Risky business
OPINION: In the same way that even a stopped clock is right twice a day, economists sometimes get it right.
He says the removal of quota regimes on EU farmers from April 1 is a highly disruptive event for the global premium food markets New Zealand supplies. New Zealand has had a very laissez faire approach to this issue over the years, he says.
“I have heard many comments about limited expectation of production growth and most of any increase being consumed within the European ‘domestic’ market. While these views may prove correct over time, they will only describe the average outcomes for the European industry.
“We miss opportunities and overlook risks by allowing our focus to be on the average outcome. We need to recognise that our production in New Zealand is not average, we produce a tiny percentage of the total food produced globally and our product is sold in the main to premium, high value markets.”
Proudfoot says the Europeans have invested large sums in market capability and increasing production capacity. He says using the term ‘average’ is naïve.
“We don’t play in an average market, we play in specific parts of the market. We are only a relatively small player in the total global picture and therefore the niches we play in are the same niches that the increases in production out of Europe are going to be sent to. We could end up finding ourselves challenged in our key markets far faster than we believed would happen.”
Proudfoot says a huge market will be unlocked in Asia, with India likely to be a big mover. He also notes that there are big plays in Africa which he says the Europeans are much more across than New Zealand. Proudfoot says more niches will open up but he says there will be strong competition from Europe.
“There are probably four countries most likely to realise potential quickly – Ireland, Denmark, Netherlands and France. Ireland has an unusually small farm structure and unusually long tenure on farms. In Ireland the one thing they won’t do is sell out to their neighbours because that is seen as admission of defeat. So consolidation of farms will take time, [as will getting] up to New Zealand’s level of productivity, but it is conceivable this could be done.
“The Dutch and Danish have much more intensive farm systems so for them to increase production is just a matter of how much feed they put into the animals, so it’s quite easy for them to scale up quite quickly.”
The other problem for New Zealand is its lack of any strong dairy brands, Proudfoot says. Some people hold up brands such as Anchor and Anlene as ‘blockbuster’ brands, but they are known in a handful of markets at best. New Zealand is not recognised globally as the home of dairy products as are France and the Netherlands. In fact, New Zealand has few high profile internationally recognised brands, he says.
“The All Blacks are a strong brand internationally, so is Air New Zealand, but we don’t have many primary sector brands that are globally recognised. Villa Maria may be heading in that direction but our best brand is Zespri.”
