economy can grow without causing inflation)is low

  6. Government Strategy Mk III • “Business GrowthAgenda” • 6 ingredients of business growth • All driven by incremental change • Doing a bit more, a bit better • Some big goals • E.g. lift exports from 30% of GDP to 40% • Failure guaranteedif the game is more of the same

  7. NZ’s exports remain far too small a contributor to the economy….…and have stagnated at 30% of GDP…government goal of 40% by 2025

  8. Our exports • 2013, in value terms • Exports to China: +45% • Exports to world: + 4.4% • Dairy exports: +17% • All exports: + 4.4% • Volume of dairy exports grows slowly

  9. Agenda • New Zealand • Dairy • Paradox • Revolution

  10. Opportunity • Growing world demand for dairy products • NZ response • At home…more cows, more intensity – national herd doubled in 20 years • Overseas…some milk buying, & investment in farming

  11. Rabobank…on NZ competitiveness • t

  12. Holding our own

  13. Our impressive rise in volume • But some overseas producers growing fast • E.g. Ireland: • 50% more milk by 2020 • +5bn litres • 100% by 2025 • +10bn litres

  14. Our impressive rise in costs

  15. Diagnosis - Value Creation • World Economic Forum – Global Competitiveness Report • Competitive advantage measured on a scale of: • 1 = low cost of natural resources to 7 = unique products & processes New Zealand scores 3.8 Ranks 36th

  16. Diagnosis - Value Capture • Value chain measured on a scale of: • 1 = role in chain mainly confined to one step, eg resource extraction • …to7 = involved all the way down the chain, capturing extra value New Zealand scores 3.8 Ranks 58th

  17. Value – creation and capture • $25.3bn – Shipped value of our food & beverage exports (fob) • $140bn - $200bn – Consumer value of food & beverage products primarily of NZ origin; source – Coriolis Research • 1Fonterra plant in NZ makes infant formula for Pfizer • 8% Pfizer’s Chinese market share for infant formula • US$12bn Nestlé paid for Pfizer’s infant formula brands • = 3 x Fonterra’s net asset value

  18. NZ investment in value add…in NZ • Fonterra’s UHT plant at Waitoa

  19. Chinese investment in value add…in NZ • Mengniu’s infant formula plant at Pokeno

  20. Is US$3,500 still the long-run price?

  21. Agenda • New Zealand • Dairy • Paradox • Revolution

  22. AbundanceScarcity Paradox

  23. CowsScientists Poverty

  24. TouristsEngagement Poverty

  25. Sustainability Weak Strong Poverty

  26. ScarcityAbundance Re-invention

  27. Lacto-pharmaceuticals Milk powder Wealth

  28. Travellers Tourists Wealth

  29. SustainabilityStrong Weak Wealth

  30. Agenda • New Zealand • Dairy • Paradox • Revolution

  31. Comvita – a 10-year transformation

  32. Comvita’s value chain • Building it by… • Floating on NZX to raise funds • Buying back distribution • Investing in retail • Investing in science • Investing upstream in bees • Virtuous cycle… • …each step generated new cash flow to take the next

  33. Comvita: High science, high value • 250gm of honey • Clover honey…………………………….. 1 • Comvita wound care……………………. 25x • Comvita wound dressing………………. 55x

  34. Reducing farming's environmental impacts will: • Improve nutrient and resource efficiency • Increase value, resilience and sustainability Opportunity: Full environmental cost of food production US$199bn 800 670 700 600 482 500 US$ in billions 400 300 223 224% 87% 200 153 134 23% 100 97 64% 89 84 71% 100 43% 42% 22% 26 22 2.5% 52% 59% 0 Mining Airlines Automobiles Beverages Chemicals Electricity Food Industrial Marine Oil & Gas Telecom & 2010 total environment cost as a % of EBITDA Source: Trucost2012, KPMG 2010 EBITDA Producers Metals Transportation Producers Internet

  35. NZ Agricultural Greenhouse Gas Research Centre • Global Research Alliance on Agricultural Greenhouse Gases • Proposed by NZ government at Copenhagen in 2009…to: • Reduce emissions; increase food production • Help developing countries to join global climate change frameworks • Alliance now has 36 countries + 3 observers including the EU • = 70% of global agricultural GHGs; agriculture = 15% of total GHGs • Three main workgroups: • Livestock, led by NZ and Netherlands, 483 projects identified to-date • Croplands, led by US, 429 projects to-date • Paddy Rice, led by Japan, 60 projects to-date • Secretariat: NZ • NZ Agricultural Greenhouse Gas Research Centre: $48.5m over 10 years • Four main workstreams: Mitigate methane; mitigate nitrous oxide;increase soil carbon; deliver farming solutions

  36. Our opportunity • 1 litre of milk = 940 gm of CO2 equivalent 20,000,000,000 litres = 18,800,000,000 kg of CO2eq • 18.8m tonnes of CO2eq per year is not a waste product, a liability Closing the nutrient cycle… is a brilliant business opportunity… healthier cows and soil… = more food

  37. Ruataniwha - a major initiative • Challenging…and on some issues pioneering • Scale • Nutrient control • User price structure • Infrastructure proposition • Ownership structure • Government funding

  38. Ruataniwha- a personal view, pre-draft decision • Storing water ✔But climate change accelerating • Environmental flows ✔ But flushing is a fix not a cure • Farming upside ✔ But perpetuates commodities • Nutrient management ? Controversial, unproven approach • Ecological integrity ? Offsets aren’t integrity • Economic viability ? Water price, contract are a big ask • Corporate structure X Ownership complexity, conflicts • Government funding X Debt; must be long-term equity • Economic development X Doesn’t lift region up value chain • Public trust X Case not yet compelling

  39. How about creatingthe NZ-China Global Centre for Dairy Nutrigenomics a • a

  40. …Johnny Rotten: “You’ll have no future… …if you don’t make onefor yourself”

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