News this week that the Fonterra estimated milk solids payout to farmers is looking to go stratospheric and pump billions of dollars into our economy.

There has been plenty of discussion about the downstream effects of this. Farmers are, as expected, downplaying the windfall and just talking about debt reduction, while others are talking of huge multiplier effects on our regional, and hence national, economy.

All this has got me thinking….. I’m one of the myriad of commentators who for years now has been pushing the necessity of building knowledge based businesses, adding value to raw products and joining the knowledge economy. The $8bill dairy windfall is all on the back of a pretty much non-value added commodity (OK I realise that Fonterra have done some good things in terms of diversification, global production expansion et al – but at essence it is still an unimproved product). Maybe our focus on the sexy industries missed the core issue.

Just perhaps the primary producers understood things that we hadn’t quite grasped;

  • NZ is seen as clean and green, so,
  • Our food products have an extra selling edge
  • We produce milk and meat pretty efficiently
  • While we have significant down steam risks in terms of water resource threats, our water situation is better than the majority of our dairying competitors
  • These are all significant differentiators

On the other hand lets look at other industries, design, IT, apparel etc etc

  • What unique selling proposition do we have that isn’t available in India, Turkey, China or the former Easter European countries?
  • What can we design or manufacture that cannot be done so elsewhere and closer to market?
  • How do we overcome the dichotomy of high labour rates, a regulated economy and increasing competition from low cost manufacturing and design locales?

None of this is meant to discount what our new-economy businesses are doing, but it does just go to show that those in Ivory boardrooms in Auckland and Wellington might just need to revisit their attitudes towards primary production.


Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • I think it’s a great inspiration for manufacturers in New Zealand. In regards to the apparel industry of NZ, which is in extreme decline, I believe there is room for a huge improvement. When you think that companies like American Apparel can make cheap, great quality clothing without outsourcing (paying double America’s minimum wage) , there is definitely room for such a manufacturer in NZ. Any specialised manufacturer needs to seriously weigh the costs of outsourcing, taking into the potential (usually disregarded) benefits on\f MADE IN NZ, and how undervalued those words truly are.

    – Cameron

  • Thanks for the comment Cameron – you are correct – in relation to the apparel thing – while we have no American Apparel here we do have some companies that act similarly. Check out Cactus Climbing, Chalky Digits and Earth Sea Sky among others

  • interesting points Ben, well, 8 billion is a lot of good points! but your point about the IT industry, and what are our differentiators? I guess the only way we can differentiate IT is to simply produce something ‘better’, or ‘different’ and then export it to the world, a la Xero.

    We have a big IT service industry here, but… but I dont think the IT services here are any different to those in Mumbai? I guess the only way we can really say IT/clothing etc is doing good is if we export it overseas. In IT, no one cares about Made in NZ, so the only way forward is to be the best!

  • Ben I’m glad you have challenged us with this question. But as we both know, commodity prices go in cycles and it ain’t smart to have an economy that is overly reliant on just milk for income?

    What concerns me is that the dairy boom will demotivate policy makers (and thought leaders) from pressing ahead with initiatives that encourage innovation and economic diversification.

    The other point is that technology innovation can also be applied to add value in the primary sector, so there are benefits in growing the high technology sector. Yes, we could simply settle for being the udder hanging off the underside of the globe but is that actually going to raise our per capita incomes? I doubt it.

  • I think Value add is critical, if yoiu look at the profit not much of it came from Exporting the raw material (milk). Fonterra actually does something with it and IT plays quite a large role in that in terms of planning, shipping management etc…

    I personally think NZ is trying to run before we can walk. We should look long and hard at why we ship logs and sheep carcasses overseas before actually adding any value to it. If we had a robust manafuacturing sector that was supported by a government who appreciated the value they bring then our economy then has a foundation to move into the knowledge economy.. take japan as model, 15 years post WWii to completely rebuild their economy based on manufacturing (they revolutionised car production for instance)… Germany the same…. something in that

  • The other big issue with commodities is trade barriers. My understanding is that the reason for log shipments to Japan rather than furniture for example is precisiely this.

    Also the food miles argument – while it doesn’t quite stack up when the full product life cycle is taken into account. See wider debate and link to NZ pdf in this piece referred to below.

    My recent exploration of Energy futures (4 posts) has shown that we have in NZ the means to get to to 100% sustainability for say electricity and that is soemthing that very few countries can achieve. That is a competiotove advantage we should do something with. (And more aluminium smelting is not the answer! there)

    Regardless of food miles argument which will get some traction even though it doesn’t really figure – we wil be impacted by higher energy prices for transport with levels of $100/bbl and mayber even $200 or $300 not that far off (10 years?)

    I export highly differentiated value services to Australia on a regular basis and while it is small I think having access to a population of 24m or so is much better than having to be too horizontal with the smaller pop base here.

    I think we need far better broadband and that would become part of our advantage. We also need to look at locating some of the worlds server farms here even on a virtual basis to take advantage of renewable electricity but can’t really do that because of bandwidth limitations. (I don’t think earthquakes are as impot as electricity failure in this instance.)

    Knowledge based is still a good plan. BTW that whole confererence was a National party beat up at the time. Many people were locked out of the debate and they didn’t even have online access available. Not to dismiss it but I live in Auckland and it was really just a PR job designed to put pressure on the government.

  • Make hay while the sun shines.
    It is good news for farmers and the down stream etc. But I think the wave of ‘ha ha told you so’ comment that has been circulating misses the point.

    New Zealand’s primary production is valuable but also vulnerable.

    An outbreak of foot and mouth disease would have a devastating and lasting effect on exports and the wider economy. The hoax threatened release of the virus on Waiheke Island pointed to just how exposed we would have been had it been real – the damage would have been in the tens of billions.

    With sustainability and carbon footprints at front of mind for most of the developed world (i.e. our markets) our distance from market may, yet again, be tyrannical. In spite of the logical argument that most of our exports are literally shipped that will make no difference to consumers who are increasingly concerned with ‘doing the right thing’. It won’t matter that factory farming in Europe and the UK may well be appallingly bad for the environment – let alone the animals – perception is everything. Farmers in the those markets will be releasing meme’s for all they are worth. Propaganda and spin might well win where tariffs and protectionism have failed.

    The facts of New Zealand’s farming practices are also in opposition to our ‘clean, green’ proposition. The rolling green hills of New Zealand farmland (with more being created to profit from the milk solid bonanza) were once native forests. Nitrogen floods into our waterways and erosion is a major problem in many areas. Our myths could easily be punctured and exposed.

    I have always argued that the issue is and/and, rather than either/or.

    One of the issues surrounding the ‘knowledge’ economy is that it has been biased towards the provision of services rather than developing intellectual property that can be exported profitably and cheaply (what does a gigabyte weigh?). Profits from licences, royalties and residuals are the ultimate in sustainability. A kilo of mik solid can only be sold once.

    It is little wonder that companies like Google, YouTube and MySpace have such stratospheric valuations – they consume few resources and cost virtually nothing to distribute. There is no reason why New Zealanders couldn’t have developed any of those ideas.

    The current bonanza may bring with it the dark spectre of complacency. Why invest in education, for example, if the ‘traditional’ capabilities are all we need?

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