Leone Evans
New Zealand’s (NZ’s) food and beverage industry, including agribusiness, primary production and foodservice, is critical to the country’s overall economic performance.
As such, any changes in the food and beverage industry’s performance will materially impact on the national economy.
At present, the sector employs one in five New Zealanders.
It generates half of NZ’s mercantile exports, comprises 10% of gross domestic product and has grown 5.3% over the past decade (the same rate as the overall economy).
The productivity of the food and beverage industry is better than that of many other sectors, with agriculture having achieved a 60% increase in the last decade.
The sector itself capitalises on NZ’s natural advantages in food production including abundant rainfall, a temperate climate and the plentiful supply of arable land.
However, growth has come largely from productivity gains.
The sector faces the challenge of developing stronger technology and knowledge-based businesses and, as a result, will continue to be characterised as a basic agricultural industry until improvement is gained via increased research and development.
Industry at a glance
Like the economy as a whole, the food and beverage sector exhibits low capital intensity, relatively low levels of research and development investment, skill shortages, low levels of outbound foreign investment and limited access to global value chains.
The sector is dominated by co-operatives, comprising four of the five largest companies and accounting for over 50% of the total sector revenues.
Fonterra alone constitutes 40% of total sector revenue, the top 10 companies comprise 66%, the top 30 companies over 85% and subsidiaries of foreign owned multinationals constitute 24% of total sector revenues. Small-to-medium enterprises make up the remaining 25% of the industry.
International market
In terms of the international market environment, NZ’s food and beverage industry is facing rapid change with greater demand for products that foster wellbeing, meal solutions rather than just ingredients, and a greater emphasis on ethical and ecological standards.
Consumers and retailers have become more attuned to food safety issues, in terms of health concerns and food security, resulting in a convergence of food and health. Consumption patterns are also changing due to an ageing population in the West and an increasingly affluent Asia.
These changes are resulting in the acceleration of market segmentation as trade in processed products outstrips trade in bulk commodities.
In the UK, New Zealand’s fifth largest export market, environmental sustainability and ethical issues including fair trade, free-range and organic have gained increasing dominance on the public’s agenda.
This trend is also gaining momentum in some European markets and has the potential to extend to other parts of the globe.
Rising concerns over climate change have been linked to the food miles debate, which suggests the further a product has travelled the greater its environmental impact.
Retailers such as Tesco have announced that within the next five years labels on packaging will display a product’s carbon footprint. At present, this issue does not seem to have affected NZ’s trade with the UK. However, NZ exporters will need to carefully monitor and appropriately react to these important social issues and their potential impact on both trade and consumer purchasing decisions.
Opportunities
New Zealand has already established itself globally as environmentally conscious, particularly in food production, and its ability to effectively communicate this message and position to the international market will become increasingly important.
As a result of the global food industry consolidating into fewer and larger multinationals wielding the power of fewer and larger brands, NZ businesses will need to connect more effectively with global value chains in order to succeed in the international market.
In order to do this, the NZ food and beverage sector, which continues to be constrained by insufficient investment and expertise, requires more skilled workers and spending on research and development.
Food and Beverage Taskforce
In July this year, the NZ Government announced it’s response to the Food and Beverage Taskforce’s report Smart Food, Cool Beverage, which outlined the challenges and opportunities faced by the sector and the industry’s outlook, and committed to a work program of six key initiatives including $19 million for in-market assistance for the sector offshore.
The Government’s response also included improved infrastructure for new product development to help test and develop innovative food products, increasing the business capability of food and beverage exporters through an audit and mentoring program, and raising productivity and sustainability in pastoral industries.
Outlook
New Zealand Trade and Enterprise will continue its involvement in the food and beverage innovation process, both in terms of product development and in-market infrastructure development, fostering an even closer working relationship with industry, universities, crown research institutes and Technology NZ.
Raising the international profile of the sector is also a critical element that will underpin sector growth in selected markets.
Looking forward, New Zealand Trade and Enterprise will strive to protect and renew the core of the industry including agribusiness core competency, bio-security, food safety, market access, production efficiency gains, and improved productivity, while continuing to build the base.
Leone.Evans@nzte.govt.nz
www.nzte.govt.nz